Some year end, Sunday thoughts.... purely my narrative, of course... 

2022 promises to be an exciting and deeply unpredictable year for the European financial sector. SEPA urgently needs to turn ambition into more results next year, while the meteoric rise of crypto and Buy Now Pay Later (PNPL) will continue to cause headaches for law makers and regulators alike. On top of this, there are new EU whistleblowing regulations coming into force which have the potential to be a pandora’s box for European fintech. I am concerned that there could be a tidal wave of fraud stories similar to the 2020 Wirecard scandal in 2022, although this is an absolute worst-case scenario.

The last 24 months have proved the folly of making predictions, but it’s still important to look ahead to the trends we expect, want or fear may come to fruition over the next 12 months. Based on my 20+ years experience in the fintech/payments sector, here are the top six I’ll be tracking in 2022.

 1.      SEPA finally delivers results

I’m extremely excited about the long-term prospects of SEPA and its various new schemes and payment flows. 2022 promises to be a vital year in its development, and will tell us a lot about its long-term prospects.

SEPA is a rock-solid foundation for a European payment strategy, which has ambitions to unite the payment systems, cultures and regulations of an extremely complex and diverse continent. Bringing all this together for faster, more secure payments across Europe is no easy feat, but it will ultimately provide a better user experience as well as many unique business opportunities.

SEPA is a very ambitious project, but they are yet to turn this ambition into results.

Right now, there is not enough of a commercial spin on most of the promising initiatives like SEPA instant Credit Transfers or SEPA mobile. In 2022, SEPA needs to see a big shift in market adoption, and for key stakeholders to push customers to adopt SEPA services. If not, it could be slowly fading by 2023.   

 2.      The year of fintech whistleblowing

Make no mistake, the EU Whistleblowing Directive deadline represents a day of reckoning for the financial services sector. There is scarcely time to prepare for an almighty compliance challenge and existential threat to businesses that have sailed too close to the wind for years. From December, employees, customers, and suppliers will be emboldened and legally protected to speak out. Any activity that hints at money laundering, fraud and non-compliance will be reported at a record rate. This is especially pertinent for young fintechs across Europe with big risk appetites, whose whole business model revolves around prioritising market share over regulatory compliance. 

The directive is on a par with the GDPR in terms of the threat it poses to businesses and the benefits it brings to citizens, yet it has received a fraction of the GDPR’s attention and business preparations. One area to monitor will be where traditional finance and cowboy fintech companies intersect. In the face of greater risk and big fines, large retail banks will surely review the less savoury businesses and FS partners in their portfolio, especially in relation to agency banking

3.   Card based payments fading

During 2022, card-based (direct) payments will continue losing relevance. Given everything that can be done on a smartphone, carrying little pieces of plastic that do pretty much the exact same thing is starting to seem anachronistic. In the same way that smartphones signalled the death nell for cameras, dictaphones and landlines, the end of card payments is coming into view.  

Open banking has facilitated direct account-to-account transactions without ever entering card details, while people are also starting to get used to other form factors beyond mobile such as voice and QR payments.  A card is just a proxy for an underlying account. It is not the valuable asset. The payment information that exists on cards today doesn’t need to be there alone, and this has only been the case because plastic is fantastic… at maintaining the status quo and making more money. Anyone remember “metal cards”?

It’s not only consumers who will use cards online less and less. Retailers and payments companies are in the same exact situation. New payment schemes do not require the old card scheme rails, and businesses that operate outside of plastic prison will have greater opportunities in the next ten years. It’s a major source of frustration that card scheme rules are so opaque. It’s incredibly difficult for payment companies to stay within compliance if they focus on card, as it’s increasingly difficult to align new market opportunities with card scheme rules. Visa and Mastercard have assembled too much power over all these many years.

I also see cards slowly declining because they are still staggeringly open to fraud. It’s always been their biggest weak point for the last 50 years, but until now payments businesses and retailers didn’t have realistic alternatives. Now, other forms of payment can add far more robust customer authentication controls, because they were designed and considered for this century.

 4.  Embedded finance tries to simplify

I believe that the finance industry has struggled to get to grips with the notion of embedded finance since it was first coined. It’s not about complexity or turnkey providers stacking as many financial solutions as possible. From 2022 onwards, I expect this to be rectified and for embedded finance to be more aligned with simplicity.

Embedded finance should be 100% customer-centric. It’s cliched to say now, but Uber is still the ultimate user experience. People pay without ever touching their wallet, their phone or entering any payment details (besides that one-time registration, of course). Other industries have struggled to recreate this customer journey due to strong customer authentication rules, but Uber showed everyone how to do it the right way. Payments can be seamless and functional, and the important thing is not the integrations, the widgets and building blocks. True embedded finance means never seeing behind the curtain.

Businesses that deliver embedded finance and offer this experience will be the most successful organisations not just in 2022, but the entire decade ahead.

 5.      Regulators tackle BNPL dangers  

Buy Now Pay Later is an incredibly dangerous payment trend. It’s uncontrolled madness that creates very unhealthy customer behaviour and drives people into financial distress. I think it is irresponsible with regards to financial education of teenagers and young adults, who are increasingly told they can buy things that they cannot really afford. I expect to see these products continue to grow massively in the first half of 2022, but I wouldn’t be surprised to see them disarmed in H2 – similar to how payday loan companies like Wonga became the subject of extreme scrutiny after initial success.

The simple fact is that we cannot treat credit as a payment service. BNPL brands are lending products and should be regulated as lending products. I accept merchants extending credit to their customers based on hard facts, but not payment products doing so regardless of who a customer is and what they are buying.

 6.      Cryptocurrencies, NFTs, CBDCs, DeFi will all grow

Crypto will be fundamental to creating value dynamics within certain eco-systems like gaming, the Metaverse, social communities or marketplaces. Looking back 15 years we had Linden-Dollars in Second Life or “gold” in countless MMOPRGs. Today the closed-loop, mono-ecosystem currency can be replaced by DeFi and interoperable/exchangeable tokens that carry value and represent a customer’s activity, success and engagement within certain eco-systems. Crypto is coming in as a placeholder for loyalty points, with a greater value due to its interconnectedness and ability to use across different ecosystems. A complementary currency people can earn, take with them and use across many (and growing number) of online eco-systems.

NFT in gaming will be one to watch in 2022. There are massive business opportunities for both real-money and video gaming, as well a cross-over form being created by the use of NFTs. Play-to-earn models will be an important topic for regulators, innovators, consumer protection groups and lawyers.

2022 will see a substantial increase in government-backed initiatives in the DeFI, CBDC, DL-Tech space. We are starting to see the introduction of Government-issued crypto currency (CBDCs), including the digital EURO or the announcement by India to issue the only locally permitted crypto currency, similar to the e-Yuan.

No doubt 2022 will have its surprises. Not every prediction I’ve made will play out as I’ve written above, but I do expect the fintech industry to change and progress radically over the next 12 months.