A new report offers a comprehensive look at key payment concepts that will impact retail banks, both in the near term and longer. Here are seven that we think should be top of mind for payments leaders at U.S. institutions.
Executive Summary
Retail banking is approaching a transformative crossroads with emerging fintech innovations set to disrupt traditional payment ecosystems in 2025. Major changes include Apple’s opening of NFC access creating unprecedented wallet competition, behavioral biometrics shifting to passive ID verification, and virtual cards revolutionizing B2B expense management. Regulatory developments including PSD3 readiness and regtech adoption will be critical priorities.
Forward-thinking banking executives must prepare for increased wallet competition, embrace “glocal” payment solutions, strengthen fraud prevention through AI implementation, and develop sustainability-focused offerings to maintain competitive advantage in this rapidly evolving landscape.
Key Takeaways
Apple’s opening of its NFC ecosystem will trigger intense digital wallet competition, with traditional banks needing to develop competitive wallet offerings or risk market share erosion.
- Virtual cards will transform B2B expense management with instant issuing, spend limits, and transaction tracking capabilities that dramatically reduce fraud and manual processing.
- Behavioural biometrics used alongside static verification will create multilayered security systems with improved fraud detection and customer experience.
- Banks must embrace “glocal” payment solutions and orchestration platforms to effectively serve customers across various regions and payment preferences.
What we liked about this report: It’s comprehensive and unafraid to stake out specific claims and predictions.
What we didn’t: Its global perspective can sometimes make the analysis a touch diffuse.
Digital Transformation Is Reshaping Payment Ecosystems
1. Competition will intensify in digital wallets
The digital payments landscape faces significant disruption in 2025 as Apple’s NFC ecosystem finally opens to third parties. After years of maintaining a closed environment for contactless payments, Apple confirmed in July 2024 an agreement with the EU to open NFC access and subsequently expanded this to markets including Australia, Brazil, Canada, Japan, New Zealand, the UK, and the US.
This development will trigger unprecedented competition in the digital wallet marketplace. PayPal has already announced plans to offer in-store NFC payments on iPhones, while wallet services like Curve are preparing to launch NFC capabilities. The change could also enable cross-ecosystem wallet adoption, allowing Google and Samsung wallets to function on Apple devices, potentially breaking the traditional link between wallets and their ecosystems.
Beyond existing wallet providers, this opening creates opportunities for credit card providers to develop branded wallet solutions and retailers to transition from QR-based payment systems to NFC capabilities. Banks face both challenge and opportunity – they can develop issuer-specific wallets to keep customers within their ecosystem but must act quickly to avoid losing ground to established providers.
2. Virtual cards will revolutionize B2B expense management
Physical corporate cards have long presented challenges for expense management, including deliberate or accidental misuse, card loss, and credential theft. Virtual cards are positioned to transform this space in 2025 with features that address these specific pain points.
Virtual cards provide instant issuing to employees’ smartphones, eliminating wait times and preventing loss. Customizable spend limits prevent accidental or deliberate overspending, while transaction limits enable single-use scenarios ideal for specific events. Enhanced transaction data provides superior visibility into spending patterns, and merchant restrictions prevent cards from being used at unauthorized locations.
A Startling Statistic:
Virtual cards will account for 4% of all B2B payment value globally in 2025, overtaking cash or cheques for the first time.
These capabilities will significantly impact employee expense management by giving companies greater control and visibility while reducing manual processes. Large corporations with dedicated expense management staff stand to benefit most immediately, saving substantial time currently spent gathering and reviewing physical receipts.
The combined impact of improved control, security, and reduced manual processing will drive significant virtual card adoption for business expenses in 2025. Juniper Research forecasts that 4% of global B2B payment value will come from virtual card transactions, surpassing cash and checks for the first time and establishing virtual cards as a standard method for handling employee expenses.
3. Behavioral biometrics will drive a shift to passive ID verification
While facial biometrics have become common for authentication, their static nature presents limitations against sophisticated fraud attempts. In 2025, behavioral biometrics will gain widespread adoption as a complementary layer for passive, continuous identity verification.
Unlike traditional biometrics requiring one-time authentication, behavioural analysis tracks ongoing user actions like typing speed, pressure on keystrokes, mouse movements, swiping patterns, and device orientation. These create unique behavioural profiles that help identify suspicious activity at its earliest point without adding friction to the user experience.
This shift to passive verification addresses Know Your Customer (KYC) requirements more efficiently while enabling better resource allocation. When combined with static biometrics, this creates a multi-modal authentication system with substantially improved security and user experience.
The integration of behavioural biometrics will help financial institutions combat account takeover fraud and social engineering attacks, particularly in account-to-account (A2A) payment environments. Digital banks will increasingly implement these solutions in 2025 to develop multilayered defence systems that enhance fraud detection while improving customer experience.
4. eCommerce merchants will embrace ‘glocal’ payments
To meet rising demand in emerging economies and accommodate evolving customer expectations, merchants must adopt “glocal” payment solutions that balance global reach with local payment preferences. The eCommerce market is projected to grow from $7 trillion in 2024 to $11.4 trillion in 2029, driven by expanding digital infrastructure and improved logistics in emerging markets.
Consumer preferences are shifting from traditional payment methods toward local options like Pix in Brazil and UPI in India. To maximize conversion, merchants must offer preferred payment methods at checkout while avoiding overwhelming customers with too many options.
Payment Orchestration Platforms (POPs) will play a crucial role in enabling glocal payments by managing processes across multiple providers, methods, currencies, and countries. Smart routing technology will automate transactions to providers with the lowest costs and highest authorization rates, using machine learning to adapt to changing conditions.
These platforms enable merchants to access multiple payment providers through single integration points, offer diverse payment methods, provide real-time currency conversion, centralize payment tracking, optimize cross-border transactions, ensure regulatory compliance, and integrate fraud protection. Merchants failing to embrace these solutions risk losing ground to local competitors in emerging markets.
5. Regtech will accelerate amid BaaS compliance challenges
Banking-as-a-service (BaaS) providers have faced significant regulatory scrutiny, exemplified by the Federal Reserve’s “cease and desist” order against Evolve Bank & Trust in 2024 for compliance deficiencies. Despite these challenges, the BaaS market is reaching a turning point rather than facing collapse.
In 2025, regtech innovations will address key compliance challenges that have hindered BaaS growth. Third-party risk management tools will strengthen security across BaaS ecosystems, helping parties assess impacts like mergers, regulatory shifts, and exposure beyond immediate suppliers.
Automation will be crucial for compliance as manual oversight becomes increasingly costly and error-prone. Next-generation regtech solutions will provide configurable compliance tools and real-time monitoring to streamline processes, reduce compliance team burdens, and improve risk identification accuracy.
The regulatory scope of BaaS will evolve in 2025, with increased scrutiny of middleware providers and pressure on BaaS parties to address compliance shortfalls. This will drive market development through stronger regulatory oversight, robust third-party risk management, and automation-driven efficiency, positioning BaaS providers for future growth without compromising security or compliance.
6. Banks must invest in PSD3 and PSR1 readiness
Open Banking has gained significant traction across Europe, with 2024 seeing numerous partnerships between banks, fintechs, and businesses. The upcoming PSD3 (Payment Services Directive) and PSR1 (Payment Services Regulation) will build on PSD2’s foundation while addressing its limitations.
PSD3 will focus particularly on API quality through new requirements, minimum functionality standards, and measures against high latency. Combined with PSR1, these regulations aim to harmonize the payment market and reduce national variations across the EU.
For banks, these developments will strengthen Open Banking while facilitating financial service embedding in third-party solutions. This will make banking more open but potentially weaken banks’ direct customer relationships. To prepare, banks must improve technical performance, ensure compliance readiness, and standardize offerings across markets.
Banks will also invest in solutions and partnerships to counter increased competition from non-bank payment service providers. This includes developing products similar to fintech offerings, such as Buy Now, Pay Later solutions leveraging Open Banking for soft credit checks.
Another key investment area will be bank-sourced payments without intermediaries, particularly account-to-account (A2A) payments that have gained traction across Europe. By partnering with A2A vendors, banks can capitalize on new regulations while offering secure alternatives to traditional payment methods.
7. “Sustainable fintech” will become a key differentiator for banks
As environmental and social concerns increasingly influence financial decisions, sustainability-focused offerings will become a key differentiator for banks in 2025. Digital banks will develop tools that allow customers to understand and minimize their environmental impact while making financial decisions.
Multiple approaches will emerge to incorporate ESG principles into banking operations:
- Carbon footprint calculators that track environmental impact across spending categories
- Micro-offsetting solutions integrated with digital wallets for transaction-by-transaction carbon offsets
- Subscription services for ongoing support of planet-positive projects
- Climate action marketplaces offering pay-as-you-go funding for environmental initiatives
These tools will appeal to both individual consumers concerned about climate impact and businesses seeking to understand and demonstrate their environmental commitment. Integration with accounting software and checkout systems will enable automatic funding of sustainable projects with each transaction or business activity.
Digital banks will increasingly emulate features pioneered by sustainability-focused startups, particularly carbon tracking and offsetting capabilities. The most successful offerings will combine environmental benefits with broader social and economic impact, such as reforestation initiatives and renewable energy projects in developing countries.
Banks must determine which model best serves their customer base while providing meaningful environmental impact and maintaining competitive advantage in an increasingly eco-conscious marketplace.
Source: THE FINANCIAL BRAND
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