The FinTech ecosystem was one of the most dynamic in the global economy during 2021. The numbers don’t lie: a large percentage of companies that exist today were created during the pandemic, according to several recent studies. Research also shows that FinTech companies employ millions of people and that as time goes on, this number will grow even more. However, the power of the FinTech world is still in its infancy and there is still a long way to go. As 2022 draws ever closer, Jason Simon, an expert in FinTechs and eCommerce, explains in detail what trends can be expected in this sector.
The effect of the pandemic was significant (2021 shows a 340% growth in the use of virtual wallets in relation to the same period in 2020, according to the latest Link Network’s Electronic Money Usage report); this growth was vegetative. That is, it grew from an obligation and is not disruptive; there is no specific product behind it that has leveraged this rise.
“We can define FinTech as the business model that mixes the concepts of finance and technology. However, there are two trends that are going to consolidate in the market; extra-bank products and the increase in digitalization,” Simon points out.
The trend that will grow more and more is that of extra-bank products. And the workhorse will be the “buy now, pay later” (the possibility of quantifying consumption). These are mini-credits or consumer credits: people will start to be encouraged to use them, and there will be ways of reaching segments that have not been 100% reached so far.
“Many will wonder why this will start to happen. In a current context of scarcity and indebtedness of families, people are looking for cash no longer to save but to consume.” Simon adds.
There will also be increased digitization. This implies that these processes in FinTech banking are going to deepen, now targeting segments beyond individuals. The time has come for SMEs and micro-SMEs to be able to access regulated financial services in FinTech and digital format.
The advantages will be the same as those offered to individuals: digital onboarding and working capital loans, targeting a segment neglected by corporate banking, such as small businesses and entrepreneurs, which also includes professionals and the self-employed.
This is a sector that, with the pandemic as an obstacle, began to digitize its finances, which were previously almost entirely cash-based. Whoever arrives first with a product adapted to the needs of this sector is going to hit twice, as happened with different related applications at the time, which found a way to offer differential value to each of the niches.
“There will not be many advances during 2022 as far as Open Banking is concerned, contrary to what is happening in the rest of the world, where, with greater or lesser openness, there is progress towards a model that is designed to favor competition and the democratization of financial services with an offer designed for the consumer,” Simon points out.
The banking system in many countries is very strong, but the distrust in the whole system (political, economic, financial) persists in the ordinary citizen, for the trader who sees the value of his business plummeting with no signs of recovery beyond the short term.
There are products that already exist, such as the e-check or the sale of electronic invoices, but they have not yet taken off. Paper checks are still being used to end up appealing, on occasions, and in view of the need to obtain physical money, to informal solutions. In the case of the electronic invoice, it is not enough for the issuing process to be digitalized, but the data that for the time being remain between the AFIP and the issuer must also be digitalized, which at present does not reach the entities that could make the rates for selling invoices really attractive, a fact that is not happening at present.
Simon says, “Open Banking would allow the existence of a FinTech aggregator that compares the rates of all the banks and then indicates which one has a better offer. We are going down that road, but there is much more than a calendar year to go.”