Fernway DiarySM

Jan 31, 2022

The fintech industry has continued to show impressive growth in recent years, with the market projected to rise from a global value of $127 billion in 2018 to an estimated $309.09 billion in 2022. This expansion has been driven by the desire of both consumers and businesses to enhance access and streamline transactions through digitizing financial processes. With the field continuing to change how individuals and organizations complete payments and obtain financial services, the fintech landscape promises further developments in the year ahead. Here are key trends and issues to watch.

Contextual Financial Services

Embedded finance—the seamless integration of financial transactions within nonfinancial environments—has been much-hyped as a way for brands to integrate financial functions within their main platform. Embedded payments are a primary example of this, whereby consumers can complete a payment from within the site or app they’re on without having to find a credit card or being diverted to another process. Many purchasers have probably already used this feature without knowing what it is called, such as users of Lyft or Uber, where rides are paid for via the app rather than a separate credit card or cash.

Embedded payments enhance speed and convenience in the checkout process, making businesses eager to adopt them. Going forward, companies seeking to build customer loyalty and improve the consumer experience will seek to add additional financial functions such as lending and investing into their offerings where appropriate, giving fintech enterprises new challenges for integrating these tasks.

Transforming Payments Infrastructure

A major thrust of fintech innovations has been to make payments easier at both the B2B and consumer level, shifting technology toward electronic transactions. Digitization has helped to make cross-border real-time transactions a regular experience in the global payments ecosystem, a trend almost certain to continue.

On the consumer front, developments that reduce checkout friction such as one-click payments and payment from mobile devices or wearables are likely to see increasing adoption among businesses in response to buyer preferences. As these methods become more commonly employed, the use of manual checkout processes and physical credit cards may well experience a corresponding decline.

In addition, desire for flexibility in payment arrangements has contributed to a surge in the use of Buy Now, Pay Later services, in which purchasers receive their product with the first payment and make a series of often interest-free payments over time. The volume of these type of transactions is expected to increase in 2022.

Regulation and Compliance

Opportunities in the fintech sector have led companies to innovate to meet the demands of consumers at a ferocious pace. However, as the industry matures and reshapes the way financial services are delivered, fintech companies will need to become increasingly aware of and compliant with regulatory requirements. The necessity of building in proper safeguards to guarantee the integrity of transactions and protect against data theft will undoubtedly raise the cost for new startups looking to enter the fintech space.

Consumer protection is a high priority in the financial industry, and as fintech takes over many functions once handled by traditional banks and payment processors it can expect a greater degree of scrutiny and accountability. One possible fraud protection solution is the adoption of automation and AI that will allow businesses to detect and prevent unauthorized activity. Managing and analyzing vast quantities of data has made compliance and security a challenge for financial services companies—AI and machine learning tools can potentially reduce errors and improve efficiency.

Innovation and Opportunity in the US

Fintech startups looking to establish themselves or expand into the US market should seek expert advice on their overall corporate structure, compliance requirements, and tax planning strategies in the US.

For more information, please contact your US tax advisory team at youradvisor@fernwaysolutions.com or visit us at www.fernwaysolutions.com.

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The above content is intended to support the marketing of professional services and should not be construed as written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular tax situation. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with, or attached to this content is not intended to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Fernway Solutions assumes no obligation to inform the reader of any such changes.