By Dima Kats, Clear Junction

Even after nearly two years of on-and-off lockdowns, businesses are still learning how to deal with the effects of the pandemic most effectively. Fortunately, in 2022, there is a less uncertainty regarding how events in the future might unravel compared to the start of the 2020-2021 lockdowns – when businesses were having to adapt to the fluctuating rules.

The coronavirus pandemic, which stopped the world in its tracks, may have had some silver lining for the payment industry. By becoming a cornerstone of the global economy, payments can catalyse economic growth, innovation and inclusion. Financial Institutions will now need to define what their role will be in this evolution. The pandemic provided a powerful incentive to create a more globalised payment network because of the inability to physically travel, which quickly and directly affected the world of finance and payments.

Financial institutions will need to turn to fintechs and new technologies to stay relevant and focus on the best way to improve the customer experience and contribute to a bigger societal purpose.

Fintech at the forefront of innovation

There has been a vast increase in demand for skilled industry workers since the start of the pandemic, and the effects of that demand will still affect the market in 2022. A significant contributing factor to this is that people have been retraining for new jobs throughout the pandemic, creating a more mobile workforce.

As a result of that more adept workforce, businesses will be able to offer improved services, and there will be heightened activity in the fintech sector to match the higher demand and supply of trained fintech professionals.

In 2021, the amount of venture capital available in the market increased markedly– as more than $288 billion was invested worldwide in the first half of 2021, up from just under $110 billion when compared to the second half of 2020, and the results of that additional cash flow are that businesses will be able to invest in their labour force, creating job vacancies to be filled, and improved products and services offered.

Because of the increase in proficient workers and available money, we expect that banks are going to invest heavily in tech, talent and fintech in 2022.

Digital payments and digital wallets 

E-wallets are easy to use, safe and have become an extension of our lives in 2021. According to a FIS report, the use of e-wallets grew globally by 7% in 2020, and it is predicted that they will account for more than half of all e-commerce payments worldwide by 2024.

In fact, recent PwC research found that 86% of respondents agreed with the prediction that traditional payments providers will collaborate with fintech and technology providers for innovation. 45% said that there will be increased investment in mobile technology beyond retail payments to support business-to-business (B2B) payments and the digitalisation of supply chains.

They are equipped with easy registration and login, robust merchant and consumer payment processing capability, and a user-friendly dashboard. As consumers shift from card-based to account- and QR code-based transactions, they are on their way to becoming the most popular mode of payment in 2022.

Cross-border payments. 

In 2022, the cross-border payments sector is predicted to reach over $156 trillion thanks to three key trends. The first trend is the increase in trade with emerging markets. As the share of international transactions involving emerging markets grows, cross-border payment solution providers are targeting their efforts on capturing these markets in particular. Growth in emerging markets is expected to be at around 11% per year, while the overall growth of cross-border trade is estimated at just 5% per year.

The second trend is the changing consumer demands. Customers are now expecting banking services to be simpler, faster and more cost-efficient. Service providers that can offer the customer a faster, cheaper and more transparent experience, are likely to gain a competitive advantage over banks.

The final trend is that ownership of mobile phones and thus the ability to complete e-payments has also increased. The percentage of mobile phones ownership among adults in emerging countries is at 83%, compared with just 62% in 2014. This figure is expected to increase and thus accelerate the growth of cross-border trade.

A barrier to completing cross-border payments in the past has been just how prolonged the processes involved can take. While consumer cross-border transactions can take seconds, B2Bcross-border payments can take multiple days to complete. This process can cost businesses a significant amount of money, due to fees, interest and administration costs.

Real-time payments (RTP) are transactions that allow businesses to send and receive payments almost instantly. This has many desirable effects, such as smoother cash flow and more accurate data management, but utilisation of this system is still low, with 73% of organisations saying that they do not use RTP at all. However, as companies find out about RTP, the benefits become obvious, as 76% of organisations believe that RTP will provide them with a competitive advantage. This lack of awareness is one reason for the low adoption of RTP, but as it becomes more widely known, expect businesses to quickly embrace it.

As more domestic businesses adopt RTP solutions, we can also expect cross-border payments to rise, as they extend that capability internationally.

The need for fintech partnerships 

As the industry expands and becomes more diversified, there will be an additional need for partnerships and collaboration to take advantage of the new opportunities that arise.

One direction we’ll be seeing them in will be in the form of open banking. Traditional firms are beginning to see open banking as something handier due to the opportunities that partnerships can trigger. The rise of partnerships within the finance sector was already taking place long before the pandemic as well. Currently, over 30 partner banks represent hundreds of fintech relationships and financial services. We think firms who adopt open banking early and manage to secure partnerships will see themselves realising big financial gains.

2022 will likely be the year that open finance starts reshaping financial services, and the year that banks wise up to the opportunities that open finance represents. With regulators in the EU and UK proposing measures to widen data sharing principles across a broader set of financial products, 2022 will see numerous banks experimenting and evolving their business models toward a model that accounts for freer flowing data.