2025 Financial Trends: What’s Next for Business Banking

General Market Conditions

What were the biggest takeaways from the banking industry in 2024, and how can the industry leverage these learnings going into the new year?

• In 2024, the banking industry accelerated its adoption of AI-driven technologies to enhance efficiency, customer experience, and compliance amidst economic challenges and evolving regulations. Going into 2025, AI is poised to play an even greater role, changing operations through intelligent automation, predictive analytics, and potentially personalized customer interactions. – Pete Chapman, Chief Technology Officer
• In 2024, the rise of AI-driven cyberattacks and increasing reliance on third-party integrations highlighted the need for proactive cybersecurity measures in banking. Moving forward, banks will focus on leveraging advanced technologies, strengthening vendor oversight, and ensuring robust data protection. – Vincent Maglione, Chief Information Security Officer
• In 2024, one of the key takeaways for the banking industry was the critical importance of building strong risk and compliance infrastructures to keep pace with rapid technological advancements, particularly in BaaS and embedded finance. We saw that banks offering BaaS must navigate intricate regulatory landscapes while managing digital fraud risks and staying compliant with increasingly complex regulations. The growth of digital products in response to business customer demands highlighted a need for continuous investment in cybersecurity and fraud prevention technologies, as well as an ability to scale risk management practices effectively. Going into 2025, banks can leverage these learnings by focusing on regulatory technology solutions that streamline compliance, ensuring they can adapt swiftly to new regulations while supporting secure growth. – Chris Mastrangelo, Chief Risk Officer
• The banking industry’s biggest takeaway from 2024 is that the “Fintech Winter” is over, ushering in a new era of innovation and funding opportunities as tech IPOs gain momentum. – Lauren McCollom, SVP, Head of Embedded Finance
• Fintechs saw significant popularity in 2024, driven by demand for enhanced functionality and streamlined user experiences. Consumers want more functionality, and are less willing to accept slow and clunky user experience. However, these innovations come with inherent risks that banks must carefully consider. To remain competitive, banks should prioritize adapting to provide seamless, efficient services that meet evolving consumer expectations, while upholding robust security measures to keep their money safe. – Rob Burnett, Director of Startup Banking
• Instant payments are on a slow roll to launch, as we were expecting. Most banks are still playing wait-and-see on send for FedNow, and we didn’t see significant growth in adoption across the industry. Consolidation in the BaaS/Embedded Finance space continues; more banks are leaving the space which is causing a lot of pressure on fintechs. The technology provider ecosystem is also consolidating. – Luther Liang, Director of Product

What trends do you expect will impact the banking industry in 2025?

• Emerging trends like open banking (especially CFPB rule 1033) and embedded finance will further integrate AI to create seamless, personalized financial services. Partnerships with fintechs will be key in driving this AI innovation, enabling banks to rapidly adopt cutting-edge solutions and stay competitive. I think more banks will partner for AI than trying to develop their own LLMs. Automation efficiency will drastically accelerate due to tools like AI and RPA, and I think you will see gaps grow in different Banks capabilities based on this. Similar to what we’ve seen happen with the adoption of digital in the last 20 years. We could look back in 5 years and see old school community banks left even further behind. – Pete Chapman, Chief Technology Officer
• AI will be the leader in technology impact in 2025. Predictive analytics will help anticipate and mitigate risks by analyzing data trends, improving fraud detection, credit scoring, and operational efficiency. In the security world, I anticipate biometric authentication processes will see broader adoptions as passwords are becoming less and less effective. – Vincent Maglione, Chief Information Security Officer
• In 2025, we anticipate an increased emphasis on AI and automation within compliance and fraud detection frameworks, with regulatory bodies providing more structured guidance on their use. Digital fraud is also likely to evolve, requiring more sophisticated fraud prevention measures. Another key trend will be the continued expansion of BaaS, necessitating comprehensive risk assessment and monitoring practices that not only address regulatory mandates but also uphold the security and soundness of financial transactions. – Chris Mastrangelo, Chief Risk Officer
• In 2025, heightened regulatory scrutiny will remain a dominant trend, with consent orders and enforcement actions surfacing past missteps and reshaping compliance priorities. Banks will need to proactively address legacy issues while investing in advanced regtech solutions to ensure agility and transparency. This focus on accountability will drive industry-wide innovation in risk management and reinforce trust with customers and regulators alike. – Lauren McCollom, SVP, Head of Embedded Finance
• The anticipated de-regulation of cryptocurrency is poised to significantly impact the financial markets. Banks will need to navigate the complexities of engaging with Web3 companies and their offerings. As fintechs may lose some favor, banks should be prepared to step forward with innovative products and enhanced user experiences. Additionally, lower interest rates may reduce the appeal of holding cash in money market funds, potentially leading to decreased deposit balances. – Rob Burnett, Director of Startup Banking
• Given the changes in 2024 and guidance from regulators, a “bank direct” model will gain prominence in 2025 in BaaS/Embedded Finance. Real time payments are poised for increased adoption next year, building on the groundwork that was laid by many institutions and fintechs this year. – Luther Liang, Director of Product

How do you see the ongoing deposit competition evolving in 2025 for digital and neobanks?

• Startups will continue to face challenges in finding strong sponsor banking partnerships to launch new embedded finance programs. – Lauren McCollom, SVP, Head of Embedded Finance

AI, RegTech & Emerging Technologies

How will AI, RegTech, and other emerging technologies impact compliance and risk management for banks in 2025?

• Banks will adopt RegTech tools to streamline compliance with complex regulations, reducing manual tasks and ensuring real-time regulatory adherence.
  RegTech powered by AI will streamline compliance processes (like what we do with Greenlite), reduce costs, and improve risk management accuracy, while advancements in AI-based fraud detection could minimize fraud. – Pete Chapman, Chief Technology Officer
• AI will continue to be at the forefront of growth within the banking industry. Efficiency gains have been prominent throughout 2024, with 2025 pointing towards ways to better utilize AI for risk management, fraud detection and increasing customer service capabilities. – Vincent Maglione, Chief Information Security Officer
• AI and RegTech are set to revolutionize compliance and risk management by enabling banks to process large volumes of data for real-time monitoring and anomaly detection, enhancing their ability to preempt and respond to potential threats. Machine learning can identify patterns in transaction data that signify fraud or compliance risks, while automation in regulatory reporting can help institutions keep pace with the complex and ever-evolving regulatory landscape. RegTech solutions will empower banks to be more agile in adapting to regulatory changes, enhancing overall risk management and compliance efficiency. With the growth of BaaS, these technologies will become essential for ensuring partner compliance and maintaining consistent oversight across all digital touchpoints. – Chris Mastrangelo, Chief Risk Officer

Embedded Finance

How will/should banks balance innovation with regulatory scrutiny as BaaS and embedded finance continue to grow?

• Balancing innovation with regulatory scrutiny in the expanding BaaS and embedded finance ecosystem requires a forward-thinking approach that prioritizes risk and compliance from the outset. Banks must establish robust, adaptable frameworks that allow for secure innovation while staying responsive to regulatory expectations. This includes designing compliance controls specific to the digital products offered, as well as implementing continuous risk monitoring that can adapt to changing regulatory landscapes. By investing in regulatory technology and fostering a culture of compliance, banks can support safe growth in their BaaS programs, meeting both customer demands for digital products and the regulatory mandates that safeguard the broader financial ecosystem. – Chris Mastrangelo, Chief Risk Officer
• As BaaS and embedded finance expand in 2025, middleware providers aiming to own compliance and program management for fintechs will continue to face stiff headwinds, reinforcing the need for banks to retain ultimate accountability. A collaborative approach, combining robust in-house governance with agile third-party support, will be key to navigating this complex landscape. – Lauren McCollom, SVP, Head of Embedded Finance

Partnerships

What role will partnerships between banks and fintechs play in driving innovation in digital banking this upcoming year?

• Partnerships between banks and fintechs will remain pivotal in driving innovation in digital banking, as collaboration allows banks to expand capabilities while fintechs access scale and regulatory expertise. With no new brokered deposit rules, these alliances will gain further traction, enabling creative deposit solutions and seamless embedded finance offerings. – Lauren McCollom, SVP, Head of Embedded Finance
• Given a push towards a “bank direct” model, we expect partnerships to grow closer than ever in 2025. Conversations around redundancy, shared outcomes, and long term business plans are gaining increased prominence. – Luther Liang, Director of Product

Business Banking

What do small businesses need from their banking partners in 2025 to stay competitive? Do you anticipate new products or services to emerge to address any changing needs?

• I don’t believe that there will be any significant changes in most SMBs needs in 2025 – getting paid, access to affordable capital/funding, earning strong yield on their cash, and managing cash flow remains top of mind for most. – Luther Liang, Director of Product

What do startups need from their banking partners in 2025 to stay competitive? Do you anticipate new products or services to emerge to address any changing needs?

• Low fees, competitive interest rates, and robust bookkeeping/accounting support are essential. Expanding solutions for seamless payments will be crucial. As interest rates decline, finding innovative ways to maximize yields on cash holdings will remain a priority for startups. – Rob Burnett, Director of Startup Banking

What will be a few key focus areas for Grasshopper in 2025?

• We will be focused on growing our direct banking offerings, our embedded finance platform, and expanding into affinity banking. – Luther Liang, Director of Product