Now that we’ve turned the page on 2024, the industry eagerly awaits what may come in 2025.
Will we see more of the same in terms of limited growth & scale?
Or will this be a breakthrough year for modern financial services?
To get back to pre-COVID, record-breaking scale (full of innovation, new products launches, and partnerships), FinTech needs its own set of resolutions for the year. Instead of being forgotten in January, there’s progress made throughout the year leading to substantial growth. These aren’t ‘moon-shot’ goals either — based on movement in 2024, this list below is within reach.
Here are the New Year’s resolutions that FinTech needs in 2025 (TL;DR):
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Regulatory clarity from top agencies that oversee US banks;
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Step-up with sponsor bank activity;
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Integrated compliance & risk support solutions (for banks & fintechs);
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A re-launch of US crypto use cases (starting with stablecoins);
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Renewed investor optimism for new fintech programs;
Let’s first provide context on the current opportunities within FinTech, then break down each resolution in more detail.
Industry Areas as Opportunities
What was once an industry strength has become a critical blocker to growth & innovation — regulatory ambiguity in financial services.
The FinTech boom of 2017 – 2022 was carried by nimble startups partnering with banks to push the envelope of what’s possible in payments, banking, lending, and wealth management. This era unleashed the industry giants we see today — such as Plaid, Marqeta, Nubank, Affirm, Square, Adyen, Chime, Brex, and Robinhood. Regulators sat back and observed this new market dynamic without any interference.
By late 2022, the party was over as regulators reviewed partner banks in annual audits — there was now a focus on 3rd party partners. Critical enforcement actions were announced that shut down new partnerships and limited activity with existing fintech companies. Blue Ridge Bank and Cross River Bank were the first to be called out. Many others would follow later in the year and into 2024.
As a result, many banks decided to exit sponsor banking altogether — the ones who remained decided to onboard a lower volume of fintech partners (some only focusing on 1-2 enterprise relationships per year). Prospective banks exploring the space now waited on the sidelines.
In a similar theme, cryptocurrency (including stablecoins) use cases suffered the same fate (in 2020 – 2022). Regulators were direct with chartered financial institutions that they should avoid involvement with crypto — this included custody, on & off ramps that allow for conversion to USD, and even crypto-backed card spend. BlockFi, Wyre, and other top wallets were forced to quickly shut down and advise users to withdraw funds immediately.
Investor funding also started to dropoff early 2022 due to the market environment and increased rigor to show a ‘path to profitability.’ Lack of early-stage funding meant less new platforms & product releases, and existing seed (or Series A) companies shutting down since they couldn’t raise a new round (or be acquired). Investments that did take place were at a lower valuation — contrary to the skyrocketing trend observed from 2015 – 2020.
This industry turbulence led to consolidation across the industry and minimal growth in the last 18-24 months. On the positive side, this period served as a time of maturation — banks & fintechs had a better sense of how to launch sustainable & compliant partnerships.
Being Resolute in Driving FinTech Forward for 2025
From the context on industry opportunities, it’s clear that there’s significant ground to regain in FinTech this year.
Any momentum in 2025 first requires a kickstart from clear regulatory guidance and/or frameworks.
Regulatory Clarity Needed
With 5+ years of sponsorship banking and numerous regulatory reviews, a framework is slowly forming from US regulators when it comes to a compliant path for banks and fintechs to partner.
3rd party oversight & monitoring led by financial institutions form the backbone for a sustainable playbook. No more delegating to vendors or middleware parties — banks need to have their own team, policies, and processes when it comes to reviewing, approving, and managing sponsored relationships. Third-party risk management (aka TPRM) is now a common term in the industry and ensures banks are collecting sufficient data for approving activity from external players.
Robust improvements to anti-money laundering (AML) and Bank Secrecy Act (BSA) policies represent another pillar of what a new framework should include, based on 2024 themes. This includes better controls with Know Your Customer (KYC) and Know Your Business (KYB) in which sufficient data is collected and verified to ensure valid end-users are screened and not a match for watchlists.
The last foundational pillar comes down to transaction monitoring. Banks are being penalized for not being able to identify + report suspicious transactions, and prevent fraud that leads to losses. Real-time review of authorizations, adopting limits / controls customized to the scope of use case, and flagging patterns of activity are processes that showcase improved management efforts from banks in upcoming reviews.
In early 2025, regulators can (and should) clearly spell out these expectations. Any concerns from financial institutions should be forwarded to an agency’s ‘help desk’ (similar to how other state & local government offices respond to inquiries).
Banks would now have clear guidance and be able to make a decision to enter (or continue) sponsored fintech partnerships.
Fueling Sponsor Bank Participation
Fresh from 2024, there were too few partner banks that were active in the space.
This was caused by two dynamics: (i) existing banks decided to limit new program partners OR shut down this division altogether, and (ii) less new banks decided to make the leap into becoming a sponsor.
A clear regulatory framework (discussed above) would address both dynamics right away. Experienced banks would be able to pivot towards a sustainable path of partnerships (and avoid the need to close down). New banks would be able to make a stronger case to their executive committees about partnering with fintechs.
To truly move the dial, the industry needs to highlight examples of success for both banks & fintechs in the US.
Who is winning today? How did they get there (in terms of tech, vendors, staffing, funding)? What revenue, deposits, and other benefits are being realized?
FinTech went through a consolidation from 2022 – 2024. Many startups and partner banks struggled to launch new platforms or scale towards projected volume & monetization.
Of the players that remain, the industry needs to recognize the leaders and share best practices for infrastructure and ongoing maintenance. In this manner, more financial institutions would be able to acknowledge what’s possible and make a comparison to alternative paths of generating revenue (such as opening new branches, promotional interest rates, etc.).
Mandatory Compliance & Risk Management
A major component for banks in delegating oversight and risk management to 3rd parties was a lack of modern technology, innovative products, and staffing.
For financial institutions committed to fintech partnerships, the most difficult gap to address is with staffing — there’s a shortage of compliance/risk operations talent willing to relocate (and work in office) for regional banks.
A smaller challenge comes from adopting the latest tools for risk monitoring.
In the last 2 years, multiple startups have emerged in support of financial institutions improving daily operations — from reporting for regulatory reviews to AI-enhanced transaction monitoring, companies like Sardine, Unit21, Oscilar, and Cable have stepped in.
New fintech partners are now being required to work with specific compliance vendors who are already bank-approved and integrated into bank tech stacks. This simplifies audit processes during a regulatory review and minimizes the time to fulfill assigned tasks.
No longer an optional consideration, modern compliance & risk support is now a mandatory part of FinTech and stabilizing the sector.
A Restart for Crypto Programs (Starts with Stablecoins)
It was early 2023 when the tide formally turned against cryptocurrency in the US.
The tri-party regulatory announcement to banks (from the FDIC, OCC, and Federal Reserve) spoke out against contagion risks from participation with crypto assets (including deposit flows). No specifics were laid out in terms of what was and was not allowed. Financial institutions saw this as broadly applying to any type of crypto activity or marketing affiliation (including stablecoins).
At the end of 2024, momentum (fueled by the rising valuation of Bitcoin above $100K) started building with stablecoins in the US. Investors started to fund companies that powered money movement via stablecoins, which a critical use case for remittances outside of the US. Major US industry leaders (Visa, PayPal, Stripe) are also actively funding projects in this space for the New Year.
The trigger can come later this month with the newly installed administration openly allowing crypto activity in the US financial system. A clear stance from major regulators overseeing banks would bring back these payment rails into fintech, allowing for on & off ramp exchanging between USD and crypto. Stablecoins (such as USDC) would be the lowest hanging fruit in restarting crypto usage in the US.
Investor Optimism for What’s New in FinTech
With maturity from industry players (e.g. banks, fintechs, tech providers), the time is right for investors on the sidelines to jump back in to support new startups & programs.
The latest founders are aware of new requirements and expectations when it comes to raising capital, especially when it comes to differentiation (i.e. unique use case or product) and customized acquisition & distribution models (for gaining new users with recurring activity). In-house compliance expertise is a newly added prerequisite for fintech startups to manage (through fractional consultants or full-time hires).
The catalyst needs to come from a group of early-stage funds willing to take bets on new programs this year. These investments help build prototypes and allow for market testing. Any signs of traction would lead to additional investments, while lack of performance would be an indicator to quickly shut down a project.
Infrastructure providers & support vendors can quickly follow suit by enabling small-scale product partnerships with bank partners in which limited resources are provided for testing. Success with these pilot programs would yield a path to a formal, full-scope partnership with a bank (after securing additional funding).
The volume of new platforms may not reach pre-COVID levels, but will serve as a robust base for innovation to bloom in the 5 years.
Staying Committed to FinTech Resolutions
Some of these are easier than others when it comes to making progress.
Regulatory clarity would be the one resolution with a waterfall effect — accomplishing this early in the year delivers a positive lift to bank sponsorship participation and sentiment with crypto activity in the 2nd half of 2025.
I’m excited for the momentum with innovative solutions with compliance & risk management solutions.
There was a vacuum of this type of support for financial institutions and fintechs. To see this area not only thrive, but also become a mandatory part of new products & partnerships is a great sign of maturity for the financial services industry.
A bounce back for investors in the early-stage rounds would be the long shot of the group, but strong progress on the other 4 would increase the likelihood of new investments before the end of year.
Overall, the level of engagement in FinTech is poised to reach new heights in 2025. We’ll follow-up on how these resolutions develop over the course of the year.
If we missed any or you have thoughts on the above, let us know in the comment section (below)!
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