Forecasting the Future: Payment Technology Trends to Anticipate by 2025

by The Leader Report Team

Written by Rob Anderson and Adam Hallquist

This year signifies a period of transformation and preparation for the payments industry, with great momentum continuing from the developments of 2024. The previous year saw soaring stock prices and notable private offerings, setting the stage for a promising landscape in 2025. As the payments sector evolves, both established companies and startups face immense opportunities as well as increasing complexities. Below, we explore the anticipated developments within the payments industry for the coming year.

AI Accelerates Vertical SaaS and Embedded Finance

As we approach 2025, it is expected that artificial intelligence (AI) will play a vital role alongside vertical Software-as-a-Service (SaaS) and embedded financial platforms. Businesses in this sector are likely to see an improvement in product capabilities thanks to the synergistic integration of software, data, and AI. This evolution is crucial as vertical software and embedded finance gain prominence as standalone categories within the payments landscape. Companies like Toast Inc. and Vagaro exemplify this trend, with each having established a significant position in their respective markets. Their success underscores that vertical SaaS and embedded finance are becoming permanent fixtures within the industry.

The Battle for Loyalty Becomes Hyper-Personal

In the competitive realm of fintech, customer loyalty is increasingly tied to personalization. Fintech institutions are gearing up to customize products, drawing customers deeper into their ecosystems and making the transition to higher-margin offerings—such as premium credit cards or substantial loans—more seamless. Hyper-personalization will require financial providers to be present during significant life moments for their customers. For instance, an institution could offer a tailored credit product to new parents, providing discounts on baby products or interest-free purchases. However, achieving this personalization can be challenging for legacy institutions, as customer data often resides in disparate IT systems. There exists a growing demand for modern infrastructure that can facilitate such tailored interactions, benefiting next-generation fintech providers like LoanPro.

Real-Time Payments in Different Global Contexts

International markets are poised to lead the charge in real-time payments, with Brazil’s Pix system serving as an inspiring example. Processing approximately 42 billion payments annually, Pix represents a significant transformation, accounting for over 30% of payment transactions in Brazil. This level of efficiency raises questions for organizations and governments around the globe contemplating similar implementations, particularly regarding the potential impact on debit and credit card usage. However, the U.S. may lag in adopting real-time payment initiatives due to its fragmented financial landscape, which consists of numerous banks and credit unions with varied systems. Thus, the creation of a universal payment system akin to Pix remains a substantial challenge. Yet, the long-term potential for real-time payments in the U.S. persists, especially as businesses begin to experiment with instant and cost-effective transaction solutions.

Becoming a Change Agent Under CFPB Rule 1033

In October 2023, the Biden administration finalized Rule 1033, which mandates that banks and credit unions improve customer accessibility to financial data and enhance comparative capabilities to help consumers secure the best rates. As we head into 2025, a significant investment is anticipated in developing digital banking capabilities, especially by larger banks and credit unions with assets exceeding $1 billion. Compliance with Rule 1033 will likely compel financial institutions to reassess their legacy systems. Many are expected to move towards integrated platforms that can effectively address their clients’ diverse lending and payment requirements, thereby modernizing their infrastructure and prioritizing user experience.

Rob Anderson, a veteran growth equity investor at FTV Capital, brings over 13 years of experience focusing on financial technology and services. His impressive background includes investment banking at Bank of America Merrill Lynch and recognition as a top growth investor. Adam Hallquist, with almost a decade at FTV Capital, brings a strong focus on M&A within fintech sectors, further solidifying the insights presented in this exploration of industry trends. Both investors underscore the criticalities surrounding the future of payments technology in light of recent advancements.

Conclusion

The payments industry is set to navigate a period of considerable transformations and challenges in the coming months. With technological advancements like AI and embedded finance gaining traction, companies must adapt to maintain consumer loyalty through hyper-personalized experiences. While real-time payments are making strides globally, the U.S. faces distinct hurdles in implementation. Organizations must also prepare for regulatory changes under CFPB Rule 1033, which will influence how they interact with customers and manage financial data. As these dynamics unfold, the industry’s evolution will provide profound implications for both financial institutions and their clients, shaping the future of payments technology.

FAQs

What is vertical SaaS?

Vertical SaaS refers to software-as-a-service solutions designed specifically for a particular industry or niche, unlike horizontal SaaS, which serves a wide range of industries. Examples include software tailored for restaurants or salons.

How does hyper-personalization impact customer loyalty?

Hyper-personalization enhances the customer experience by providing tailored products and services based on individual preferences and life circumstances, fostering increased loyalty to financial institutions.

What is CFPB Rule 1033?

CFPB Rule 1033 mandates that banks and credit unions must grant customers easier access to their financial data, thereby enhancing the ability for consumers to compare providers and obtain favorable rates.

What are real-time payments?

Real-time payments enable instantaneous transactions between bank accounts, allowing consumers and businesses to send and receive funds without delay, enhancing efficiency in the payment processing landscape.

Why is the U.S. lagging in real-time payments?

The U.S. financial landscape’s fragmentation, with numerous institutions using different systems, complicates the creation of a unified real-time payment solution similar to successful international models.

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