With only a few weeks to go until 2025, it is time to take a look at some of the trends we can expect to see more of in the next 12 months. There are a handful of topics that seem to be dominating the conversation in fintech as we wrap up 2024, and here’s what you’ll need to know as we head into 2025.

Crypto

I have to apologize for this one, because I know that many readers don’t want to hear anything about crypto. It does, however, need to be considered.

Why it’s big: After a dip and many volatile few years, crypto is entering a more mature phase. The conversation is no longer just about Bitcoin and speculative trading. Instead, we’re seeing increased institutional adoption and clearer regulatory frameworks emerging across the globe. With this, major players are poised to enter (or re-enter) the crypto space, which positions crypto as no longer a fringe technology, but a part of the financial ecosystem.

What you need to do about it: If you haven’t already, now is the time to educate yourself and your organization about crypto. Go beyond the basics and evaluate how blockchain technology might be relevant to your own operations. Also, stay informed about regulatory changes, as they are sure to change as crypto continues to evolve.

Stablecoins

This technically fits into the crypto category, but it deserves a highlight all on its own because of the potential. Stablecoins are a type of cryptocurrency pegged to a fiat currency or a commodity, such as gold.

Why it’s big: Stablecoins bridge the gap between the volatility of traditional cryptocurrencies and the stability of fiat currencies. They have been successfully used in cross-border payments, remittances, and payroll for global workforces because they enable instant payouts at rates much cheaper than funds sent via traditional banking rails.

What you need to do about it: Organizations operating in payments should investigate the costs and benefits of integrating stablecoins into their offerings. In particular, if your firm services businesses with international clients or cross-border supply chains, you should explore how stablecoin adoption could help service your commercial clients.

Open banking/ Section 1033

For U.S. readers, open banking made its debut in the form of a CFPB ruling in October of this year. Firms with the largest assets have until 2026 to comply, and those with assets between $10 billion and $250 billion have until 2027. There may be benefits to early compliance.

Why it’s big: The new open banking rule shifts data ownership from the financial institution to the individual consumer. This shift creates more opportunities for innovation, improved transparency, and more personalized services. The U.K. and Australia, which are early leaders when it comes to open banking, have already proven that giving consumers control over their own data is beneficial to multiple parties.

What you need to do about it: Even though some firms have until 2027 to prepare, start preparing now, as you may need to invest in infrastructure upgrades such as developing new APIs. Early compliance could give you a competitive edge by offering you time to create new products and services tailored to your customers.

Honorable mentions

Condensing fintech down into three topics does not capture the widespread nature of the industry, so here are some honorable mentions.

Agentic AI
You may notice I did not include AI, which is a notoriously hot topic, among the top three trends. That is because the industry has finally moved beyond talking about AI as the technology to implement, and now considers it as the enabling technology that it is. Agentic AI, however, has its own role to play, especially in wealth management and back office automation. AI that can act independently to make decisions based on customer preferences or operational needs will play a large role in shaping fintech’s future.

BNPL
With Klarna’s IPO taking place in 2025, we can expect to see interest in the BNPL space surge to new heights. However, it won’t reach 2020 levels because questions about regulation and profitability remain, especially as interest rates vacillate. However, BNPL continues to evolve with new players entering the space and existing ones expanding into adjacent markets like subscriptions and services.

Regtech
The ongoing fallout from the Synapse failure has created a renewed focus on regulatory compliance. Banks are rethinking their regtech strategies, while new regtechs are leveraging tools such as large language models and GenAI to meet demand for automated compliance tools and fraud detection solutions.

Real-time payments
The adoption of real-time payment systems has been gaining momentum across the globe, especially since the launch of the Federal Reserve’s FedNow service in 2023. While more businesses and consumers are slowly becoming accustomed to instant transactions, banks have shown hesitancy to send real-time payments.

Pay-by-bank
In many ways, pay-by-bank goes hand-in-hand with open banking, which is fueling the growth in pay-by-bank. Direct, bank-to-bank payments are popular with merchants because of the lower fees and faster settlement times. Consumers, however, may be hesitant to use pay-by-bank unless they receive a monetary incentive at the point of purchase.

Photo by Shutter Speed on Unsplash

FedNow, the U.S. Federal Reserve’s instant payment service went live in July of 2023. Now, 15 months later, adoption rates have been unpredictably slow, especially when it comes to banks that are able to send FedNow payments.

Before considering the challenges behind sending and receiving FedNow payments, here’s a look at some of the data behind adoption rates:

• Only around 900 financial institutions have connected to the FedNow network, a fraction of the 8,000 firms the Fed stated as its goal.
• Close to 60% of the financial institutions on board with FedNow can receive payments, while only 40% of firms have signed up to send payments.
• Banks connected to the FedNow network range in size from under $500 million to more than $3 trillion in assets.
• Of the FedNow participants, 78% are community banks and credit unions.

There are a handful of reasons why firms might be hesitant to participate in FedNow. The service faces competition with The Clearing House’s RTP platform, which was launched well before FedNow went live. Additionally, banks may be holding back because of the fees that come with participating in FedNow. Banks must pay $25 per month per routing transit number to use the service, plus a $0.045 per credit transfer fee charged to the sender and a $0.01 per RFP message, charged to the requestor. The Fed also charges a liquidity management fee of $1 per transfer.

Another reason firms may be reluctant to join FedNow is that the new payment rail comes with a set of challenges for both sending and receiving payment. Below, I’ve outlined five challenges financial institutions face for accepting FedNow payments, and five challenges they face when receiving FedNow payments, along with strategies to overcome each obstacle.

Challenges in accepting FedNow payments

1. Transaction validation in real time
Firms may have difficulty validating incoming payments instantly, especially considering the need to check for insufficient funds and fraud, plus ensure compliance, all in real time.

To combat this, firms can implement automated validation systems to check the accuracy, authenticity, and compliance of payment transactions in real time. They can also use AI tools for fraud detection to help banks validate transactions without human intervention. Additionally, they should enhance their AML compliance systems to conduct rapid checks.

2. Managing customer disputes
Customer disputes are always a headache when facilitating payments. And with instant payments, customer disputes can be even more of a challenge. That’s because instant payments reduce the time that dispute resolution can take place, since the funds are transferred immediately.

Banks should create dedicated customer service channels and clearly communicate the dispute resolution process to consumers. Additionally, banks should create robust communication procedures with other banks in the FedNow network in order to resolve reversals and other issues quickly.

3. Handling a high volume of payments
If the adoption of FedNow grows, banks will need to process higher volumes of payments as more customers use the new payment rail. This increase could strain legacy systems– especially if they are not optimized for 24/7 processing at high volumes– and ultimately lead to payment delays.

To overcome this, banks should scale their payment processing infrastructure by adopting cloud solutions and ensuring they have sufficient bandwidth to handle high transaction volumes, especially during peak times.

4. Ensuring compliance in real time
Just as they do with ACH payments, banks need to ensure they are complying with regulatory requirements, including KYC, AML, and other regulations. This is an additional challenge with FedNow payments, since the compliance checks and documentation need to be made in real time.

Banks can leverage automation for compliance checks and integrate real-time monitoring tools into their operations to ensure that incoming payments are compliant without delaying the transaction. As with all compliance training, firms should ensure that their compliance officers’ training is up-to-date. Fortunately, there are multiple regtech solutions, including ComplyAdvantage, Trulioo, and Fenergo, available to help.

5. Creating a seamless user experience
In today’s digital age, consumers are not only used to receiving things instantly, they expect it. With instant payments as the standard, any delays or issues in receiving funds could create a poor user experience and tarnish the bank’s brand.

To ensure the best user experience, banks should first invest in a user-friendly interface. Transparent and timely communication is also key. Firms should offer real-time notifications and ensure that customers have easy access to their transaction history.

Challenges in sending FedNow payments

1. Ensuring adequate liquidity
With the recent increased scrutiny on adequate liquidity, it is essential that banks ensure they have enough funds on hand. With instant payments, banks must have sufficient liquidity available at all times, even during weekends and non-business hours.

To overcome this, firms can implement real-time liquidity monitoring systems and use the Federal Reserve’s liquidity management services. Banks should also establish internal controls to maintain and managing their liquidity reserves effectively.

2. Maintaining 24/7 availability
This may be one of the biggest headaches for banks looking to send FedNow payments. Because FedNow operates 24/7, banks need to ensure they have adequate infrastructure and staffing to support continuous operations. This can be a particular headache for smaller institutions, which lack resources to support such uptime.

To keep up with availability requirements, banks can adopt automated processing systems, use cloud-based solutions to keep their operations scalable, and partner with third-party vendors who offer 24/7 payment support. Additionally, firms should conduct regular system maintenance during non-peak hours to ensure they are not disrupting operations.

3. Ensuring fraud and security protection
Just as when receiving instant payments, accepting instant payments does not leave banks much time to identify and stop fraudulent transactions. This increases the risk for loss.

Banks can add a layer of protection by deploying real-time fraud monitoring systems to detect suspicious activities using AI and machine learning. Also, firms can implement advanced consumer authentication methods and mandate ongoing fraud prevention training for staff to further mitigate risks.

4. Managing customer payment errors
With instant payments, there is not much time to correct mistakes. When consumers fat-finger the payment amount or send the funds to the wrong recipient, they lose the opportunity to correct errors. This could not only create customer dissatisfaction, but also lead to financial losses.

Fortunately, there are ways to mitigate such mistakes. Banks can add confirmation steps into the user interface that require users to verify payment details before the transaction is sent for processing. It is equally as important to educate customers about the finality of real-time payments and provide them with a clear process for dealing with errors.

5. Creating interoperability with other payment networks
As with other payment rails, banks need to ensure their systems are compatible across other systems. Banks should create a system that is not only compatible with FedNow, but also with other real-time payment systems, including The Clearing House’s RTP.

To ensure compatibility, banks can invest in unified payment platforms that integrate multiple payment rails. Additionally, firms may find it helpful to participate in industry-standard development efforts to help shape the conversation around compatibility and functionality.

Photo by David Clarke on Unsplash

You’ve likely been following the fallout from Synapse’s bankruptcy earlier this year. BaaS provider Synapse filed for Chapter 11 bankruptcy in April, leaving its clients, including Evolve Bank & Trust and multiple others, unable to verify and manage funds. In all, around $85 million in consumer funds are missing due to discrepancies in Synapse’s records.

Adding to the confusion, the dispute is ongoing in court, and because Synapse is a fintech and is thus unregulated, regulatory bodies are unable to protect consumers, many of whom are still missing their funds.

As a result of this nightmare, the FDIC has advanced a notice of proposed rulemaking for what it is calling Requirements for Custodial Deposit Accounts with Transactional Features and Prompt Payment of Deposit Insurance to Depositors. The regulatory body is currently taking public comment on the rule.

As it currently stands, the rule applies to bank accounts that fit into three categories:

• The account is established for the benefit of beneficial owners
• The account holds commingled deposits of multiple beneficial owners
• A beneficial owner may authorize or direct a transfer through the account holder from the account to a party other than the account holder or beneficial owner

Here are five things banks with accounts that fit these categories should know about potential implications the rule may have on them.

Strengthened recordkeeping requirements

Advanced recordkeeping should already be part of a bank’s routine. However, the proposed rule is specific in its requirements, stipulating that banks working with non-bank entities (as in a BaaS partnership) must maintain accurate records that identify the beneficial owners of custodial deposit accounts that are held on behalf of consumers, which is typical in a BaaS agreement. Maintaining records of custodial accounts will help regulators ensure that deposit insurance can be quickly and accurately provided in the event of a bank failure.

Continuous third-party records access

The proposed rule states that if banks rely on non-bank companies to manage custodial deposits and their records, the bank must have continuous, direct access to records held at the third party organization. This requirement aims to prevent disruptions to operations, as what we saw in the Synapse bankruptcy case earlier this year. Ultimately, if banks have transparent access to third party records, they can help customers maintain access to their funds.

Annual compliance and validation

Under the new rule, FDIC-insured, BaaS-enabled banks will be required to conduct an annual, independent validation to verify that their third party partners are maintaining accurate deposit records. Banks will send the records, which must be accurate and compliant with the FDIC’s standards, to the FDIC and to the bank’s primary federal regulator. The purpose of this stipulation is to ensure consumers are able to access their funds without delays and to increase the reliability of custodial funds arrangements.

Consumer protection and transparency

Consumer protection is the underlying reason behind the new proposed rule. A large piece of this provides clarity about FDIC insurance. As such, BaaS-enabled banks will be expected to ensure that their consumers fully understand the coverage and protections of their deposited funds, particularly when dealing with non-bank custodians​.

Heightened money laundering

The document also emphasizes that banks must exercise strengthened internal controls and anti-money laundering (AML) compliance requirements. Notably, the ruling also emphasizes that banks must ensure that their third-party partners do not facilitate financial crimes.

This week’s proposed rulemaking highlights two truths in financial services. First, the additional requirements can potentially add burdens on banks that are already weighed down by multiple reporting responsibilities. Yesterday, Vice Chairman Travis Hill voiced his concern, saying, “I recognize that certain types of pass-through arrangements have become much more complex in recent years, exacerbating the potential risks…” Hill said, however, that he is voting in favor of the proposal, explaining that, “improving recordkeeping and reconciliation practices (1) can reduce the likelihood of another Synapse-like disaster in the event of a third-party failure, and (2) may result in a more orderly resolution in the event the bank fails.”

The second truth today’s proposed rulemaking underscores is that the financial services industry needs a national fintech charter that can monitor, regulate, and enforce third parties that manage and handle consumer funds. Banks have long been subject to strict regulations and reporting requirements. But should banks that have conducted the proper due diligence be held responsible for the actions (or inaction) of their third party partners? It is time for fintechs to step up and share the responsibility.

Photo by Maksym Kaharlytskyi on Unsplash