Going Boldly – The 2025 Top 5 in Payments and the Dark Mirror: Bold Predictions That Virtually No Banking Professional Will Say Out Loud

Going Boldly – The 2025 Top 5 in Payments and the Dark Mirror: Bold Predictions That Virtually No Banking Professional Will Say Out Loud

By Alan Koenigsberg

February 18, 2025

Overall, banking professionals do not typically seek the limelight. Well, maybe just a few have over the years! However, they are not prone to making bold proclamations, predicting the future as it can become a self-fulfilling prophecy. Despite my three-plus decades in this regulated, cautious and mostly careful industry, I’m going out on a limb to talk about some topics seldom discussed topics in financial services circles — at least not on the record. Focus brings insight and that drives change, and this will be the intention behind a series of editorials over the next several months. Not a stinging controversy, more of a “wake up call” of the velocity of change, as a reminder that now more than ever there is much at stake.

Before I dive into somewhat murkier and tumultuous waters, let’s quickly review five of the top subjects everyone is talking about for 2025, with some color commentary.

  1. Payments are Going Social – X (formerly Twitter) the social media platform is leading the charge to expand into payment services. The pioneering and sometimes tumultuous app has set a goal of becoming the next WeChat and challenging Venmo in the US. As recently reported by Reuters, they have taken a notable step by partnering with Visa to introduce “X Money Accounts,“ a service enabling real-time peer-to-peer payments, linkage to debit cards, and the ability to transfer funds to bank accounts directly within the app.
  2. AI: The Newest Defender Against Fraud – Artificial intelligence (AI) can be harnessed for many different functions in the payments industry, but one where it will undoubtedly excel is the crucial role of enhancing security. Companies like Visa, Mastercard, Block, and PayPal are leveraging AI to analyze vast amounts of transaction data in real-time, enabling more effective detection and prevention of fraudulent activities.
  3. Real-Time Payments are Getting Real Attention – Real-time payments are finding increased applications for B2B payments. For example, Brazil’s Pix payment system has introduced “Pix Automatico,” designed for automating recurring bill payments. Remember the tagline “Tastes Great…Less Filling?” …. Ok, then…. Real-time for who and for what? Answer that question and you will have the customers, the infrastructure, operators, revenue streams and most of the use cases figured out. Today, even the most sophisticated treasury professionals at corporates are baffled by why the U.S. has two RTP networks (FedNow and the Clearinghouse RTP) and why they are not interoperable. Payment’s modernization comes at a cost and at one level there should be competitive transparency, but who ends up footing the bill? I’ll let you be the jury on that and much like our decades of experience with dual ACH systems in the US (albeit a different scenario), did the operating efficiencies make their way to the member banks and their users or just create more layers of infrastructure, sponsorships and potential points of failure. That is just one market with ,000’s of banks many of which are not direct members, with new projects mounting. Silver lining? It’s just going to take time for the technology to settle in, monetize value added services as extensions to clearing with a view toward flexibility beyond the core utility and get cross border/currency payments competitive, digital, inclusive, and secure. Operating at an industrial scale, with client data centricity and low cost are launch pad requirements, not after thoughts – positioning today’s big networks with a hometown advantage.
  4. Embed it and they will Pay – Another significant trend is the adoption of embedded finance, which involves integrating financial services into non-financial platforms. This creates diversification, opening up the opportunity to meet the customer where they are in their journey to execute more quickly with less friction cost and potential fraud with enhanced data and speed. This opens the door further to non-bank financial players working with traditional banks and the reemergence of ERP players looking to monetize payment and trade flows as the data holder of record for most mid-large corporates, governments and banks. The pie continues to get bigger and value-added services around the core get richer.
  5. Something Digital This Way Comes – To meet consumer demand for greater options, including digital wallets and alternative payment methods, such as Buy Now, Pay Later (BNPL) services and cryptocurrencies, businesses are increasingly integrating these methods into their payment systems. It all just sounds just too good to be true. We will explore “Buy Now, You Will Pay All Right” in an upcoming.

Velocity of change is robust, creating leaders, followers, winners and losers – with revenue shifts in some cases from traditional banking to non-bank payment players. These payment innovations are indicative of a shift towards more integrated, efficient, and user-centric solutions. Technology advancements, mobility, enhanced safety/security and let’s not forget generational shifts play a role here. And let’s not bury the lead story here — the majority of the workforce is now Millennial and Gen Z — with many of these two generations living a fully digital life. As your proud author and a Gen X’er, my parents gave me an analogue phone in my room upon entering the 8th grade. Clearly times and technologies have changed!

Saying the Quiet Part Out Loud – What Few are Discussing

As the banking industry contends with today’s evolving payments landscape, there is tremendous pressure to adapt to new technologies, regulatory requirements, and market demands to remain competitive and provide value to business and consumer clients alike. Issues around competing priorities, overregulation, competition from under-regulated FinTech’s, acceptance of crypto currencies, slow pace of innovation due to reliance on legacy platforms, and dependence on traditional pricing models are just some of the topics banks don’t generally want to talk about.

The following is a closer look at some of the top issues bankers are facing in this coming year, but would probably prefer not discuss openly:

  • Modernize through more Transparency, or is it? Traditional Transaction Fees – price times volume (PxV) has been the main stay in most parts of the world for decades, perhaps except for Asia Pacific where the sheer number of countries/currencies provides alternatives for client remuneration. As the adoption of real-time payments (RTP’s), blockchain-based solutions, and new multilateral cross-border networks become more prevalent, corporate customers are increasingly resistant to paying traditional transaction fees to banks. With businesses opting for leaner more instant alternatives like RTP, the US FedNow, stablecoins, etc., banks are experiencing declines in revenue from traditional wire transfers and SWIFT-based payments revenue lines. This is another generational lesson in learning how to steer the ship. Transaction banking is very successful when liquidity and balance attribution teams synergize and integrate P&L’s (e.g. Cards Merchant Acceptance with Traditional Receivables). The extraordinary duration of the low-interest rate tail of the financial crisis left a whole generation of bankers practicing under a paradigm that fees were the primary source of revenue, which under normal market conditions would be the opposite. Winners need to bounce back faster, incentivizing goals internally to get teams rallied around a united ‘client’ mission.
  • New Rules: Share of Wallet by Non-Bank Players: Big tech firms (e.g., Apple, Google, Amazon), fintech startups, Neobanks, and ERP providers (from small business to enterprise providers) are leveraging client data to, in some cases, re-intermediate themselves back into the frame and throw share of wallet into question as they embed payment solutions directly into corporate workflows. As a result, banks are faced with choices, both opportunities to win, and in some cases, to refocus on other areas of their strategy. From payment processing, credit, and treasury services, banks are highly regulated, which lends itself to a slower moving development and execution machine with less available dollars for strategic innovation. In the last couple of decades, they have moved slower, and unlike non-banks with lighter license threshold hurdles, it does threaten to impact core revenue streams. These competitors often offer faster, cheaper, and more innovative solutions, which could erode traditional banks’ market share.
  • Digital Currencies Threaten Bank Deposits: As many central banks launch central bank digital currencies (CBDCs) and corporations consider the use of stablecoins for cross-border payments, banks are facing an existential threat. If businesses move cash into tokenized assets instead of traditional accounts, banks could see a liquidity drain. Making matters less certain, the recently elected U.S. president has by executive order banned U.S. CBDC activities. The implications of this remain unclear along with the politics getting very close to the monetary policy in the U.S. in recent weeks. Another political activity that has far reaching consequences – or does it? An insider at the Fed recent shared that the program was “on life support already” as of December 2024, making it in my view not political at all.
  • The Push for Greater Transparency and Open Banking Shifts Control from Banks: While everyone can agree the push for greater transparency is a good thing, stricter regulations have some serious consequences for banks. Open Banking and emerging PSD3-like policies are driving banks to open up payment infrastructure via APIs. This gives corporations more control and choice over payments, reducing their need for legacy banking systems. The regulatory framework is catching up with the new opportunities that are proposed by Open Banking and actual customers may still be skeptical around the use of their data and risk of cyber breaches. At the same time, FinTech’s are moving faster than traditional banks which means banks are losing ground.
  • Artificial Intelligence Introduces Automation that Reduces Need for Bank-led Treasury Services: Innovative AI-driven solutions are replacing manual payment processes with automation that is revolutionizing corporate payment processing. The downside to this is that AI-powered cash flow forecasting, fraud detection, and automated reconciliation means less reliance on bank-led treasury services, cutting transaction-based revenues.
  • Politics, Finance, Technology – Up is down and Down is Up: The political dynamic in the United States could usher in a new era of deregulation, trade and logistics issues. The U.S. Consumer Protection Agency has all been shuttered as of early February. Politics are temporal, but can have impacts lasting decades if not permanent, spread to other G-20 countries and its impact on protections will unfold which needs to be monitored closely along with a laundry list of dozens of executive actions. As the new US administration plans to also reform the FDIC, banks face impending changes. In addition, an executive order demanding that banks provide access to services for cryptocurrency firms could alter their interaction with traditional financial institutions. These developments are likely to have significant implications for the industry, particularly as it relates to regulatory compliance, cybersecurity, and the integration of new technologies.
  • Armageddon is not discussed at the kitchen table: You have heard this tune before, right? In our time in this industry, the sky is falling has been a common refrain, while the revenue pie continued to get bigger as the use-cases grew fueled by technological advancements. That continues to be true today and shows no signs of change. Further, most of the non-bank players do not seek to become banks to disintermediate core revenues. Their core business (as an example: Enterprise Resource Providers (ERP’s Companies) have no need to carry banking risk on their balance sheets and are pleased to partner with banks. While there are exceptions, all need to pay attention, plan well, and while the revenue mix will move around— Armageddon? Perhaps not. Given these uncertainties, all ecosystem players need to refresh strategic plans actively and leveraging internal/external and new intelligence sources to assess ongoing shift and their potential impact on near- and long-term impacts and opportunity.

Given these uncertainties, banks would be well advised to monitor the impending and ongoing changes closely and assess their potential impact on operations.

IMAGE of The 800-Pound Gorilla in the Room: Quantum Computing

The 800-Pound Gorilla in the Room: Quantum Computing is Coming…

In the financial services sector, the advent of quantum computing is poised to revolutionize areas such as portfolio optimization, risk management, and fraud detection. Quantum algorithms can process complex datasets more efficiently than classical computers, leading to more accurate risk assessments and investment strategies. Additionally, quantum cryptography is already being implemented in the banking industry to protect sensitive data.

Computer scientist, John Duigenan, who serves as General Manager of Global Financial Services at IBM, was recently predicted “that when quantum computers become generally available, they’ll likely boast 100,000 qubits, which will enable the financial industry to solve problems that are either impossible to solve today, or at a faster speed than ever before. A problem or calculation that may take 100 years for classical computers to solve may take days or even hours using a quantum computer.”

IMAGE: The riches of quantum computing

While quantum computing presents important opportunities for the banking and financial services sector, it also presents significant risks. Primary concerns revolve around security vulnerabilities, data protection, and financial stability.

For instance, quantum computers will be able to break current encryption methods which are used to secure banking transactions, financial data, and digital identities. In response, banks will have to transition to quantum-resistant encryption protocols to mitigate the risk. Due to the superior processing power of quantum computers, malicious actors could leverage quantum-enhanced machine learning to develop more sophisticated fraud strategies, making it harder for banks to detect suspicious activity. Banks will need to work with regulators, cybersecurity firms, and quantum researchers to develop proactive defense strategies.

The increased threat of quantum AI-powered cyber-attacks, along with the potential speed advantages this technology could deliver in High-Frequency Trading (HFT), could create potential financial instability. Plus, quantum-powered analytics ability to predict market movements far better than current AI, could lead to excessive speculation, liquidity risks, and increased financial crashes.

Regulators will have to establish new security and compliance requirements for banks to transition securely to quantum computing. Financial institutions operating globally may face conflicting regulatory demands regarding quantum security compliance. Banks will be compelled to invest in quantum-resistant systems, or risk obsolescence.

Additional considerations around quantum computing include the potential enablement of new decentralized networks that bypass traditional payment rails. Quantum algorithms could also enhance risk modeling and customer personalization, which would have the effect of empowering fintech and big tech firms to offer services that cause banks to lose market share.

According to Mary Ann Francis, global payments and strategic initiatives consultant, banks need to start now when it comes to considering the implications of quantum computing. She poses the question, what if your largest client calls and asks what the bank is doing regarding issues around quantum computing? Banks will need to have answers. They will need to be able to share their roadmap and future investment plans. Getting to the answers requires asking the tough questions and doing the due diligence now.

The Last Word

Regardless of whether banking professionals are inclined to talk about the issues discussed in this article, as well as many others that could potentially impact the industry in the year(s) ahead, financial institutions, their clients and partners need to be fully aware of the changes that are coming and some that are already here. The industry will need to deal with these issues as operational and perhaps some as events to change the model overall. This is the difference between remaining relevant or not with so many companies of the past, all with good intentions did not see the end coming until it was too late. Leadership in this case in handing these deep best practices to our next generation and listening to their brilliance will benefit us for years to come as technological innovations, regulations, and new competitors are reshaping the landscape. Koenigsberg Insights is proud to launch this series of fact-based and unvarnished perspectives on how we can take another look in some cases do better for our clients and customers. Fortune favors the bold.

~ Alan Koenigsberg, Founder, Koenigsberg Insights

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