AI Accelerates Embedded Finance And Loyalty Battles Get Personal: Payments Tech Predictions For 2025

This year will be one of both transformation and preparation for the payments industry.

The momentum that propelled the sector in 2024 — including surging stock prices and noteworthy take-privates — is poised to continue this year, especially with promising IPOs on the horizon.

While the opportunities are immense, there are growing complexities that could challenge incumbents and startups alike. Below are the biggest developments we expect to see in the payments industry in 2025.

AI turbocharges vertical SaaS and embedded finance

We expect artificial intelligence to coexist with vertical SaaS and embedded finance platforms — each making the other better — pushing us into a golden age of automation and intelligence delivered through the unification of software, data and AI. This is especially relevant as vertical software and embedded finance platforms continue to become a standalone category.

Take Toast, which now has a $20 billion-plus market capitalization and serves more than 125,000 restaurants. Or Vagaro 1, which supports more than 100,000 salon, spa and fitness businesses. Their strong growth only reinforces the reality that vertical SaaS and embedded finance is here to stay. In 2025, these platforms will increasingly embed AI, giving rise to powerful new product capabilities, attracting greater market share from horizontal offerings and driving better customer outcomes.

Battle over loyalty goes hyper-personal

The battle over customer loyalty will come down to personalization, with institutions more aggressively tailoring their products to specific clients. This will help push customers deeper into a lender or payment provider’s ecosystem, making it easier to eventually move them to higher-margin products, such as specific credit cards or larger, longer-duration loans.

In this new age of hyper-personalization, financial institutions must be present at a consumer’s biggest life moments. For example, if a client just had a baby, the provider could offer a custom credit program to extend discounts on diapers or zero-interest rates for certain purchases, such as formula. But this is difficult for institutions with legacy infrastructure. The customer data needed to power these unique interactions is trapped in dozens of disparate IT systems often across various business lines.

This demand for greater personalization will drive an exciting replacement cycle of legacy systems that benefits next-generation financial technology infrastructure providers like LoanPro 2, an API-first lending and credit platform.

Real-time payments are real, but US will still lag

International markets continue to lead the way on real-time payments, with Pix as the poster child for success in 2024.

The instant payment system developed by the Central Bank of Brazil, Pix processes roughly 42 billion payments annually, a 74% increase from the prior year, and represents more than 30% of payment transactions in the country. Many international institutions and governments are examining whether it’s a model they can replicate — and what that means for debit and credit cards.

But don’t expect to see the U.S. taking a leading role in real-time payments in 2025. With thousands of banks, credit unions and financial institutions all using different systems and infrastructure, the U.S. financial landscape is highly fragmented. This makes it hard to create a universal and interoperable payment system such as Pix. Furthermore, the U.S. government is incredibly unlikely to require companies to standardize on a specific infrastructure, probably greatly extending the rollout and adoption of any instant payment solutions.

However, we still believe in the long-term potential of real-time payments in the U.S. As enterprises experiment with instant, low-cost transactions, emerging successes like TabaPay will help shape this trend in North America.

CFPB Rule 1033 becomes a change agent

In October, the Biden administration issued a final version of Rule 1033, requiring banks and credit unions to make it easier for customers to access their financial data and compare providers to get the best rates. In 2025, there will be substantial investment from banks and credit unions with over $1 billion in assets in new digital banking capabilities to modernize their infrastructure to comply.

To comply, institutions will likely “shrink their core,” thus becoming less reliant on existing core banking systems. Instead, the focus will shift to systems and applications that improve the user experience and operational workflows, forcing many banks and credit unions to move away from point solutions and invest in unified platforms that can handle the full spectrum of customer lending and payment needs.

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

Adam Hallquist has been a growth equity investor at FTV Capital for more than nine years, and currently has investment responsibilities in financial technology and services. Prior to joining FTV, he was an investment banking analyst at Financial Technology Partners, where he focused on mergers and acquisitions, working on several transactions within the payments, securities and software spaces. Hallquist began his career at Fortress Group Inc., an investment bank focused on the private placement of private equity funds.

Illustration: Dom Guzman