A low-growth environment, combined with rising competition from fintechs and regulatory reform, means the pressure is on for banks to innovate their payments infrastructure as we head into 2025.
Fortunately, the payments industry is resilient and adaptable, and it needs to be. Against the backdrop of geopolitical uncertainty, a high-interest-rate environment, and major shifts in supply chains, the world has continued to develop new technologies that are reshaping the market’s future.
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In 2025, banks must continue to tap into public-private sector partnerships to innovate and meet evolving consumer demands.
Programmability a rising priority
The UK has long been a leader in payments innovation, but with global competition increasing and the challenge of alternative payments forms like cryptocurrency on the rise, we must continue to find new ways to unlock efficiencies. While many are drawn to crypto’s volatility, it lacks the backing from a state which defines sovereign money. Money is ultimately underpinned by state guarantees, ensuring trust and stability—qualities that crypto struggles to provide.
Amidst this competitive landscape, programmable payments offer an opportunity to stay ahead. Programmable payments refer to the introduction of intelligent bank accounts with built-in, personalised logic, allowing people to add highly specific conditions to transactions.
The latest phase of the UK’s Regulated Liability Network demonstrated that programmable payments can equip banks with a significant competitive differentiator to deliver valuable, innovative products. For example, a customer could set up a rule to pay their rent only once their salary arrives.
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By GlobalDataWe’ve already seen the likes of JP Morgan implementing programmable payments functionality in their own currency, JPM Coin, via Kinexys, their blockchain platform. In 2025, payment programmability will climb higher on banks’ agendas and we can expect to see more use-cases and clarity on how they plan to implement this technology.
CBDCs: Transatlantic divergence
Central Bank Digital Currency (CBDC) exploration is becoming increasingly fragmented across the globe.
Currently, the UK is well-positioned to launch a CBDC. Bank of England Governor Andrew Bailey recently noted a “strong need” to modernise payment practices, especially for cross-border transfers, adding, “we must continue to prepare for retail CBDC.” The newly elected Labour government also seems more enthusiastic than its Conservative predecessor; under its financial services plan, it has committed to continued work on creating a digital pound.
In contrast, the US sits at the opposite end of the spectrum. President-elect Trump has been a vocal opponent of CBDC and has supported the CBDC Anti-Surveillance Act, which prevents the Fed from issuing a CBDC without congressional approval. Having vowed to make the US the “crypto capital of the world”, his election victory means that, at least for the duration of his term, we can rule out the prospect of a digital dollar.
The EU finds itself somewhere in the middle. While the European Central Bank (ECB) has pushed ahead with work on creating a digital euro, it faces the challenge of securing buy-in from its member states, many of whom are less enthusiastic about the project than the ECB and European Commission.
CBDC development will therefore be gradual and inconsistent, with different jurisdictions moving at different paces.
Stepping up the fight against fraud
In October 2024, the UK’s much-anticipated fraud reimbursement scheme came into effect, mandating that payment service providers reimburse fraud victims up to £85,000. This will have a profound impact on tackling the fraud epidemic.
On one hand, the vast sums lost to APP scammers mean that mandatory reimbursement could be ruinous for many fintechs, which lack the massive balance sheets of the big banks. However, necessity is the mother of invention, and a silver lining is that the new rules may serve as an impetus for the entire payments ecosystem to step up its efforts against fraud.
Given that fintechs will now be responsible for repaying fraud victims, they will face a balancing act of implementing more stringent anti-fraud measures without creating excessive friction in the payments process, as the latter could deter customers.
As a result, we are likely to see rapid advancements in fraud detection technology to meet this demand, with new tools like AI set to play a central role in this transition.
Fintechs and banks: The special relationship
Fintechs are redefining what it means to be a financial services provider by expanding well beyond the realm of traditional banking.
Companies like Revolut are moving into areas such as payroll services and invoice processing, marking a shift from the core banking model to becoming comprehensive lifestyle and business platforms—all under one digital roof.
This momentum shows no sign of slowing. Challenger banks will continue to build interconnected ecosystems designed to meet diverse customer needs—from personal finance and payments to broader enterprise solutions—all in a user-friendly, digital environment.
As they evolve, these challengers may set a new standard for consumer expectations, offering frictionless, highly personalised experiences that integrate financial services into daily life.
This could leave traditional banks scrambling, faced with the challenge of catching up to the intuitive all-in-one solutions that many fintechs already offer. Banks must adapt to this evolving landscape or risk getting left behind.
Evolution, not revolution, of money
The uncertainty of the past year has made it more crucial than ever to facilitate efficient payment systems. I believe that the industry is firmly up to the challenge, but that this progress will take the form of a sensible, sustainable evolution rather than a revolution. Through technologies such as programmable payments, innovation will be incremental and targeted, bringing real improvements to payments in both the short and long term.
Martin Hargreaves is Chief Product Officer at digital finance specialist Quant
