Fintech Market Forecast

2022

INTRODUCTION

With the ever-growing interest in the Fintech and Digital Banking industry, it is worth
being on track with its trends and opportunities. At Velmie, a digital banking software
provider, we handle yearly market surveys to understand how the market is going to
evolve.

For 2022 issue we surveyed the market participants that represent the following
cohorts

57.9% are startup founders

31.5% are SME businesses that operate FinTech products
10.6% are enterprise companies that are 100% digital or have Fintech
subsidiaries.

Respondents to our questionnaire represent the following regions where their

business and customers are located

29.7% - Europ
28.5% - the America
25.5% - MEN
10.8% - Asi
5.5% - Australia

Comments and some additional insights from our experts will give you a more
detailed picture of the current landscape and help with the next year's predictions.

1 | Fintech Market Review 2022

CONTENTS

1 | Fintech Sectors to grow in 2022 5

Lending and BNPL

5
Cross border payments
6
Mobile Wallets 7

2 | Adoption of Emerging Technology 8

Blockchain. Cryptocurrencies. DeFi.

8
Embedded Finance 9
3 | Favorable regions 11
EU & UK
12
APAC
12
MENA
12
North America 13

4 | Building a Successful Fintech Product 15

Approach to Building a Fintech Product
15
Crucial Criteria for a Fintech Product to Thrive
16
Partnership with banks 18

5 | Addressing Major Threats of Newly Established 20

Fintech Companies

Challenges of newly established Fintech companies

20
Why are companies reluctant to partnering with software vendors? 21

Contacts 23

3 | Fintech Market Review 2022

1 | Fintech Sectors to watch

According to the respondents, finance & lending and cross-border payments are
expected to grow the most in 2022. Mobile wallets and cryptocurrencies come right
behind.

1.1. Lending and BNPL

Despite some criticism of BNPL (they say BNPL apps and programs may encourage
consumers to take on debt they are not able to afford) its popularity has significantly
grown within 2021.
1 | Fintech Sectors to watch

Consumers are expected to make almost $100 billion in retail purchases using BNPL
in 2021 — up from $24 and $20.3 billion in 2020 and 2019 respectively.

The service of BNPL has been around much longer than it seems - also known as
installment payments and point-of-sale financing (POSF). The difference between
that service and today's buy now, pay later is the place in the customer journey
(traditionally, at checkout - the end of the customer journey and today, much earlier
and influencing consumers’ decisions). Also, the modern BNPL is all about being
invisible and smooth by being fully embedded into the customer journey.

1.2. Cross border payments

With the compound annual growth rate (CAGR) of 5% per year the global cross-
border payment flow is expected to top $156t by 2022. So, the market size and its
growth is appealing to the newcomers.
1 | Fintech Sectors to watch

New Fintechs and MTOs (money transfer operators) attract most of the customers
that move smaller amounts of money, as well as SMEs. By implementing cutting-
edge technologies and making apps intuitive and user-friendly, they offer better
rates, time and services. Thus, Fintechs are able to meet most of the consumers’
demands. Wise (formerly Transferwise) claims it saves its users $1 billion a year in
transaction fees compared to the use of legacy bank cross-border payment
methods.

1.3. Mobile Wallets

Thanks to the modern technology which has brought mobile payment methods to
the forefront of many businesses and consumers, there was a drastic dip in cash use
within the previous decade which was further influenced by the COVID-19
pandemic. For example, there was a 50% drop in cash use in the United States from
2010 to 2020.

With the shift to alternative payment methods, mobile wallets have gained
significant users’ attention with most interest coming from younger generations. In
2020 21.5% of transactions were made via mobile wallet payment. What is more, it
is anticipated that 80% of all transactions globally will be done via internet-backed
devices by the year 2025.

To sum up, despite all the buzz around cryptocurrencies, NFTs and DAO there are
other sectors that remain silent but can bring even higher ROI. There are plenty of
opportunities across many verticals and locations and financial services is still a
largely untapped market.

2 | Use of Emerging Technology

Let's look into some cutting-edge technologies that are directly impacting the
relationship between consumers and FinTechs. As shown below, the greatest impact
is expected from blockchain and cryptocurrencies as well as embedded finance
(52.9%). Most of the respondents either plan to start implementing new
technologies within a year (53.3%) or have already started this process (40%).

2.1. Blockchain. Cryptocurrencies. DeFi.

Crypto adoption is visible across many verticals. Top banks are investing into digital
assets and providing new tools to their clients, fintechs allow opening crypto wallets
within their apps. International remittances as well become more and more reliant on
cryptocurrencies and blockchain. There are numerous examples, and the
opportunities are infinite.

2 | Use of Emerging Technology

Decentralized Finance (DeFi), as its name suggests, has a common goal to

decentralize financial services. It does so by removing bank, payment and
investment intermediaries, and replacing these with the services that operate within
the blockchain network. Because of its transparency and security, Blockchain is a
robust alternative base for this disruptive emerging financial ecosystem. It is
predicted that the sectors most likely to be affected by the DeFi revolution are
lending, decentralized exchanges, asset management, financial data, and insurance.

Carl-Johan Larsson

Microservice Specialist at Velmie

“Tomorrow's industry success stories are being built today around modular
core systems based in the cloud and utilizing ML algorithms to support the
back office operations. This is exactly how a neobank or payment services
company should be built nowadays. Many of the contacts we surveyed agree
with us and we can see it in the results.”

2.2. Embedded Finance

Today, most people are not even aware who is providing financial services along
their customer journey. What’s more, they aren’t really interested in what’s
happening ‘behind-the-scenes’. What they do care about is convenience and
customized experiences. That is exactly what embedded finance is about.
2 | Use of Emerging Technology

Besides making the whole customer experience smoother, embedded finance also
helps businesses generate more profit and provides valuable data on consumers
spending habits and needs. According to Lightyear Capital, revenue generated by
embedded finance (payments, insurance and lending) is expected to reach almost
$230 bln in 2025 compared to $19.5 bln in 2020.

In the coming years, consumers will expect brands to make their purchase
journey even simpler and less stressful. So, companies should start to build an
embedded finance strategy that fits their services to bring profit to the
organization and satisfaction to their customers.

For companies seeking to onboard this new technology but don’t know quite how,
our advice is to partner with a reputable provider who will help to analyze the digital
needs and design tools that are relevant to be embedded.
3 | The most appealing regions

The World Bank identifies certain conditions that create a favorable environment for

the fintech industry

Innovations and the pace of technology adoption (AI, security technology,

mobile technologies)

Investment climate in the region

Social and economic state including pandemic, and other social changes,

that have a negative impact on traditional financial services and, as a result,

lead to the emergence of fintech products.

According to our research, the most favorable

regions to create a Fintech startup are Europe

and the UK (40%), followed by the Asia-Pacific

(33%), the Middle East and North Africa (20%).

It is worth mentioning that the Americas is

home to most FinTechs. According to Statista,

there were 10,605 FinTech startups there in

February 2021 followed by 9,311 startups in

EMEA. However, the number of EMEA startups

has increased 2.56 times compared to 2019,

while in the Americas it is only 1.84 times.

3 | The most appealing regions

3.1. EU & UK

According to various ratings of European countries leading in fintech innovation, the

most often mentioned countries are the UK, Switzerland, the Netherlands, Sweden,

Lithuania, and Estonia.

London is one of the greatest European fintech hubs with a majority of accelerators

for fintech startups (over 20). The Netherlands and Sweden are mentioned for a vast

population with a high level of tech adoption. Lithuania is a relatively new member of

such ratings. Despite a relatively small population, Vilnius is a major European

FinTech hub and over 170 fintech companies are based there. Estonia as well has

high potential to become a large fintech hub with lots of accelerators and a favorable

investment climate.

3.2. APAC

India and China are often named as the world’s fastest-growing fintech markets

thanks to the population of almost 1.4 billion in China and high technology adoption.

Singapore in its turn is known for 20+ fintech accelerators. Significant government

investment and favorable tax policy make the country one of the regional fintech

leaders.

3.3. MENA

The strongest fintech market growth is noticed in the Middle East and North Africa –

it almost reached 40% there. The high percentage of underbanked population and
3 | The most appealing regions

availability of the key elements necessary for FinTech market growth provided a

huge opportunity for rapid growth. Governments and financial institutions, especially

in the Gulf Cooperation Council (GCC) countries, are nurturing these ecosystems

while finding it important and beneficial for the region. There are already some

success stories in the GCC, particularly in the UAE where incubators, enterprise

development funds and programs, and innovation hubs are supporting the creation

and growth of local entrepreneurs.

Ahmed Musawi

Sales & Business Development at Velmie

“ M E N A’s f i n a n c i a l s e r v i c e s i n d u s t r y i s w e l l - p o s i t i o n e d to s e e

s i g n i f i c a n t g ro w t h a n d F i nTe c h d i s r u p t i o n i n t h e fo re s e e a b l e f u t u re,

w h i c h m a ke s i t a g re a t m a r ke t fo r F i nTe c h s t a r t u p s a n d i n v e s to r s . I t ' s

a l s o w o r t h m e n t i o n i n g a s i g n i f i c a n t m o v e to w a rd s c r y p to m a d e b y

U A E i n 2 0 2 1, t h e y e x p e c t m o re t h a n 1, 0 0 0 to b e o p e ra t i o n a l b y t h e

e n d o f t h e y e a r.”

3.4. North America

The fintech market of the USA is a rating leader with a population of 329 million

along with a $9.4 billion fintech investment. However, the reason for not being an
3 | The most appealing regions

attractive market for a fintech startup is the toughest competition and an already

crowded market which makes things complicated for a newcomer. Also, the

regulatory environment is rather complex. Thus, many entrepreneurs prefer to start

the business elsewhere and in case of success move to the USA.

4 | Building a Successful Fintech Product

4.1. Approach to Building a Fintech Product

According to the survey, the vast majority of respondents (almost 80%) would
prioritize time-to-market for their MVP products rather than holding full IP rights and
retaining the technology in-house.

Source: Velmie

Customer expectations are constantly growing as the technology evolves and the
Minimum Viable Product (MVP) nowadays is much more complex than it was 5
years back. With financial services things are getting even more complicated due to
4 | Building a Successful Fintech Product

the specific requirements around security and data compliance. As a result, Fintechs
have to spend time mostly on the architecture of the solutions rather than staying
focused on delightful user experiences. This makes “in-house” MVP approach to be
not the best option for most of the businesses that now prefer acquiring back end
API solutions and building their integration layer. Top banks and big tech use a
similar approach to acquiring proven teams and technology rather than trying to
replicate something with their teams.

Paul Shumsky

CMO at Velmie

“I honestly don't think that the buy vs build dilemma still exists in financial
services. Looking at the most successful products the right approach should
be “Buy & Build”. To thrive, companies should be able to establish strategic
partnerships across many sectors from the early days.”

4.2. Approach to Building a Fintech Product

Among various options almost a half of the interviewees chose delivering

exceptional customer experience as the most important requirement to build a
successful Fintech solution.
4 | Building a Successful Fintech Product

There is no doubt that creating apps that users love is a key element of a successful
business. It is much more than just an impressive design. It is also about staying
engaged with your clients across many channels; being able to react fast and form a
community of loyal customers. In the Fintech industry it is even more significant as
people are willing to get more financial freedom than ever before and crave for tools
that would make financial services a daily thing rather than rocket science.

However, based on our experience of building financial and banking products, we

can state that security and trust are as important as great customer experience.
4 | Building a Successful Fintech Product

Looking at the current state of neobanks, many are having challenging times
introducing deposit banking services in order to increase the low-cost liquidity. This
is exactly the case when trust outweighs great UX.

4.3. Partnership with banks

Velmie research revealed that 63.2% of the respondents have already partnered
with incumbent banks, while about a quarter are still hesitant and 10% are
negative.
4 | Building a Successful Fintech Product

Established banks and other financial institutions are looking at the technological
innovations that startups are bringing to the table. On the one hand, there is a
dependability of established banking infrastructure, credibility with regulators and
an immense customer base. On the other, there’s a freedom to innovate and the
agility to build tailored solutions for niche customer segments.

There are already many examples of successful Fintech-Banking partnerships like

Cross River Bank and Affirm, Bank of America and Zelle, and others. Financial
services is the most heavily regulated, carefully monitored and perhaps most
depended-on industry there is. Success is achievable through joint efforts, with
each partner doing what he does best.
5 | Addressing Major Threats of Fintech Companies

5.1. The most common challenges of Fintech companies

The biggest challenge of Fintech companies appears to be finding and retaining

talents. It was claimed by almost a half of all respondents. Obviously, most of these
companies are dealing with emerging technology like cryptocurrencies, making it
hard to onboard the right talents. If you're heading to build a product in this space,
be prepared to compete for talent with Citi, Goldman Sachs, Crypto.com and a lot of
other major players and pay a premium.
5 | Addressing Major Threats of Fintech Companies

This situation is one of the main drivers for Fintech infrastructure companies like
Moonpay, that recently closed 0.5 billion financing round, Lono, Tatum or Velmie. By
gaining comprehensive API infrastructure, their clients don't have to hire specialists
and keep in-house expertise.

Another option is looking at outsource providers for dedicated teams, resources to

cover instant tasks or hire a company for full-service custom development. However,
there are still many constraints which prevent Fintech companies from partnering
with software vendors. Further, we’ll address them.

5.2. Why are some companies reluctant to use SaaS and BaaS platforms?
5 | Addressing Major Threats of Fintech Companies

While the vast majority of companies of all size are open to use 3rd party software
and APIs, some others still have concerns over it. More than half of them claimed
regulations and regulatory standards as the biggest constraint to using SaaS and
BaaS solutions. Also, the most frequent threats named are burdensome procurement
processes and lack of long-term vision of partnership.

How to choose the best software vendor? Looking at the following factors when
choosing a software vendor will get you closer to finding the right partner and avoid
challenges most companies face

The company should have proven expertise in your market and vertical.
The vendor company should have similar professional ethics and values,
such as commitments to transparency, quality and communication to name
but a few
Communication and service quality are often the most important contributors
to building a successful partnership. You’ll understand whether you can rely
on these by the speed of answers and the effectiveness of communication
from the outset
Another critical factor to consider is whether a software developer provides
ongoing software support and maintenance as part of their service
The tech stack needs to be robust, innovative and easily adaptable
The company should be well versed in existing and upcoming compliance
standards and in a position to build a technology infrastructure that is state-
of-the-art secure for users
Long-term commitments and the software ownership rights is something to
discuss and affirm from the very first step.

4 | Contacts

Velmie is a banking technology provider with more than 10 years of expertise in developing
software and providing professional services. We supply enterprises and FinTech
companies with modular and scalable software solutions, handling end-to-end delivery of
the most sophisticated and innovative projects.

Email: hello@velmie.com

Visit Website: velmie.com

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Suite 105 Wilmington, DE 19809 East Finchley London, N2 9ED

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