As we move into 2025, it’s worth reflecting on the pivotal moments of 2024 that will profoundly influence how financial services are delivered in 2025 and beyond. Two events that stand out are the collapse of Synapse in the United States and the securing of a UK banking license by Revolut. While these events might seem unrelated at first glance, they underscore a broader shift in the way fintech companies are navigating the complex intersection of innovation, regulation, and compliance.
In many ways, these two events symbolise the tension that exists in the fintech sector today: the balancing act between rapid innovation (“move fast”) and the increasing regulatory oversight required to maintain a stable and trustworthy financial ecosystem (“don’t break things for customers”). The collapse of Synapse, a prominent player in the embedded finance space, marked the end of a promising but ultimately unsustainable era for some fintech businesses. Meanwhile, Revolut’s successful acquisition of a banking license in the UK demonstrated the shift toward a more regulated, stable, and institutional approach to fintech. These contrasting developments herald a broader shift in the industry from the “move fast and break things” mentality to a new era of “go slow to go fast,” where regulatory frameworks and compliance processes are no longer viewed as obstacles to innovation but as essential components of long-term success.
The New Era of Compliance-by-Design
As we look ahead to 2025, it is clear that we are entering a new phase of the fintech revolution—one that will be characterised by a growing focus on compliance-by-design and the evolution of Banking-as-a-Service (BaaS) models. Traditional BaaS players, many of which have been operating on slim margins and have struggled to achieve profitability, are increasingly finding themselves saddled with rising compliance costs. These rising costs, combined with the increasing complexity of regulatory requirements, may result in further consolidation within the BaaS market. Some of the more established players may even be forced into failure or fire-sale situations as they struggle to stay afloat under the weight of regulatory compliance and operational inefficiencies. In Europe, SolarisBank – once the darling of European BaaS – are reputedly about to be rescued from insolvency. Their story is one that is deeply connected with their regulator’s expectations on compliance matters. A not dissimilar story can be told of Railsr a year earlier, although the latter has not only been rescued but has also gone large with its merger with Equals.
In contrast, a new wave of BaaS alternatives, built around compliance-by-design principles, is emerging. These newer entrants are not only designing their platforms to comply with existing regulations but are also anticipating the regulatory changes that will continue to shape the financial services landscape. By embedding compliance from the ground up, these players are positioned to thrive in an increasingly regulated environment. This will fundamentally change the way embedded finance operates, enabling businesses to offer financial products and services that are more secure, more transparent, and more aligned with the needs of regulators.
A Surge in Regulatory Activity
Regulatory changes will continue to shape the fintech sector in 2025. The passage of PSD3 (also known as Open Finance) in Europe will usher in a new era of data-sharing and interoperability across financial platforms, creating new opportunities for innovation while ensuring greater consumer protection and transparency. In addition, we are likely to see the implementation of new regulations aimed at improving operational resilience in the financial services industry. The Digital Operational Resilience Act (DORA) in Europe and its UK counterpart will impose stricter requirements on fintech companies and their technology providers, forcing businesses to take a more proactive approach to managing cyber risk and operational disruptions.
Crypto regulation will also continue to evolve in 2025. Europe’s MICA (Markets in Crypto-Assets) regulations will begin to roll out, and the UK will move forward with its stablecoin regulations. These new frameworks aim to bring order to what has often been a chaotic and fragmented market, providing greater clarity for crypto firms and their customers. However, as regulators grapple with the challenge of balancing innovation with security, the question of whether they are striking the right balance between enabling competition, fostering innovation, ensuring financial inclusion, and protecting consumers will remain a hot topic.
The Return of the Fintech IPO
Amid these regulatory challenges, there are reasons for optimism in the fintech sector. One such reason is the anticipated return of high-profile fintech IPOs in 2025. For several years, fintech companies have been navigating a turbulent market environment, with rising interest rates and uncertain economic conditions dampening investor enthusiasm. However, 2025 could see the return of some major fintech companies to the public markets, with companies like Klarna, Revolut, and Stripe reportedly gearing up for IPOs. As the industry matures and investors become more comfortable with the evolving regulatory landscape, we can expect to see renewed interest in fintech stocks, which could inject a much-needed boost of capital and confidence into the sector.
The return of fintech IPOs will signal the growing maturity of the sector and could pave the way for a new wave of innovation and market disruption. With established players such as Klarna and Revolut, alongside new entrants with fresh approaches to embedded finance, the market is ripe for further growth. These IPOs will not only offer a glimpse into the next chapter of fintech but will also provide a barometer for how well the industry has navigated the challenges posed by regulation, competition, and market volatility.
Conclusion: The Path Forward for Fintech and Embedded Finance
As we look toward 2025, the future of embedded finance and fintech will be shaped by a combination of regulatory developments, evolving business models, and technological innovations. The rise of compliance-by-design BaaS alternatives and the increasing regulatory scrutiny across financial services will push fintech companies to adapt and evolve. While some businesses may struggle under the weight of new regulatory requirements, others will seize the opportunity to build more resilient, compliant, and sustainable platforms.
Ultimately, the fintech industry’s ability to navigate this new era of regulation will determine its long-term success. For innovators, the message is clear: move fast, but move smart. As we’ve seen in 2024, a willingness to engage with regulators and build businesses that are grounded in sound compliance practices will be the key to unlocking the full potential of embedded finance and the broader financial services ecosystem.
To find out more about how Weavr can help with your business objectives in 2025, why not book a short chat with one of our embedded finance experts.
