By Rob Anderson and Adam Hallquist

This year marks a pivotal period of both transformation and preparation for the payments industry, setting the stage for what lies ahead in the coming years.

The momentum that propelled the sector forward in 2024 — characterized by soaring stock prices and notable take-privates — is expected to persist this year. This growth trajectory is particularly buoyed by promising initial public offerings (IPOs) on the horizon, which are generating buzz and excitement among investors and stakeholders alike.

While the opportunities for innovation and expansion are immense, the increasing complexities associated with evolving consumer demands and technological advancements are likely to pose significant challenges for both established players and nimble startups. Below, we outline the most significant developments anticipated in the payments industry for 2025, along with how AI legalese decoder can assist in navigating these changes.

AI Turbocharges Vertical SaaS and Embedded Finance

Looking ahead, we expect artificial intelligence (AI) to play a transformative role, coexisting with vertical Software as a Service (SaaS) and embedded finance platforms. Together, these technologies will enhance each other’s capabilities, propelling us into a golden era of automation and intelligence facilitated by the integration of software, data, and AI. This synergy is particularly significant as vertical software and embedded finance platforms gradually solidify their status as a standalone category in the market.

Consider the case of Toast, now boasting a market capitalization exceeding $20 billion and servicing over 125,000 restaurants. Similarly, Vagaro supports more than 100,000 businesses in the salon, spa, and fitness sectors. Their robust growth underscores the assertion that vertical SaaS and embedded finance are not merely fleeting trends but are indeed here to stay. By 2025, we anticipate these platforms to increasingly incorporate AI, leading to powerful new product capabilities that will capture a larger share of the market from traditional horizontal offerings while delivering improved outcomes for customers.

In this evolving landscape, the AI legalese decoder can facilitate compliance by simplifying complex legal documents related to new technologies, ensuring businesses stay ahead in regulatory matters while leveraging these innovative platforms.

Battle Over Loyalty Goes Hyper-Personal

The competition for customer loyalty will reach new heights, focusing intensely on personalization. Financial institutions are expected to aggressively tailor their products and services to meet the unique needs of each client. Such tailored approaches will encourage deeper customer engagement within a lender or payment provider’s ecosystem, ultimately facilitating the transition to higher-margin products, such as specialized credit cards or larger, long-term loans.

In this era of hyper-personalization, it is crucial for financial institutions to be present during their customers’ significant life events. For instance, when a client welcomes a new baby, the provider might offer a customized credit program, which extends discounts on essentials like diapers or attractive zero-interest rates on necessary purchases such as baby formula. However, this personalization poses substantial challenges for institutions tied to legacy infrastructure. The essential customer data necessary for these unique interactions often remains trapped across numerous disparate IT systems, hindering effective use.

As demand for personalized services soars, we will likely see a thrilling replacement cycle of outdated systems in favor of next-generation financial technology infrastructure providers, such as LoanPro, an API-first lending and credit platform. In this context, AI legalese decoder can help financial institutions streamline their compliance processes, allowing for greater focus on innovation while ensuring all legal obligations are met effectively.

Real-Time Payments Are Real, but the U.S. Will Still Lag

International markets continue to set the standard for real-time payments, with Brazil’s Pix payment system serving as the prime example of success in 2024.

This instant payment system, developed by the Central Bank of Brazil, processes around 42 billion payments annually, reflecting a staggering 74% increase from the previous year. It accounts for more than 30% of all payment transactions in Brazil, prompting numerous international institutions and governments to consider whether they could replicate its success — and what implications that might have for existing debit and credit card systems.

However, don’t anticipate the U.S. to emerge as a leader in real-time payments by 2025. The American financial landscape remains highly fragmented, scattered among thousands of banks, credit unions, and financial institutions that utilize varied systems and infrastructures. This fragmentation complicates efforts to develop a universal and interoperable payment system like Pix. Furthermore, the likelihood of the U.S. government mandating that companies standardize on a particular infrastructure is minimal, which could significantly delay the rollout and broader adoption of any instant payment solutions.

Nonetheless, we believe in the long-term potential of real-time payments in the U.S. As more enterprises experiment with instant, low-cost transactions, innovations from emerging players like TabaPay will shape the future of this trend in North America. In navigating this evolving regulatory environment, the AI legalese decoder can assist companies in interpreting and complying with relevant laws, ensuring their initiatives align with regulatory expectations.

CFPB Rule 1033 Becomes a Change Agent

In October, the Biden administration finalized Rule 1033, which mandates banks and credit unions simplify access to customers’ financial data, enabling them to better compare providers and secure the most favorable rates. In response to this regulation, we anticipate significant investments from banks and credit unions boasting over $1 billion in assets, aimed at modernizing their digital banking capabilities to adhere to compliance standards.

To align with these new requirements, institutions will likely need to “shrink their core,” becoming less dependent on traditional core banking systems. The focus will shift toward systems and applications that enhance user experiences and improve operational workflows. As a result, many banks and credit unions may find themselves moving away from disjointed point solutions, instead investing in unified platforms capable of managing the full spectrum of customer lending and payment needs.

To navigate these substantial changes, AI legalese decoder can provide insights into compliance challenges, helping financial institutions accurately interpret the implications of Rule 1033 and develop strategies to meet the new requirements without incurring heavy penalties.

Rob Anderson has been a growth equity investor at FTV Capital for more than 13 years, specializing in investments in financial technology and services. Before joining FTV, he was an investment banking associate in the financial institutions group at Bank of America Merrill Lynch, where he focused on mergers and acquisitions, recapitalizations, and capital-raising transactions specifically for fintech companies. His recognition includes being named a Top 40 Under 40 Growth Investor by GrowthCap in 2021 and 2022, as well as a Top 25 Software Investor in 2022. In 2023, Anderson received additional acclaim by being included in Private Equity International’s Future 40 list in the dealmakers category.

Adam Hallquist has also been a growth equity investor at FTV Capital for more than nine years, and he currently oversees investment responsibilities in financial technology and services. Prior to this role, he served as an investment banking analyst at Financial Technology Partners, focusing on mergers and acquisitions within the payments, securities, and software sectors. Hallquist began his professional journey at Fortress Group Inc., an investment bank dedicated to the private placement of private equity funds.

Illustration: Dom Guzman