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Fintech industry outlook and trends: Summer 2022

Jun 06, 2022

Fintech trends key takeaways

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More than a quarter into 2022, fintech shows no signs of slowing.

Fintechs can offer speed to market, access to top talent, and innovative ways to engage customers, while traditional institutions can bring industry and regulatory expertise.

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More traditional financial services companies have begun to partner with fintechs.

Financial services Economics Fintech

More than a threat: Fintechs and traditional financial services companies flourish together

Fintechs and traditional financial services companies have often been painted as rivals competing for the same customers and offering similar products. But the pandemic forced many traditional financial companies to become more digital, and in doing so many have realized that partnering with fintechs is an excellent way to differentiate themselves in the market and offer tailored experiences to their customers while reducing the need to develop specialized technological knowledge in-house. This is not to say that fintech companies and traditional financial services organizations no longer compete, but rather that they can now be both friends and foes.

Given the breakneck speed at which dollars have flowed into the fintech space in recent years, it's easy to understand the competition between fintechs and incumbent financial institutions. Last year broke records—investment in fintechs reached $121.6 billion in 2021, and mergers and acquisitions activity topped $88.8 billion, both surpassing the previous records set in 2018, according to PitchBook.

At the end of April 2022, fintech companies had already raked in $35.7 billion in investment, according to PitchBook, and early data shows the second quarter still going strong. 

Capital invested and deal count in fintech | Fintech trends and outlook
Capital invested and deal count in fintech

But instead of panicking over these figures, some traditional financial services companies have begun to partner with fintechs in response to changing consumer behaviors that will continue to drive competition.

Dollars by demographic

As members of Gen Z and Gen Alpha enter their prime earning years, they will join millennials in influencing what types of products financial services organizations offer, and how and when they are offered. All three demographics prefer digital purchasing options, and Gen Z and Gen Alpha in particular prefer products that offer a social media component, which in turn drives customer engagement and loyalty.

But it's not only digital convenience and a sense of community that these three generations seek. Increasingly these groups also expect brands and products to align with their values. And, of course, intuitive and relevant products are already table stakes for companies that want to maintain an edge.

Given the host of fintech companies that cater to specific groups, traditional financial services organizations have abundant opportunities to partner with them to better serve customers and boost their focus on inclusion, sustainability and other specific interests and issues.

Fintechs focused on inclusion include those serving specific demographics (e.g., African Americans, Asians, Latinos and women), labor markets (gig economy workers, the self-employed, creators), communities (LGBTQ+ people, persons with disabilities), professions (musicians, doctors), age groups (teens, preteens) or populations dealing with specific circumstances (immigrants, or people convicted of a crime). Fintechs focused on sustainability offer socially conscious and sustainable banking and investing products, ways for customers to track their carbon footprints and other services tied to sustainability. See a limited list below:

While traditional financial services companies have often attempted to differentiate or customize their product offerings, unfortunately, working with legacy technology frequently meant they were not able to realize their plans. Using an application programming interface (API)-driven model, traditional companies can partner with fintechs to implement banking as a service, lending as a service, credit as a service, and other types of structures. These arrangements fall in the embedded finance ecosystem, which is projected to grow. For example, banking as a service is predicted to become a $7 trillion market in 2030, per the Finastra Banking as a Service Outlook 2022. This means there will be plenty of opportunities for traditional financial companies and fintechs in this space.

It can easily become overwhelming for more traditional organizations that are thinking of partnering with a fintech to determine where to start or which considerations are most important. Here are some questions to get leadership teams started: 

Will the partnership enable you to solve a customer problem? It's imperative not just to react to what competitors are doing but to strategically consider how you can offer a differentiated product, find your niche and solve a specific problem that customers have. In serving a specific niche, keep in mind who the product's primary users will be and include them in the process of developing the product/service.

What type of partnership makes the most sense based on your strategic objectives? Not all partnerships are created equal—they can range from out-of-the-box solutions with little customization to private label options. 

Who is responsible for navigating the partner selection process? Having a clear process for vetting the potential partner and understanding the partner’s ecosystem and its current and future capabilities is crucial for any partnership.

How will you handle operational, business and compliance issues? Organizations need to establish a governing body to deal with the many issues that arise in the partnership process and ensure successful execution. Considerations include how the partnership will comply with laws governing state and federal financial services and data security. 

The takeaway

Fintech companies will continue to disrupt the financial services sector, but increasingly they are helping to democratize access to financial services products by joining forces with more traditional organizations. Both players benefit from this partnership: Fintechs can offer speed to market, access to top talent, and innovative ways to engage customers, while traditional financial services organizations can bring their industry and regulatory expertise.

RSM contributors

Financial services

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