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Outlook Of Fintech Sector For 2022

As the financial sector becomes more democratised with innovations tailored for diverse people and their needs, the year 2022 promises to be exciting for all stakeholders in the fintech sector.

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The past year has witnessed technological advancements and innovations inspired by exciting trends. The fintech industry has grown tremendously during the pandemic and rapid adoption of digital payments has only helped in moving the industry to the next orbit. Tectonic shifts have occurred as a result of digitization, and many more are on the way.  As a result, we've reached a point where innovation is being driven by the changing needs of our ecosystem.

The outlook for the fintech players in the year 2022 looks promising. And this article aims to provide some insights into how these advances will steer the industry’s course in the coming years. We are attempting to provide a peek into what are driving factors for innovations in the Fintech space. These predictions are based on how fintech developments has evolved over the last few years and how they continue to evolve today. We have also attempted to forecast how these advances will affect the fintech industry over the next couple years.

Here are the top trends that will shape the fintech industry in 2022. 

Adoption of the Unified Payments Interface (UPI) as a channel for high-value recurring transactions

UPI has seen an exponential growth since its inception in 2016. Its autopay feature is being touted to be the catalyst for UPI’s next growth phase. The existing mandate allows recurring payments of up to Rs.5000, but very soon we will see UPI as the channel for higher value transactions. Furthermore, the latest RBI mandate allows users to subscribe to IPOs using UPI as a payment option and the transaction limit is set to increase from INR 2 lakhs to INR 5 lakhs.  By 2022, consumers using UPI would begin to see the convenience of UPI-based high-value payments, and enterprises will begin to use UPI for large-value recurring transactions.

Increase in the number of Credit Card Issuers and the exponential rise of cardholders

With the internet and e-commerce boom, credit cards have become one of the preferred payment options to purchase products online. This has enhanced focus on new Issuers on launching credit cards and we are predicting an exponential growth in this space. Several Issuers & their fintech partners are working on launching new credit card products with the promise of a seamless experience, user-friendly app with a completely digital onboarding experience, bundled with a well-curated creative loyalty rewards programmes to drive usage & benefits. 

There is a significant shift in the thought process of issuers. From offering a credit card to an exclusive creditworthy club of users, to enhancing reach by launching credit cards as tool for establishing creditworthiness. Issuers have now launched FD-backed secured cards to help consumers build their credit scores. 

In addition, a few issuers are innovating to offer, apart from the simple cashback offers, free movie tickets, digital gold or other exclusive benefits as rewards on credit card spends to get the masses to participate in the credit card boom. 

Even in the corporate card segment, issuers now offer quick & digital signup, virtual cards, higher credit limits, no personal guarantee, quick & easy integration with accounting softwares and an expense management software bundled-in. Entreprises see the convenience of using a card-based Corporate limit to pay their vendors early & earn margin discounts on early payouts. 

As the internet economy improves, we are witnessing a rise in credit card users and higher spends, particularly in areas like retail, travel, fuel, marketing and advertising.

Delineation of funding source, lending platform, and risk underwriter in the lending ecosystem

The lending ecosystem is a complex system of financing and risk management. The main components are the funders, the underwriters, and the lenders. Alternative lending platforms seek to simplify the traditional lending process by bringing the borrower, the underwriter and lender on a single platform. They use innovative risk-underwriting models to quickly assess the borrowers' credit eligibility and potential risk scores and to determine reasonable terms for lending. The digital instant loan business is picking up at a fast pace, and there are multiple ways to provide such loans. The fastest growing model which is now known as BNPL or Buy-Now-Pay-Later, apart from Loan on credit card, and other merchant financing options.

Online lending platforms have built-in complex lending models that have simplified ways for consumers to access credit, and for lenders to assess an accurate risk score and terms. Identifying & assessing risk-values associated with instant digital loans to first-time-borrowers or low-score & high-risk consumers will become a moat for some of the new generation digital lenders. At present, digital loans account for a small proportion of the total loans, but in the coming year, the pie is set to get larger for digital loans.

Web 3.0 will become a way of life by mid-2022.

2021 was when Web 3.0 became a buzzword; 2022 will be the year it will become a way of life. Web 3.0 is a decentralized internet driven by blockchain technology. Theoretically, it has many use cases, but most are still under test / implementation phase. We have only scratched the surface of Web 3.0 with cryptocurrencies, Defi and NFTs. 

Unlike the early internet that were both owned and managed by singular entities, Web 3.0 data, platforms' ownership and management is decentralized. Web 3.0 uses blockchain technology to create an internet architecture that allows individuals to create content independently without worrying about the central, data-specific repositories.

In Web 3.0, Artificial Intelligence (AI)/ Machine learning (ML) will play a crucial role in enhancing computing power. AI will enable machines and devices to understand the non-digital world through computer vision and natural language processing. And AI's core ability to keep learning and enhancing its programme will power Web 3.0 to provide personalized experiences for users. Web 3.0 will collect data from businesses, individuals and machines worldwide and create a wealth of data in an ecosystem interpreted swiftly with improved AI and ML. With Web 3.0, you can think outside-the-box to understand the user's context and make it more connected and intelligent.  

Retaining freedom of digital expression is an essential aspect of Web 3.0 and a real change from the current Web 2.0.

Personalised Investment advisory based on AI/ML will get more acceptance

Personalized financial services can be delivered by small and big fintech companies combining mobile-first & innovative UI & UX combined with the power of complex algorithms to reduce dependency on human interaction. Fintech start-ups are deploying automated financial advisors and planners to assist users in making financial decisions at a very low cost and a higher profitability. Some offer digital and wealth management advisory services specifically tailored for the mass affluent segments. 

Intelligent wallets monitor and learn users' habits and needs, altering their finance needs, spend patterns, and savings behaviour. Data-driven AI applications are being used to make better-informed investment decisions. In contrast, trusted social networks permit users to find other users willing to pool their money to co-lend, share risk and share investment ideas. This will not just help expand the market, but help evolve newer models of monetising advisory services and result in a host of other business opportunities. 

With the country’s young, tech-savvy population and India’s emergence as a global leader in the Fintech space, technology will be the overarching factor influencing choice of investments & financing options, and financial trends in 2022. 

As the financial sector becomes more democratised with innovations tailored for diverse people and their needs, the year 2022 promises to be exciting for all stakeholders in the fintech sector.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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FinTech Year 2022

Rajesh Wadhwa

The author is Chief Business Offier at M2P Fintech.

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