What 2022 Has in Store for FinTech
The disruption of the global pandemic led to a highly challenging 2021 for the FinTech sector. However, the new normal did not bring only negatives. The rapid shift to digitalisation throughout every aspect of our personal and business lives meant the industry was able to withstand many of the challenges that caused other industries so much pain. The more astute players were able to identify new opportunities and grab them by the horns.
As most global activity defaulted to remote, FinTechs were able to cater to this trend by offering digital tools that solved a whole host of new problems businesses were now faced with – in the case of Soldo, for example, by offering visibility for finance teams as they increasingly found themselves in the dark as a result of remote working.
As a consequence, it’s been pleasing to see a significant increase in FinTech investment over the last year, in spite of a rocky economic landscape. This has been particularly pronounced in the US, where private equity investments have grown from tens of billions of dollars several years ago to hundreds of billions, approaching trillions of dollars – if counting the market caps of firms that have gone public.
But what does 2022 have in store for the sector? Will the industry continue to thrive and what challenges will need to be surmounted in order to ensure this?
The post-pandemic boom
2022 will hopefully see the end of the COVID-19 pandemic and, with this, a subsequent economic boom. Soldo’s recent report with Coleman Parkes entitled Open for Business looked at how finance teams are planning for this and the opportunities and challenges they see. We found that almost three quarters (70%) of UK businesses are prioritising growth in the next 12 months – with 44% saying their strategy will be to raise new capital, and a third (33%) to acquire businesses through mergers and acquisitions.
The report also highlights that (72%) believe greater visibility, control and oversight across expenditure has a positive impact on revenue growth. In preparing for this, finance teams are turning to investments in technology, and specifically automation tools. Two thirds (66%) cited investments in IT tech and automation as key drivers of profitability, while almost three quarters (74%) have invested in automation to manage employee expenses. FinTechs will hence have a critical role to play in facilitating post-pandemic growth and need to capitalise on the opportunities that the needs of businesses will present.
The great “switch on”
The economic instability brought about by the pandemic caused many businesses to shift into survival mode and cut back on spending, limiting expenses to the strictly essential. However, with the end of social distancing measures, events, meals, drinks and travel are increasingly once again becoming a part of working life.
For finance teams, this great “switch on” means having to manage an influx of POs as workers look to enjoy their renewed freedoms, and this is only set to increase into 2022. This will have to be balanced against managing the costs of the coronavirus crisis, with Bounce Back Loans and deferred tax payments having to be paid off.
With so many UK businesses geared towards growth, the pressure is on finance teams to deliver a holistic view of spending, control costs and implement systems that provide the business with a level of data insight that is essential to driving growth – in whichever format that takes. This pressure provides further opportunities for the FinTech sector to step in and offer solutions. Without the right tools and services in place, finance teams will undoubtedly be wasting precious time that could be better spent on initiatives that aid strategic growth.
Europe vs the World
The global FinTech landscape is in constant flux and it will be interesting to see how this plays out in 2022, particularly how European FinTech businesses hold up in the face of increasing competition from elsewhere in the world.
Providing that COVID-19 has no further nasty surprises to throw our way, we can expect the next 12 months to see a huge global economic rebound.
The EU is currently home to only 7.2% of worldwide unicorns. The sum value of all EU unicorns and EU tech and digital champions already public is dwarfed by the value of today’s non-EU big tech. This allows the latter to buy out potential disruptors, solidify industrial control, build scale, and manage the global digital and tech agenda – and we should expect this trend to continue upwards in 2022.
We have watched the development of China’s FinTech space with particular interest and expect to see a continued rise in 2022. As of April 2021, the sectors home to the highest number of unicorns in China were technology and telecommunications, and transportation and logistics. However, Chinese unicorns active in finance or insurance had significantly higher market valuations than unicorns in either of these sectors.
Maintaining high levels of innovation is a key challenge for European FinTech. In the EU, ensuring innovation is essential to both territorial cohesion and growth. Government, as well as business, has a role to play in facing this challenge. It can do so by reducing fragmentation of regulation across the EU’s main innovation areas and removing unnecessary obstacles. It is equally important to have close cooperation with the existing expert organisations who unite various European innovation industries.
We all hope that 2022 will bring a return to true normality and much needed social and market stability across the globe. Providing that COVID-19 has no further nasty surprises to throw our way, we can expect the next 12 months to see a huge global economic rebound. This will mean that opportunities for the FinTech sector will be in no short supply. But FinTechs, investors and governments alike must not be too complacent about the inevitability of bouncing back. Careful planning and management will still be required to ensure opportunities are not squandered.