Scott Johnson, VP, Product Development, Western Union Business Solutions
When we reflect on 2021, we see another year of highs and lows across businesses, industries and communities. Whilst we hoped it would be year of post-pandemic recovery, it seems this is yet to come. The tech financial services sector was certainly no stranger to success with it being a record year for digital transformation. And yet we have also fallen short in some areas including crypto and 5G.
In 2022, we can be hopeful that we will begin to see more solid economic recovery. This will usher in further tech innovations, exciting growth opportunities for challenger brands and a continued focus on creating an improved experience for the increasingly demanding customer of 2022.
Crypto is still considered digital gold
The cryptocurrency market is evolving and diverging at an incredible rate and this will continue in 2022. Volatile assets that were once considered challengers are now becoming investment opportunities as they are just too volatile for anything else – and this unpredictability will be a key theme in 2022.
One particular area to watch will be the stable coin and digital currencies space. There are still big questions around interoperability and the potential for stable coin and CBDCs to iron out inefficiencies in crucial areas, and these questions are likely to remain unanswered in 2022. Making money digital is going to create real value for stakeholders and the customers of these businesses so we can expect to see a continued focus here, but key players will remain cautious and the lack of consistency in approach will remain an issue – some are investing in creating wallets for consumers, whilst others are exploring creating efficiencies for inter-bank settlement, for example.
Right now, the crypto market can be equated to a hammer in search for a nail. Cryptocurrency in its current state is not a suitable payment instrument. Put simply, most crypto is digital gold rather than digital dollars. Whilst central bank-issued digital currency holds promise, 2022 will not be the year where CBDCs become widely adopted. The central banks still need more reassurance and confidence before they will roll them out to the mass market. We are decades away from this becoming a reality globally, and for this to happen first, we need facilitators that are willing to enable these transactions.
Cross-border payments in hyper-focus
The evolution of the digital payments industry was inevitable, but the pandemic certainly accelerated its significant progress. Yet only when Request To Pay (RTP) becomes more mature – and it becomes feasible to request payment through RTP services – will the digital payment evolution truly come into its own.
This year the combination of RTP plus the rich messaging capabilities of ISO 20022 is set to provide an opportunity for digitization of receivables that will truly accelerate digital transformation. As a direct result of these innovations, we will see numerous processes within the FS sector become fully automated and greater efficiency for customers.
2022 holds the promise of making all payments as easy as the click of a button. For domestic payments, we are already there. But for cross-border payments, this will, and should, remain a two-click process. Thanks to RTP networks between major payments providers, cross-border payments for customers will become easier but due to their complex nature it would be unethical and a disservice for it to be any less than a two-click process: given the volatility of FX rates, it’s important for customers to have a chance to review costs before committing to a transaction. From next year, we can expect to see many facilitators stepping up and turning this into a more understandable and consultative process – an improved experience for all.
Will David acquire Goliath?
This year will enable some big moves in the FX M&A space. We can expect to see further consolidation of more established first- and second-, generation challenger brands, but by no means is the FinTech space drying up. We’re rapidly heading into FinTech 3.0 – a continually regenerating industry where the desire and drive to solve new problems remains strong.
The financial services sector has often been described as a ‘David and Goliath’ industry. There is a growing, healthy mix of established traditional banking giants and the more agile, innovative challenger brands that customers are becoming increasingly comfortable with when it comes to investing their money. In 2022 though, all eyes will be on moves of the small handful of midsize profitable companies, and we can expect this mid-market space to grow. Players within this space are uniquely positioned because, despite not being ‘Goliaths’, their operating profit means they can invest, manage a stable cashflow and have the profitability to be able to react to pricing compressions as needed. But, unlike small start-ups, they don’t need additional funding to grow and there is no need to dilute equity.
As the mid-market space grows next year, we can expect to see some notable fintech investments and M&As. Some challengers will fail, for sure, yet others will become trailblazers for the industry. It is this evolution that will keep the market agile, exciting and thriving in the months to come.
