M&As, Open Banking and the War on Talent: What will Fintech look like in 2022?

A year on from our last set of predictions, the world has changed a lot. So what are our fintech predictions for 2022? Here’s what we think will happen.

Luc Gueriane, Moorwand CCO

What will Fintech will Look Like in 2022

In our 2021 fintech predictions, we said that Open Banking would finally start fulfilling its promise, that the world would go contactless and that with the travel industry on ice, fintechs would diversify away from travel as a revenue source. 

One year later, the number of Open Banking UK users increased from two to four million, contactless payments make up over half of all credit and debit card transactions in the UK (and the limit increased to £100), and we have seen more and more fintech companies setting up new revenue sources (although maybe not in the way we thought). Not bad for our first set of predictions.

So what fintech predictions do we have for 2022? Here’s what we think will happen next year.

More mergers and acquisitions (M&A)

The year 2021 has been dominated by some headline mergers and acquisitions. We’ve seen Rooster Money get acquired by Natwest, Klarna on an acquiring spree in the US, Italy and the UK, while Afterpay and Paidy were acquired by Square and Paypal respectively.

Why is this happening? More banks and financial institutions are researching diversification opportunities and are choosing to buy companies rather than develop the product themselves. 

When asked about the future of growth and acquisition strategies for Mastercard at a conference, Scott Abrahams, SVP Business Development and Fintech said: “whether we intend to buy, invest or partner, all of our future relationships will work to benefit our businesses in the wider ecosystem”.

Mastercard is a great example of a large business exploring different areas and buying a number of businesses rather than developing themselves. Abrahams also suggested that M&A could be the perfect exit for many fintechs in the future — a sentiment we believe sets the tone for fintech M&As in 2022.

We predict we’ll see even more M&As happening in 2022 as fintech companies and institutions realise that buying is often faster and easier than developing a product themselves.

Increased adoption of Open Banking

Yes, another year where we predict that Open Banking is becoming more mainstream!

Although adoption is taking time, we are confident we’ll only see more people use Open Banking technologies both in the UK and throughout the world in 2022.

There is no denying that it will take consumers a while to get used to Open Banking and to start using it regularly as a payment method. But adoption is on the incline: Open Banking providers have become more established over the last year or so, and more consumers are using it every day. 

We predict that we’ll see a displacement in acquiring methods in 2022, where acquirers (those managing the checkout page) will start prioritising Open Banking options. Although this will help increase customer adoption, we do believe customers still need some sort of incentive to switch away from debit or credit cards.

Open Banking enabled payment methods are still a little clunky and confusing for consumers, so merchants and acquirers will need to work hard on making Open Banking an embedded part of the customer journey.

More partnerships with specialists

In a report we launched earlier this year, we interviewed 75 senior decision makers at fintech firms across several European countries to understand why and how fintechs outsource. We discovered that more fintech companies are working with specialist providers to support their wider objectives, and that this will likely become more commonplace as time goes on.

As younger firms launch into adjacent markets and mature companies target SME or corporate segments, 75% of them that are changing partners will decide to work with a specialist. 

Why is this happening? Mature fintech companies understand the importance of working with partners that have expertise in the industry — especially for issues like compliance and regulation, where outsourcing to experts is a lot more cost effective. 

Based on our research, established fintechs outsource a lot more than younger ones. For example, with loyalty and reward programmes, 67% of established firms outsource, whereas only half of younger fintechs do. Those that partner with specialists also report £1m more in annual revenue, which is encouraging to see as we continue to develop out our ecosystem of specialist partners for our clients.

We predict more fintech companies will partner with specialists to help them manage areas such as regulation and compliance as they scale. 

Increased regulation and war on talent

On the topic of regulation, managing compliance in 2022 won’t get any easier. With more fintech companies releasing new features and entering new markets, we can expect regulations to get tighter.

Fintech is a rapidly moving market, and companies are constantly testing out new use cases — often which the regulator won’t have anticipated when writing up the legislation. This results in a lack of clarity in certain situations and can stifle growth for fintech companies that want to be innovative. In areas like crypto, for example, the regulator has been slow to keep up and most regulatory bodies around the world are unsure of how to set the rules.

As regulatory requirements become more stringent, fintech companies will have to allocate more resources to keeping up with compliance, with the increasing cost per customer difficult to justify for some. Those that don’t prioritise compliance and regulation will have a tough time competing. 

This is where the issues with hiring and the war on talent comes in: 2022 is a candidate’s market, with fintech companies already struggling to hire and retain key talent. As fintech companies start to prioritise technological enhancements, and legal and regulatory expertise, there will be an increasingly competitive war on talent. 

Finch Capital predicts fintech companies will need to offer salary increases to hire the right people, which is why we predict the lack of talent could result in fintech companies struggling to grow. 

The fintech industry is growing at breathtaking rates, with companies pushing the boundaries in regulation, product and customer experience. As more fintech companies mature, we’ll see more of them outsourcing to specialists and competing over talent. With more M&As coming up this year and Open Banking playing a larger role in payment methods, fintech will be setting new heights in 2022.

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