2024 was another legacy year for funding flowing to AI companies, accounting for almost a third of all venture capital invested worldwide.
However, when looking ahead at predictions for the investment opportunities yet to come, the fintech market is arguably the area with the most potential, with less competition than the increasingly crowded AI sector.
In Q1 2025, the global fintech industry saw a notable decline in both deal activity and overall funding compared to the same period in 2024, down by 38% and 54% respectively.
On one hand, this signifies that fintech investors are exercising more caution in the face of economic uncertainty and new regulations.
While some investors are exercising restraint, the sector is far from in decline when we take a closer look at activity on the ground.
For instance, today fintech has penetrated only about 3% of global banking and insurance revenue pools, providing a glimpse into future opportunities.
Meanwhile, investment potential is bolstered by developments to technical infrastructure. Most notably, open banking protocols that have been widely used in Europe for the past decade are set to take off in the U.S. and deliver a more transparent and secure financial ecosystem.
This follows on from the release of Section 1033 last year, and the Consumer Financial Protection Bureau (CFPB) officially designating the Financial Data Exchange (FDX) as a Standards Setting Body in January 2025.
This milestone development means we can expect to see a new wave of personalized financial products that enhance trust and better cater to individual needs. Given that 74% of customers want more personal experiences from their banks, we can expect innovations to improve customer satisfaction and retention through tailored digital products, highlighting the investment opportunities on offer in this market in the coming years.
To meet those expectations, financial organizations are rethinking their foundations and updating how credit is originated, delivered, and scaled. They're investing in modular systems, AI-driven decision-making, and partnerships.
Within this structural reset for fintech, here are three key trends investors should pay attention to.
Digital lending is evolving as infrastructure, not just interface
Banks today offer digital lending across multiple channels, from their websites and apps to emerging embedded partnerships like merchant credit cards. But it's embedded lending that's gaining the most traction, thanks to its ability to meet the customer at the point of need.
According to McKinsey, projections suggest that by 2030 embedded finance could represent 10-15% of banking revenue pools.
These embedded partnerships often hinge on a few key merchants or specific customer behaviors. That makes banks vulnerable: if spending patterns change, a partner loses traction, or a merchant switches providers, banks can lose access to customers. This kind of channel concentration and dependency limits diversification, which, over time, can erode resilience.
However, banks are actually sitting on an undervalued asset: omnichannel infrastructure. By leveraging their diverse touchpoints, from mobile apps, branch networks, call centers, merchant point of sale (POS) systems, and white-label platforms, banks can maintain a broad and flexible presence in customers' credit journeys. This footprint not only helps mitigate risks, but also forms a stable foundation for scalable, resilient lending.
Omnichannel lending isn't just about multiple entry points; it's about being consistent and responsive. Whether someone walks into a branch, calls a support line, applies online, or gets financing at checkout, they should feel like the lender knows what they need.
But behind that smooth experience is something more powerful: better data, leading to better decisions. Each channel offers a different lens into the customer’s behavior and creditworthiness. And automated lending journeys help consolidate these datapoints in a single infrastructure, enabling more personalized credit offers with fewer false declines.
When these touchpoints are connected through a single infrastructure, lenders get a fuller, more nuanced picture. This means smarter approvals, fewer false declines, and a more personalized credit offer for the customer. According to Yaacov Martin of Jifiti, "Banks also need to cater to the needs of SMBs as well as consumers, by providing them with digital, automated lending journeys. While 70% of banks and financial institutions have automated their consumer lending, only one-third of them have done the same for their SMB lending journeys."
With omnichannel lending creating a resilient and seamless foundation, the next frontier in digital lending is expanding the types of offers available.
Optionality has become the new differentiator
When it comes to finance in 2025, there's no excuse for a lack of options. With a fierce financial market, consumers expect choices. In digital lending, this entails giving consumers multiple credit paths, lenders, and payment options at the POS or through any omnichannel experience.
In fact, one PYMNTS report found that 43% of consumers say the availability of their preferred financing option strongly influences where they shop. That's not just about convenience; it's a clear signal that optionality drives behavior. When lenders enable multiple credit pathways at the point of need, they don't just meet expectations; they shape purchasing decisions and deepen engagement.
In today's market, offering flexible credit isn't a feature; it's a competitive lever.
Additionally, technology like AI has enabled digital lending to shift from static applications to real-time personalization. Banks can tailor credit offers to individual borrowers in seconds, analyzing their financial profile and transaction history.
This is key, as Q2 research found that 74% of consumers across all generations want more personalized experiences from their banks, with 66% happy for their data to be used to provide those experiences.
On the technical side, this personalization is made possible through infrastructures that communicate securely through API protocols. Here, startups play an important role, helping financial providers leverage AI to deliver secure and reliable software products.
This is also paving the way to improve credit access to underserved and underbanked users to drive fintech growth through broader uptake across consumer segments. For instance, the Latino market represents the fastest-growing minority segment in the U.S., however the market has traditionally been excluded from traditional financial services.
Recent breakthroughs in AI have also paved the way for multi-lender waterfall lending, where an applicant is evaluated across a panel of partners simultaneously. If one lender declines, another may approve, with terms altering in real time. This process, combined with instant AI underwriting, eliminates dead ends in the application process, driving conversion rates higher.
Much like in lending, the value lies in meeting the user where they are and giving them intelligent and real-time options that balance access with security.
The balance of power is shifting
The financial services sector is undergoing a quiet power rebalancing. Traditional banks, once the undisputed gatekeepers of credit, now find themselves sharing the stage with fintechs that move faster, personalize better, and often come with fewer legacy constraints.
To stay competitive, many banks are acquiring or partnering with these challengers, hoping to reassert control over their credit infrastructure.
But in the current financial landscape, power isn't held; it's negotiated.
This underscores the importance of maintaining tight controls over internal operations to support resilience. According to Shagun Malhotra of SkyStem, "Accounting controls stand out as an often-overlooked domain—straightforward to implement and highly impactful for improving business resilience and continuity."
And this isn't just a finance story. In other highly regulated sectors, companies are facing similar pressures to modernize without compromising on trust. As Mathieu Lavoie of Flare put it: "While fintechs benefit from fewer legacy systems compared to traditional banks, they still handle the same sensitive personal information. This means they must uphold equally rigorous standards of data protection and security—regardless of their technological agility.”
Most importantly, when it comes to cybersecurity fintechs are also redefining how organizations defend against threats, offering adaptive protection that adjusts in real time based on user behavior, access patterns, and emerging risks. According to Jonathan Mitchell of Founder Shield, "Chime's (CHYM) IPO is an excellent example that hype isn't enough to whet investors' appetite; it's now non-negotiable that risk management must accompany innovation."
In the financial services sector, the same pressure is driving the rise of explainable AI. Institutions are being pushed to build not just faster systems, but more transparent, suitable, and adaptive ones.
Research from the UK found that 72% of banks already use AI, but nearly half admit they only have a "partial understanding" of how these systems work. And as regulation plays catch-up to technology, the balance of power will continue to shift, not just toward those who can move quicker, but toward those who can explain their innovations.
Digital lending is no longer a product; it's a digital interface made up of infrastructure, intelligence, and intent. And as the balance of power in finance is still evolving, banks, fintechs, and AI platforms are each rewriting parts of the lending playbook.
However, the long game won't be won by innovation alone—it will hinge on explainability, resilience, and the ability to orchestrate seamless experiences across an increasingly complex credit system.
Fintech's year of innovation
Although the amount of funding flowing towards fintech companies waned in 2024, this doesn't indicate a sector that's in decline. While AI companies have dominated investor attention, these deals are more competitive and expensive.
In contrast, the recent cooling of the fintech market means that savvy investors could find some of the promising deals here.
The optimistic outlook for the fintech market is further supported by the established nature of the financial industry. Both legacy companies and fintechs have a chance to cater to consumers with digital products and services thanks to new regulatory approvals and the expansion of open banking protocols worldwide.
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