What to Expect in FinTech this Year?

2021 was a banner year in FinTech. By the first half of the year, investment in FinTech had already hit $98 billion, which is a significant boost compared to $121.5 billion in all of 2020. Largely due to the pandemic, we saw a rapid shift towards digital. When speaking on the shift to a primarily digital banking relationship, Olivier Berthier, CEO of Moneythor, said “The pre-COVID product-centric model of banking is outdated. There is now a greater demand for money management tools and solutions that focus on digital banking being more customer-centric than ever before.” Other leading trends included open banking, NFTs, e-money, and social finance.

So, what do we expect to be leading the way in FinTech in 2022?

This year I expect we’ll continue to see the rise of many consumer centric FinTech companies, and a particular focus in building out these three areas:

  1. The Rise of Buy Now Pay Later (BNPL)

To see the impact of Buy Now Pay Later, it’s helpful to have an understanding of the credit ecosystem and what actually happens when you swipe your card. In his brief explanation, Alex Rampell takes us back to the beginning of the credit card revolution and then walks us through the role of each of the five parties involved in a credit card transaction: consumer, issuing bank, network, acquiring bank, and merchant.

Alex Rampell points out that what makes Buy Now Pay Later so interesting is that it creates a separate “parallel” network alongside the traditional five party network and this transaction occurs between the consumer, merchant, and product manufacturer. High priced items can be broken down into smaller installments, which means the consumer benefits because they aren’t necessarily borrowing credit, but they’re using the item now without paying the full cost upfront. This is appealing even for lower priced items because it feels like a discount of sorts.

For example, imagine you’re buying an $80 bottle of perfume. Rather than saving up the $80 (or using your credit card and tacking on $80 to your monthly bill), why not pay $20 now, take home the perfume today, and then pay $20 every couple of weeks until you reach $80? It’s definitely an attractive offer, and we’re seeing more and more FinTech companies in this space. To name a few, Afterpay, Affirm, Klarna, Sezzle, and more, are being integrated directly into the payment step on merchant sites, making “shop now, pay later” easier than ever. Want proof of the opportunity here? One of the largest FinTech M&As in 2021 was Square acquiring Afterpay for $29B.

2. Paying with Mobile Wallet

The second trend I see leading the way this year is the rise of mobile and contactless payments. Last spring, TechCrunch cited an eMarketer forecast, which predicted usage of proximity-based mobile payments is on track to surpass half of all smartphone users by 2025. eMarketer also found that in-store mobile payments usage grew by 29% just last year in the US, largely due to the pandemic and consumers desire for as little contact at the point-of-sale as possible. On the retailer side, a mid-year survey by the National Retail Federation and Forrester found that no-touch payments had increased for 69% of retails, and that now 67% accept some form of contactless payment.

Melissa Goraj provides a great example to emphasize the importance of embracing digital payments ASAP. According to Goraj, we wouldn’t typically think of associating farmers and tech, but farmers and farmers markets have been silently embracing payment innovation for a long time. In her example, she describes a scenario where you go to a farmers market and see one stand selling pie for $15 but this stand is cash-only and you’d have to leave the farmers market and find an ATM. So, you pass and keep walking. On your way out, you see another pie that’s a bit smaller and $17 but the bake stand has a Square. In that scenario, it’s clear which you’d choose. Most consumers are willing to pay a little extra for convenience.

I completely agree with the point here that this decision to have additional payment options, and especially ones that make the purchase experience easier for the consumer, can make or break a business’s bottom line. We were already heading in the direction of more and more demand for, and adoption of, mobile payments pre-pandemic, so I don’t expect we’ll see this movement slowing down.

3. FinTech in the Healthcare Space

Especially as we come out of the pandemic, FinTech in healthcare is an area to watch. This year we should specifically be keeping an eye on “care now, pay later.” One healthcare FinTech startup called PayZen has made great strides in this space recently, raising $15 million in Series A funding. Their solution leverages AI to underwrite patients’ medical debt, allowing them to access care now, but pay for it over time in installment payments with no fees or interest. According to Itzik Cohen, PayZen’s CEO, the out-of-pocket costs for patients have doubled in the past decade and are projected to double again in the next decade.

Cohen said, “Because [the founding team] was from FinTech and we watched, for example, what ‘buy now pay later’ could do for e-commerce, where people could afford more high-ticket items because of innovation and underwriting an expansion of credit, we thought to ourselves, medical providers are also having a hard time, because they need to collect more and more of the bill from the patient. That puts them in a bad situation as well.” Patients are excited about “care now, pay later” too. According to a study of 2,000 patients by Healthcare Payment Experience, 63 percent of consumers had an extraordinary interest in healthcare payment plans but only half were offered plans. This is where companies like PayZen and Rectangle Health step in! Who’s next?

How is Open Co changing the game in BNPL this year?

In 2022, Open Co through its brand Geru will offer BNPL as a payment option in retailers, e-commerces, utilities, home improvement, travel, education, and health services in Brazil. Stay tuned! One example of Care Now, Pay Later product offered with hundreds of transactions with dentists so far is our partnership with www.aleva.com.br and parcelamais.com/.

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