Financial Service Trends for Digital in 2022

By Ian MacArthur, CEO, Sagittarius

Over the last two years, trends within the financial services industry (FSI) have irrefutably been shaped by a post-pandemic world. Now, as we emerge from another year of uncertainty and constantly changing restrictions, priorities have shifted yet again. With more players than ever in the financial sector and a newfound focus on sustainability, 2022 is primed for major innovation within the industry.

If 2020 saw FSI businesses rushing to roll out digital transformations in an effort to meet increased consumer demand, 2021 saw companies refining strategies through customer-first digital experiences, harnessing the capabilities of AI and expanding platform offerings.

As a heavily regulated sector, conservatism and aversion to change often stifle the potential for innovation within FSI, however, COVID-19 accelerated this shift from physical to digital. Financial businesses therefore have no choice but to adapt in line with consumer expectations, with 58% of customers favouring digital channels for financial service delivery.

Companies are not blind to the value of this, with a Deloitte report revealing that 38% of respondents from digitally advanced firms expected better revenue prospects in 2022, compared to just 13% for less advanced firms. Clearly, for both business and consumers alike, it pays to be digitally shrewd.

As we step further into 2022, here we examine the five key digital trends that will shape the financial sector as the year draws on:

1. Banks will take on more social and environmental responsibility

For 2022, sustainability is at the forefront of the global agenda. With the recent shift in public consciousness towards climate change and ESG initiatives, it’s become increasingly important to consumers to support companies that they deem to be taking a proactive approach to combating environmental and societal issues.

From expanding ESG investment options to creating new C-suite roles such as ‘Head of Sustainability,’ financial businesses need to communicate a sense of purpose that stretches beyond simply profiting shareholders. With its unrivalled influence over wider society, FSI has a key role to play in shaping the future by committing to positive missions and tangible targets. Take HSBC and Santander for example, who have both pledged net zero emissions by 2050.

Equally, in 2020 ESG funds accounted for $51.1 billion of net new money from investors, a record and more than double the prior year. ESG stands for ‘Environmental, Social, and Governance’, with these types of funds focusing on companies that positively contribute to a more sustainable future, be it through mitigating climate change or inequality.

Besides simply appealing to consumers’ morality, however, ESG businesses are seeing considerable growth, with the International Energy Agency (IEA) predicting that renewable energy sources will account for almost 95% of the increase in global power capacity through 2026. Consequently, in addition to such product offerings demonstrating more environmental consciousness, these funds are clearly also very lucrative opportunities for investors.

This year, sustainability within banking will become less of a trend and more of an established expectation from consumers. More banks will realign their focus to convey their sense of purpose in line with these new principles and strive to identify fresh ways to leverage their services and assets in order to effectively contribute towards sustainability.

1. Businesses will finetune digital strategies using AI

AI has countless applications in FSI, from securing and facilitating transactions to data regulation and bias management. In recent years, however, the focus of AI has been to optimise customer experience through human-like, troubleshooting chatbots and gathering more accurate real-time data to allow for seamless user experiences. Indeed, Juniper Research estimates that mobile banking chatbots will account for 79% of successful chatbot interactions in 2023.

Yet, beyond this increasing focus on providing valuable interactions for customers, in 2022 we’re seeing this focus shift towards harnessing the capabilities of AI to defend against cyber attacks. The unavoidable move towards digital banking and contactless payments introduces far greater potential for fraud, meaning more businesses than ever will need to use artificial intelligence in order to assist with compliance. AI, therefore, presents the opportunity to mitigate threats such as card payments and identity theft, with this information being more integral than ever before.

Speaking on its potential, Jane Loginova, CEO and co-founder of Radar Payments explained that she believes financial services will continue to invest in AI security platforms that “can significantly reduce digital attacks and spot suspicious activity in real-time.”

1. Banking platform offerings will expand

There are more players in the financial space than ever before, with a rising number of non-banks cutting into market share by incorporating financial products into their digital offering. Because of the typically longer transfer process and sticking points that exist within banking apps, consumers are increasingly turning to third-party payment providers like PayPal when purchasing online. In addition to the greater convenience they offer, solutions such as this also serve to add an extra layer of security to transactions.

This is no new concept, particularly in China where third-party online payments like Alipay accounted for 39.7% of online purchases in 2014, versus online banking transactions at 34.4%. Today, this number will have increased exponentially. In 2020 alone over 15 billion transactions were carried out on PayPal globally, generating $936 billion in transactions.

However, there is still much untapped potential in the sector. In fact, finance expert Simon Torrance estimates there to be a $3.6 trillion market opportunity for embedded finance, with this set to reach $7.2 trillion by 2030. Such platforms replace traditional distribution channels to facilitate simpler transactions between service providers and consumers, yet if banks are able to take learnings from this and offer their own seamless experiences, consumers have no direct need to refer to third-party alternatives.

Though banking as a service (BaaS) and embedded financial services are fundamentally different concepts, there is much opportunity for banks to address these pain points themselves. Chirag Shah summarises this potential, explaining that ‘By bundling white-labelled services that non-banks can give to their customers, banks will be able to build new relationships and discover new areas of growth’. In the coming years, we will therefore likely see banking platforms and their offering expand considerably, or at least develop in partnership with third-party payment providers in order to unlock new opportunities and bolster revenue.

1. Customer data platforms (CDPs) will help FSI businesses contend with competitors

Recent years have seen the capabilities of CDPs develop extensively, with real-time data collection being more advanced than ever, as well as more accurate profile unification and segmentation. With consumers expecting seamless experiences as a standard across platforms, CDPs are a valuable tool in helping to deliver this within FSI. Data-driven insights allow for more personalised interactions and in turn better conversions, with CDPs enabling businesses to predict customer behaviour and tailor their targeting to this. Beyond this, however, CDPs are proving integral in helping financial services better manage their data governance.

Still, this success relies heavily on the data that businesses choose to collect through CDPs and ensuring that they effectively amalgamate this information into useful insights. Rather than creating platforms designed with particular needs in mind, these platforms will need to learn to adapt to customer demands and be ever-evolving.

Currently, just 31% of FSI businesses have centralised customer data across digital and offline touchpoints. Yet, with the potential that CDPs present for financial services to optimise customer experience, 2022 will undoubtedly see more businesses turn to CDP implementation to help them better contend with their fintech rivals.

1. Companies will double down on creating customer-centric experiences

Post-pandemic, brands scrambled to optimise their digital platforms in an effort to not get left behind. It’s little wonder then, that many recent innovations in FSI have centred around providing better, more consistent experiences for customers.

Even with this recent push, FSI businesses have a relatively limited offering when it comes to personalisation, particularly when compared against other industries. Besides fairly superficial layers of personalisation such as swapping in a user’s name, the reality is that most customer journeys in finance are not particularly targeted. There is therefore a much potential to develop this beyond relatively top-level approaches, with CGI finding that 79% do not mind banks using data to offer improved products, services and advice.

As FSI companies continue to improve their data collection around user journeys through CDPs, we expect this to see this translate into more optimised experiences for each customer, all of which place the consumer at the heart of the experience. Gradually, we expect to see every step of the user journey tailored around a user’s past interactions and specific needs, as has become the norm in other sectors.

This renewed focus on customer-first experiences will in turn see financial platforms become more inclusive and accessible as businesses explore the full potential for personalisation. As well as driving better engagement for FSI businesses themselves, customers will likewise benefit from far more unique experiences that are seamlessly integrated across platforms.

While the pandemic has brought with it much volatility, it has also served to usher in a new era of innovation within FSI. Advancing digital strategies that put customers first and adapting in harmony with shifting consumer expectations is central to this new offering, with 2022 set to drive this transformation forward further with a particular focus on building towards a more sustainable future.