Spotify just released their user insights for the year, with a recap of top songs, artists, and time spend listening — down to the listener.

Think of this as your ‘FinTech’ version of ‘2024 Wrapped.’

At the end of 2023, FinTech struggled to regain its footing in the financial services industry. A massive volume of investment activity and active sponsor banks fueled record-breaking growth between 2018 - 2022.

Would 2024 be a bounce back year?

With a few weeks left before 2025, let’s take inventory of this year’s progress, starting with bank partnerships. This recap will also shine a light on what’s ahead for FinTech in the New Year.

The State of FinTech Banking Partnerships in 2024

Most industry insiders agree that the last 12-18 months feel like an industry reset.

Many top sponsor banks (who partnered with fintechs to launch new programs) decided to exit the space in response to regulatory pressure.

Reviews and audits from government agencies focused explicitly on FinTech areas — such as evaluating 3rd party partnerships, and validating what oversight activities from sponsors. It turned out that many banks had delegated this to ‘middleware’ companies (tech providers and/or program managers that sit in between banks & fintechs) — lacking their own policies and staffing to properly monitor activity.

In tandem with less banks available as sponsors, there were also less fintechs (and non-fintechs) with sufficient funding to start new banking partnerships.

Investors now saw the market as saturated with multiple versions of under-performing peer-to-peer (P2P) wallets and neobanks that it didn’t make sense to invest in 2024. Founders that struggled to gain a pre-seed round were unable to launch a working prototype — thus, unable to raise the formal funding (at least 18+ months of runway) needed to enter the market.

Existing fintechs (already in the market and looking for product-market fit / scale) didn’t have it any easier. Their sponsor banks made it tough to continue a partnership this year due to:

(i) ending contractual relationships (i.e. bank opted not to renew a contract with a specific fintech — possibly due to high-risk activities, or poor revenue generation);

(ii) increase in monthly fixed costs at time of renewal (to cover the increase in bank oversight costs), OR

(iii) being ‘de-banked’ (bank decided to no longer sponsor ANY fintech programs, which can be based on a consent order).

Without a sponsor bank, many fintechs (unable to fundraise) decided to completely shutdown. A few were acquired in exchange for stock OR ‘acqui-hired’ (company acquisition centered on migrating staffing to acquiring company). [Plenty to unpack here in a separate post.]

The saga with Synapse (Oct. 2023 - ?)

The saga (that started in October 2023) of Synapse’s bankruptcy, reconciliation dispute with partner banks, Fed hearings, and disbursement of customer funds has also thrown caution into the future state of fintech banking partnerships.

Many investors concerned about intermediary parties encouraged portfolio companies to work directly with banks in early 2024 — however, the slow pace of direct-to-bank relationships and lack of accessible infrastructure made this path to market lengthy (12+ months) and more costly than working with a bank-integrated tech provider;
Existing sponsor banks (especially those with their own Banking-as-a-Service division) lacking the necessary oversight AND reconciliation capabilities chose the ‘debanking’ path by halting the majority (if not all) of their sponsorships. The international use cases (involving cross-border money movement or non-US users) were the first to go;
For fintechs & enterprises that are ready to work with a partner bank, the vetting process is now more challenging. The choice of partner must take into account (i) long-term stability of the bank, (ii) exposure to other fintechs & high-risk programs (i.e. contagion risk), and (iii) overall commitment to sponsorship continuity. Many existing programs switched bank partners multiple times in the last 18 months — to do so is costly, specifically with a new implementation/setup AND migration of customers (includes issuance of new accounts & cards).

More than a year removed and there are still bankruptcy hearings, discrepancies over balances owed by banks, and customers missing funds.

In the aftermath of the Synapse debacle, there’s still an intrinsic need for banks to partner with fintechs & non-fintechs.

Regional and community banks (with a limited branch footprint) can quickly increase deposits through these partnerships, which fuels lending activities. Fintechs are able to offer their clients custom financial products directly (through their platform) that earn revenue.

The rising demand from non-financial enterprises & brands (such as vertical SaaS) to embed finance into their platforms brings new players into the partnership mix for 2025.

Less Bank Sponsors + Less Fintechs w/ Funding = Less New Program Launches

The volume of new fintech programs announced was at an all-time low this year.

However, FinTech needed this consolidation to take place.

There were too many VC-backed startups with ‘plain vanilla’ programs that lacked differentiation.

Too many sponsor banks that lacked the tools, processes, and compliance staff to properly monitor fintech partners.

Too many infrastructure providers that over-promised and under-delivered when it came to product availability and timelines.

Too much money chasing poor opportunities. Investors took heavy losses with public & private fintech investments.

Many fintechs failed to grow & scale after initial launch.

Banks struggled with regulatory reviews and received consent orders.

From this industry cleanup in 2024, we will now see sponsor banks with structured compliance programs that actively monitor the activity from fintech partners.

Fintechs & non-fintechs now have their own compliance resources (a new bank requirement) for developing anti-money laundering and fraud prevention policies. The tech providers that are still in market are showcasing improved capabilities when it comes to reconciliation and accuracy in reporting to sponsor banks.

Did FinTech Partnerships (finally) turn a corner in 2024?

Definitely.

The approach from fintechs is more mature in terms of how to engage partner banks, designing compliant products & funds flow, and showcasing experience with risk operations, payments, and security.

The majority of sponsor banks had a regulatory review (or will have their first by Q1 2025) that focuses on FinTech. The findings and guidance from consent orders has common, reoccurring themes — 3rd party risk management, bank committee reviews for program approvals, adherence to AML & BSA standards for all parties, and proper oversight & monitoring activity. A niche in RegTech dedicated to compliance oversight for banks (backed by AI) is coming from a new batch of risk-focused fintech startups.

We’ve also seen investment levels slowly start to rise in the 2nd half of the year, as well as M & A activity start to pickup.

Regulatory changes will always be a wildcard in the industry, but the new administration seems poised to promote innovative growth and competition in the US through open policies. We should start seeing indicators in the next 2 months of what will come in 2025.

The FinTech Trends that Made us in 2024

FinTech partnerships are a core component of what’s driving the industry forward, but it’s not the whole picture. Numerous themes made headlines and gained traction — a few of them started to takeoff this year!

Here’s a recap of the top 5 industry trends (with key highlights and how they performed) —>

Embedded Finance picks up the pace by integrating of banking, lending, insurance

Non-financial companies are integrating financial services at a faster pace;
HR tech, e-commerce, and retail are verticals / sectors that are leading the way;
Diversifying revenue is the most critical driver for embedding banking;

No longer an abstract concept, embedded finance is transforming how businesses & consumers connect through customized financial services. Firms across industries (such as logistics, agriculture, healthcare) are embedding banking, payments, lending, and insurance into their existing apps & sites — boosting revenue, creating better customer experiences, and enhancing brand loyalty.

With this type of momentum, embedded finance is set to become a multi-trillion-dollar space in the next 5 years.

Open Banking expansion: better Financial Connectivity & control on the way

The EU’s PSD3 & US consumer data rights rule are now in play;
Improved customer control over financial data leads to an enhanced user experience;

The vision of open banking breaking barriers towards a well-connected financial system became more real in 2024. The EU is leading the world with key regulatory updates (such as PSD3 & PSR) that increase both competition & security across banking systems.

The CFPB (in the US) issued the new personal data rights rule this year to empower individuals to control their data — paving the path to standardizing data partnerships between banks & fintechs.

Mobile & Cashless payments still a global Movement

Transactions via digital wallets are predicted to exceed $16M before 2030;
Innovations in the payment space (such as tokenization & biometrics) are fueling the use of modern wallets;

The wave of paying-on-the-go (that grew massively during COVID) continues to trend higher. Digital wallets, mobile card issuance, and one-time paycards not only enable faster transacting, but more security & convenience for customers.

More terminals are accepting payments with watches and the larger players are piloting biometrics (such as FacePay or by palm) for contactless checkout. No cashier or currency needed in the future of eCommerce and retail!

Artificial Intelligence’s impact becomes tangible in fintech

Fraud detection, credit risk analysis, and compliance automation are leading areas for applying AI.
The next wave of AI in financial services will benefit user personalization through customer insights.

The phrase “AI-powered” begins to take flight in FinTech — improving operations for startups, enterprises, and financial institutions. From sifting through large data sets, identifying security threats to supporting compliance operations — artificial intelligence gained a foothold in financial services this year.

Cybersecurity (leveraging AI) is a major component for fintech innovation into 2025. As fraudsters come up with new ways to surpass current security measures, AI advancements are forming part of the defensive strategies utilized within FinTech.

The new force in payments comes from Cross-Border innovation

Leveraging real-time settlement to replace legacy systems gained momentum in 2024;
The dream of blockchain becoming the new, global infrastructure is closer to being realized;
The US continues to fuel the majority of international money movement through remittances for families back home;

The numerous layers of intermediaries from 30+ years ago still exist for cross-border transfers. This market opportunity triggered multiple startups and enterprises to build efficient, low-cost, and faster solutions that prioritize customer experience. Competition applies pressure on remittance providers to lower costs even further — benefiting senders & recipients.

Applying blockchain technology is the next level in cross-border efficiency, but regulation and lack of adoption in the US blocks this new structure from scaling. Non-US countries (especially those in LatAm) have experienced success in utilizing stablecoins for cheap, near-instant settlement. As developing countries rely more on remittances, expect new blockchain-based programs to bridge the gap.

That’s a wrap on 2024 — What’s Next for FinTech in 2025?

The industry sentiment to end the year is that the ‘RESET’ button was pressed — systems are slowly coming back online.

A new age of fintech banking partnerships is upon us — one in which sponsor banks, fintech partners, and supporting parties are better prepared and jointly working towards a sustainable program.

FinTech as an innovative force is coming back as embedded finance, open banking, artificial intelligence, and enhanced payments (mobile, cashless, cross-border) gained momentum this year.

However, the tide that will raise all boats comes down to investment activity in 2025.

As soon as we start seeing moderate increases in pre-seed and seed rounds in FinTech, the industry will be back to pre-COVID levels and recoup the traction it lost in the last 2 years. The market (including cryptocurrency) has rallied post-election to new heights — this can spillover into the private funding space in early 2025. Excited for what’s ahead!!

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2024 ‘FinTech Wrapped’ : A Year in Review