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Three waves of Fintech disruption: Leading trends for the year ahead

By Stuart Barclay, Head of Growth, Financial Services at Trustly 

Over the past few years, the financial sector has been facing a wave of disruption from fintechs providing a range of alternatives to traditional products and services. But, traditional financial institutions have also started to realise the potential these technologies and innovations have to disrupt the space, particularly in the wake of the COVID-19 pandemic. For example, the latest data from KPMG found that global fintech investments during the first half of 2021 reached a record $98bn up from $87.1bn in the same period in 2020. This sustained and accelerated growth during the pandemic has shown the sector to be agile and resilient.

Now, globally, with the shift to online here to stay, the fintech sector has the potential to accelerate growth even further. To do so, these organisations will need to keep pace with the competition aligning to the following trends we anticipate to see in the new year.

Prediction One: Open banking will enable merchants to support customers, globally

Global Open banking payments are expected to be valued at $116 billion by 2026. Open Banking is growing exponentially in Europe and the US and it’s set to explode even further over the coming 12 months. The key to this growth is how certain providers have transformed open banking into a complete payments solution — one that is able to provide, among other things, high coverage, seamless reconciliation, instant payments and instant refunds.

It is essential these features are able to be delivered cross-border. Cross-border ecommerce is exploding. It accounts for 26% of all European ecommerce and in 2021 payment value reached  €220bn, a 50% increase on 2020. Despite this, merchants often experience slow settlement and high costs.

Providers able to deliver Open Banking as a complete payment solution will drive this growth and enable merchants to shift to payment methods that offer a compelling alternative to cards, and deliver meaningful benefits to their consumers.

Merchants are starting to realise the largely under-reported benefits of this transformation to their business model. Providing consumers with a seamless, instant way to pay will increase customer acquisition and lifetime value. For example, 56% of European investment customers would add more funds to their account if funds were credited instantly and 58% would add more if they could withdraw funds instantly. Moreover, these revenue driving benefits can be achieved with lower direct and indirect costs versus card.

Through open banking, merchants are able to support a better customer experience globally, which supports them in building brand trust and loyalty. Customers want the reassurance that their funds are safe, not at risk of fraud, and that they can get immediate refunds.

Prediction Two: The demand for alternative payment methods will rise 

One major result of the pandemic is the accelerated move to a more digital economy. The call to reduce physical contact included avoiding cash-in-hand and acted as a catalyst for digitising economies around the world. In fact, by 2023, Sweden aims to become the first digitised economy, with only 9% of Swedes stating that they prefer physical cash payments. The UK is rapidly following suit and according to Merchant Machine, could be fully cashless as early as 2026.

As consumers increasingly embrace this digital economy and shift to online payments, we’re going to see an increasing demand for alternative payment methods (APMs) which are optimised for the online world, unlike the card, which was designed for use offline.

A great example of this opportunity for APMs is Amazon, which recently reported that it no longer intends to accept Visa credit card payments, owing to the rising costs of transactions relative to the value provided. Consequently, the APMs that flourish will be those that can deliver instant security, immediate payment transfers and instant refunds.

We’re seeing consumers increasingly demanding financial services that can provide the immediacy that physical cash transactions once did. In a recent e-commerce survey conducted by Trustly, 65% of consumers stated that the speed and ease of refunds determines where they shop, whilst 95% stated same-day refunds would determine their loyalty to a merchant. It’s clear that there’s a real demand for the replication of the physical transfer of payments in the digital world, and the ease of digital, in the physical world.

Prediction Three: Conscious consumerism will influence fintech organisations offerings 

Conscious consumerism has been a major by-product of the shift towards sustainable shopping in 2021 and is projected to define shopping habits in 2022, particularly amongst millennials and Gen Z. Conscious consumerism is not a passing fad, rather it is the “new normal” in sustainable shopping. Consumers are increasingly willing to invest their money and loyalty into brands that are invoking positive, societal change. Millennials and Gen Z typically research whether the goods and services they consume align with their ethics and passion for sustainable development.

But, consumers also expect to be able to make sustainable payment decisions. We’ve seen the rise in buy-now-pay-later (BNPL) services with PayPal reporting that volumes surged 400% alone on Black Friday. Yet, there are real concerns that the boom in this payment method will see consumers taking on increased personal debt, without even realising it.

As greater awareness around the challenges associated with BNPL services increases — from increased personal debt, to the challenges associated with limited regulation — we’re going to see greater demand from consumers for the ability to pay with the money that they actually have. For example, according to our research, some 71% of consumers prefer to pay with debit and are searching for alternative, debit-based payment methods.

Consumers are demanding more. They want fast, secure and seamless experiences however they interact with a merchant. As such, ‘fintech’ should no longer be thought of as a standalone sector but as an embedded and essential part of how businesses can deliver the experiences consumers want. For example, replicating the demand for the speed of the physical transfer of payments in the digital world, and the ease of digital payments in the physical world. Merchants and ‘fintechs’ able to work together to deliver the best possible consumer experiences will be the ones that flourish in 2022.

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