In partnership with Money20/20, Barclays surveyed hundreds of FinTech business leaders to develop our latest report on the state of play in the FinTech sector. The report reveals what’s driving innovation for the sector, spotlights new technologies and outlines strategies for growth, promoting customer loyalty and attracting new talent.
New global pressures demand additional innovation
Geopolitical tensions. Rising inflation and interest rates. FX volatility. Unsurprisingly, the tough macroeconomic environment has jumped into the top two (14%) concerns for FinTechs – significantly up on last year’s survey (6%). Combined with Covid-19, this has highlighted the need for greater resilience among FinTechs.
Robustness must not come at the expense of innovation, however, especially for the 7% of respondents focused on post-pandemic recovery. Tapping into trends such as invisible payments and pivoting business models towards seamless e-commerce may prove beneficial1. These innovations help breed customer loyalty – a critical growth driver.
Expansion remains the key focus across EMEA (19%), APAC (18%) and the Americas (17%). Although this figure was down from the previous year (25% globally), the outlook for the FinTech sector remains strong, with an anticipated compound annual growth rate (CAGR) of 20.5% heading towards 20302.
Respondents have become more granular in their growth strategies, citing specifics such as process efficiencies (7%), enhancing cross-border operations (5%), and acquisition (4%). On the flipside, growth translates into restricted access to talent, with 11% choosing this as their main issue.
Top five Post-Covid concerns
Payments innovation and partnerships: global fragmentation vs harmonisation
Nothing innovative is created without imagination. Pushing boundaries and disrupting the status quo continues to be the preserve of start-ups, according to 58% of survey participants.
As seen last year, there was some regional disparity between the level of belief in start-ups’ ability to disrupt the payments industry. Though, generally, consumers (13%) were deemed to be much less disruptive than partnerships. Indeed, collaborations were seen as more fruitful (21%) than last year (19%), across all geographies – although APAC participants were less enthusiastic (12%) about partnerships than their EMEA counterparts (25%).
While most respondents were agreed on the types of institutions driving change, there is less consensus when it comes to the geographical hotbeds of payments innovation. Once again, the US emerged as the leader with 26% of the vote (down from 29% last year), followed by Western Europe (14% ¬– up from 12% in 2021), Africa (11%), and South America (10% – up from 8% in 2021).
Nevertheless, APAC respondents answered with a marked difference from US and EMEA respondents in a number of instances. For example, 20% of APAC participants highlighted India as a key geography for payments innovation, but only 4% in EMEA and 7% in Americas agreed.
The fragmentation of the global payments landscape may also contribute to these discrepancies. While work is being done by SWIFT and others to bring harmonisation, link regional payment systems together, and transition to a single messaging standard – ISO 20022 – the reality is currently very disjointed. This may be an area where FinTechs can help to be the glue that binds global innovation.
Major geographies fostering payments innovation
Emerging technologies and tools: spotlight on Effortless Payments
Invisible payments are a rapidly growing part of everyday life – from ride sharing apps which enable the consumer to simply exit the vehicle and payment is taken care of behind the scenes, to ‘just-walk-out’ supermarkets3.
According to the survey, many FinTechs are aiming to deliver similar in-built payments experiences, with integrated, invisible services emerging as a clear winner (30%) in terms of the way financial technology will be consumed in the future. Effortless payments are also growing in importance across all geographies, up to 20% from 12% in 2021, and, in parallel, interest in AI (22%) and APIs (14%) remains strong.
It is not just consumer transactions that are becoming seamless, either. Digital payments are increasingly important in the B2B space (for 25% of respondents), driven by trends such as B2B marketplaces as well as e-invoicing. In fact, supplier payments are already being improved with the use of virtual cards through strategic partnerships.
Of course, while the theory of effortless digital payments sounds promising, the practice is not quite as simple as ‘removing friction’. After all, some ‘positive’ friction – in the right place, at the right time – is required for robust KYC and AML processes. This is especially important as transaction velocity increases, with real-time payments now a key driver of innovation (according to 31%).
Regulatory influence on future innovation
While many FinTechs would consider regulation a threat, it also has the potential to open up opportunities to build a better future. Take consumer protection, which emerged as the main concern for 10% of respondents – a lack of proper protection can have a significant detrimental effect on consumer loyalty if not handled correctly.
Although national-level action on fraud is often robust, such as the current UK consultation on authorised push payment scams, for example, greater co-ordinated action is required globally. Regulators must work together to help banks and FinTechs combat cross-border crimes. Cybersecurity feeds into this, yet only 48% (down from 52% in 2021) believe they have a robust approach. Greater cybersecurity investment (25%) and education (27%) are needed.
In tandem, data privacy laws continue to be released and updated, and 15% are concerned about keeping up. This will be an interesting area to watch as the metaverse develops, and the EU moves to regulate technologies such as AI. Other jurisdictions are also clamping down on data privacy, with certain US states, such as California, enacting new laws despite federal law still pending4.
Elsewhere, the possibilities of open banking – driven by the Payment Services Directive 2 (PSD2) – are becoming more widely recognised, with 34% selecting it as the area of most regulatory influence, up from 23% in 2021. According to the survey results, the top uses cases for open banking remain the same as 2021: easing integration of banking across providers so the customer-owning entity can develop value added services on top (35%); and increasing consumer choice and reducing inertia, driving innovation in the sector (27%).
Areas of significant regulatory impact in 2022/23
