We are delighted to launch our Fintech and Payments Legal Outlook for 2025, exploring key global trends and legal developments shaping fintech and payments.

Going into 2025, the good news is that global fintech industry looks to be bouncing back from a difficult couple of years of declining investments and M&A volumes, and is showing signs of a recovery - powered by the demand for AI in finance and pro-crypto approach of Donald Trump as returning US president.

Digitalisation initiatives in financial assets, payment systems, and market infrastructure are advancing from trials to full-scale applications. Tokenisation, in particular, is seeing greater momentum, but for it to truly scale, various pieces will need to come together, such as increasing liquidity and solving digital money settlement. Meanwhile, market participants are navigating persistent cost pressures, looking to technological innovation for solutions that promise both efficiencies and new revenue streams.

We focus on opportunities and risks in finance innovation, including tokenisation, new forms of digital money, instant payments and open banking. These innovations unfold amid growing demand for AI, security, and resilience in financial services – and the increasing convergence of AI and digital assets.

 

1. A brighter horizon for global fintech investment and funding

The global fintech sector is expected to see a rebound in investment and M&A activity in 2025, driven by economic recovery, supportive regulatory environments and technological advancements. In particular, AI investments in banking and financial services are expected to rise by $31 billion worldwide by 2025.

Fintech M&A activity has shown promising growth, with Q3’24 YTD figures already surpassing full-year levels from the past two years. AI integration and other advanced technologies make fintech companies attractive acquisition targets, and consolidation is anticipated as firms seek to navigate regulatory pressures.

At a regional level, the US and Asia are poised for substantial growth in fintech due to supportive regulatory environments in Singapore and Hong Kong and with a more supportive regulation expected in the US under Trump 2.0, and increasing investor interest in AI fintech and digital assets. In Europe, despite a decline in funding, mid-market M&A activity is indicating market consolidation. Additionally, complex regulation and reporting requirements are contributing to the growth of RegTech, particularly in the APAC region thanks to the support from both the public and private sectors, making it a target for VC and PE investments.

 

2. Route to digital market infrastructure: same road, same direction, new milestones in sight

Digitisation initiatives in financial markets continue to gain momentum, with digital bond issues and other tokenised asset classes such as tokenised funds and commodities anticipated to continue attracting investments. However, deep liquid markets remain elusive for digital security issuances due to regulatory restrictions and market fragmentation. Even though there are various initiatives underway to address these challenges, these together with expected market consolidation may take time to yield results.

The development of digital market infrastructure remains in focus with multiple initiatives, including regulatory sandboxes, being rolled out, which could lead to permanent regulatory changes based on policymakers' findings.

Central banks are also exploring new technologies for wholesale central bank money settlement, with the Bank of England expected to begin its program in 2025. Meanwhile, projects like mBridge are making significant progress in Asia.

Meanwhile, the implementation of the BCBS’s international standard on the prudential treatment of cryptoasset exposures which is set for the end of 2025, could impact a broad range of tokenisation projects (see trend 5).

 

3. Diverging policy approaches to retail stablecoins and central bank digital currencies

Traditional banks and payment providers are exploring stablecoin initiatives within emerging regulatory frameworks, with use cases including cross-border payments, M&A settlement and facilitating broader access to decentralised finance markets.

Several jurisdictions are developing regulatory frameworks, with the EU introducing a comprehensive regime and countries like the UAE and Hong Kong implementing licensing systems. The regulatory situation in the US remains uncertain, though there are hopes for federal legislation in 2025. Meanwhile, central banks are diverging in their approaches to retail CBDCs, with some countries launching them and others seeing less immediate need.

In the short to medium term, stablecoins and CBDCs are set to become important components of a diverse retail payments landscape.

 

4. Real time payments: the challenge of increasing both speed and security

Real-time payment systems such as UPI in India and Pix in Brazil have established a global benchmark for digital payments. These systems offer real-time transaction visibility and enhanced cash flow management, providing significant advantages for both consumers and merchants.

Other, mature markets like the EU, are leveraging regulation to support the development of home-grown systems built on existing instant payment rails as an alternative to overseas card schemes.

In card-concentrated markets like the US and UK, cards linked to digital wallets are meeting the demand for instant payments, offering convenience and security without physical cards. The number of digital wallet users is projected to grow rapidly, especially in Asia-Pacific and Latin America, with tap-to-pay transactions driving digital payment surge.

To combat the projected rise in global losses from payment card fraud – which is exacerbated by increasingly frictionless payments - jurisdictions like the EU and UK are implementing measures to verify payee identities and reimburse fraud victims. There are growing tensions about who should bear the cost of fraud, with some arguing that tech firms and telecom providers should contribute. The challenge remains to balance the speed of legitimate payments with the need to detect and prevent fraud.

 

5. An increasingly fragmented landscape for cryptoasset regulation

The crypto market has seen a significant resurgence, with Bitcoin's price more than doubled in 2024, exceeding US$100,000 for the first time. Crypto ETFs also gained traction, highlighting sustained demand among retail and institutional investors despite past volatility.

Globally, there has been a move to bring cryptoassets into the regulatory perimeter, as encouraged at an international level by recommendations from the FSB and IOSCO. However, regulators are taking different approaches creating a fragmented regulatory patchwork: the EU leads with its comprehensive MiCA regulation, set to fully apply by the end of 2024, while the UK is following with its own package of measures. In the Middle East, Dubai's Virtual Assets Regulatory Authority is licensing major exchanges, whereas in Asia, Hong Kong and Singapore have both introduced different licencing frameworks for cryptoasset service providers.

Under “crypto president” Trump 2.0, in the US many expect to see a clearer, more supportive regulatory stance to crypto and greater expansion by traditional financial institutions into digital asset-related activities, including the provision of investment banking and traditional banking services to crypto companies. Hopes are also rising for approval of additional spot crypto ETFs and other ETPs, investing in a broader range of cryptoassets.

Meanwhile, the Basel Commission on Banking Supervision's standard on the prudential treatment of exposures to cryptoassets mandate a conservative capital treatment, making it costly for banks to take on exposures to cryptocurrencies. Members have agreed to implement the standard by 1 January 2026, so we are likely to see significant movement on this during the course of 2025.

 

6. Increasing need for AI resilience in financial services

Financial services firms have progressively incorporated artificial intelligence and machine learning to improve their operational efficiency and customer engagement. As firms implement AI, particularly GenAI, in front-office and customer-facing roles, regulators will be on the lookout for any consumer harm resulting from firms’ deployment of AI.

One of the ways regulators will supervise AI is through their operational resilience regimes. The EU's Digital Operational Resilience Act (DORA), effective from January 2025, requires firms to identify critical operations, map dependencies, and test business continuity plans in response to various disruption scenarios.

AI-specific regulations are also being introduced globally, with China leading in 2023, and the EU's AI Act being phased in over the next few years. In the EU, financial services firms are tasked with ensuring staff are AI-literate and complying with high-risk AI use requirements. In the UK, a proposal for regulating frontier AI is now expected in 2025. In Asia, regulators have provided guidance on the use of AI by financial institutions, while in the US, states are leading AI legislation creating a complex legal landscape.

Regulated firms are already required to identify critical operations, map dependencies, and test business continuity plans in response to various disruption scenarios - including assessing vulnerabilities from third-party service providers. They are well placed to absorb additional layers of AI regulation, but will have to identify the gaps between their current governance processes and future best practice.

 

7. The future of finance is open: the role of digital identity in open banking and finance

The financial services sector is experiencing significant growth in open banking enabled products. Governments have adopted different approaches to open banking: the US has only recently finalised its open banking rule, whereas the UK and the EU are addressing shortcomings of existing regulations which have been in place for some years. The EU is also advancing open finance to a broad range of financial products by introducing new regulations aimed at lowering entry barriers and enhancing data monetisation.

Digital identity is becoming crucial in securing and verifying online transactions, preventing fraud, and streamlining processes like onboarding and customer verification. Governments and the industry are recognising its importance, with initiatives like Singapore's Singpass Face Verification and the EU's Digital Identity wallet poised to enhance trust in digital services. As part of its payments vision, the UK is also planning to introduce a legal framework for digital verification services, without creating a mandatory digital ID system, to improve P2P payments.

Industry-led projects, such as Visa’s Payment Passkey Service, are piloting new digital identity enabling customers to use the biometrics for payment authentication. The convergence of digital identity services with open banking/ finance has the potential for significant innovation, enhancing customer experience and foster innovation with enhanced security.

 

Tackling the compliance challenge

The compliance landscape is growing ever more complex in fintech and payments, including crypto and digital assets. Regulators are expanding oversight, but are recognising the need to promote innovation in a competitive world where nationalism is on the rise.

Different regulatory approaches and a lack of common standards add to the challenge, with divergences between the EU and UK, competition between Singapore and Hong Kong, and in the US, continuing and often contentious regulatory questions – with hopes that could change in 2025.

For those innovating to solve the key efficiency challenges in finance, taking a holistic approach to the compliance challenge has become an imperative.

 

Explore our Fintech & Payments Legal Outlook 2025