QED’s 2025 fintech predictions

Nigel Morris, managing partner

The Game of Musical Chairs: M&A activity for fintechs is slated to heat up in 2025. We are finally emerging from an era of suppressed activity and can expect increased M&A for fintechs looking to join up for economies of scale or product & geo expansion. Plus, PE firms and LPs are seeking liquidity and encouraging exits. Taken together, we can expect a wave of deals with companies buying one another and, of course, other fintechs moving toward IPO as the market thaws.

GenAI Adoption: The evolution of GenAI will continue in 2025 and fintechs are incredibly well positioned. Fintechs will continue to leverage GenAI to slash costs in labor intensive areas like call centres, back-office operations, and loan origination. These productivity gains are the low hanging fruit that fintechs are best positioned to pick quickly. Startups will increasingly leverage GenAI to reinvent themselves to unleash the next wave of fintechs and an extension of what we built at Capital One: hyper data-driven, personalized powerhouses that are loved by the customers they serve. Fintechs are already significantly more well-liked with their customers than legacy banks (>80 NPS vs <20 NPS) and the next era is slated to be even better.

Fintechs Nimbleness as Competitive Edge: As trade tensions simmer, interest rate uncertainty continues, and some currencies experience volatility, fintechs will use their nimbleness to outpace sluggish incumbents in areas like cross-border trade (amid an increasingly uncertain global supply chain), regulatory and compliance automation, and remittances. Policy changes and decreasing regulation will make way for more innovation in fintech and beyond. I will certainly be keeping my eye on wealth management and following the “crypto summer” as areas of keen interest in 2025.

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Bill Cilluffo, head of international investments

GenAI
Generative AI will continue to mostly be a cost-efficiency tool in Fintech. I think we will start to see some early signs of true innovation, but it feels a little way off.

Global supply chains
Global supply chains will continue to be in a state of flux, aided by the Trump Presidency. Lots of opportunities to take advantage of shifting winds in SaaS, financing and Payments.

Crypto
Crypto will have some second (or third) wind, aided by the Trump Presidency. Things like Stablecoin-assisted payment rails will really benefit. Sadly, another hype cycle around non-value-added pieces will also have a rebirth.

IPO and M&A
IPOs will begin again. A new administration will likely create tailwinds for a bunch of capital market activity, IPO and M&A

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Chuckie Reddy, head of growth:

Hot Year for M&A
QED Investors has already seen a real pickup in M&A activity in our portfolio in the second half of 2024. One example is that we completed the Mynd-Roofstock merger in May to create a vertically integrated single-family rental (SFR) powerhouse. We believe this combination provides significant scale, revenue synergies (cross-sell), and better customer experience. The combined company will grow faster and be much more likely to be of a size with multiple exit options. There’s a lot of M&A in the pipe that we’ll see materialize in 2025.

There are many companies in our portfolio actively engaged in processes, both buying and combining. Very excited to see those come to bear in 2025. As the industry has now realized, the bar has moved to exit via IPO to upwards of $5B of enterprise value. QED has been very focused on making sure companies have a path to get there. This includes being active in identifying possible combinations inside and outside of our portfolio, which would help to increase the size and scope of our portfolio companies. Increasing size through M&A accelerates the timeline to liquidity.

More efficient spend and cycle times will lead to ecosystem restoration, regeneration
So many new foundational technologies are enabling fintech companies to build, test and roll out products faster than ever. That is resulting in more efficiencies in spend and cycle times. That trend will continue and accelerate in 2025, leading to less capital required at each round or longer between rounds. That’s fantastic for founders and QED as investors as it’ll allow companies to build with less capital leading to better returns throughout the ecosystem. As a result, the ecosystem will be able to tackle bigger and harder problems. However, we’re going to need a whole lot of computing power to get that done!

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Yusuf Ozdalga, head of UK and Europe:

A virtuous loop between more M&A and IPOs
More M&A was a prediction from last year that certainly has materialized, in the QED portfolio as well as elsewhere. We expect that momentum to continue in 2025 and it will be further bolstered by another emerging (and very welcome!) trend of more fintech IPOs. Just as QED European alumni Klarna recently announced their IPO, we expect more public offerings to be revealed in the coming year, creating a virtuous loop for even more M&A as companies use acquisitions as a tool to accelerate scale either in preparation of or as a consequence of their IPOs.

The visible hand of the government vs. the Invisible hand of the market
More regulation is another 2024 prediction that certainly came to pass, both in Europe and the USA, but we expect this to acquire a new flavor in 2025. Specifically, while there will be a lot of regulatory action in places like the EU, the US looks poised to move to domestic de-regulation (lower taxes, more lenient enforcement, etc.) while moving to more regulation (primarily tariffs) in an international context. The net result of these non-market interventions is that market players will increasingly look to (and try to lobby!) governments to act in their favor. So, expect more lobbying and more reading of the political tea leaves in tech circles!

Crypto spring
Looking at the trajectory of Bitcoin over the last month, this perhaps seems like an obvious prediction, but it is important to note that it will continue to be driven by several secular factors including: i.) more friendly U.S. regulation, ii.) more sanctions and other types of disruptions to international trade and iii.) recent price increases will once again attract masses of retail investors.

Climate tech
This is a secular macro trend that will not abate anytime soon, and especially in Europe, where the EU sees itself as a global regulatory trendsetter, there will continue to be regulatory as well as consumer-driven tailwinds. Add to this the ever-decreasing costs of producing alternative energy, and the table seems set. The one countertrend here would be more tariffs on Chinese-made solar panels slowing down the pace of cost decreases.

European & UK wake-up calls on listings
The IPOs of Klarna, and very likely in the not-too-distant future Revolut, may well take place in the U.S. when they happen. This will surely serve as a ‘bucket of cold water’ for the policymakers in the UK who wish to revive the fortunes of the London Stock Exchange, and London as a listing venue in the face of headwinds that have included decreasing liquidity, more onerous governance, Brexit noise, and sanctions impacting areas such as mining where the London market had a historical niche. Expect some soul-searching, public debates, and hopefully some tangible changes as a result.

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From open banking in Brazil and real-time payments in Colombia to geopolitical shifts, trade dynamics and renewable energy tailwinds in Mexico, LatAm is poised for a breakthrough in 2025. Read our top 10 fintech trends for LatAm.

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Amias Gerety, partner

With FDIC and OCC leadership change coming quickly, you'll see an immediate change in tone, that I expect will emphasize crypto first but more broadly emphasize a welcoming posture towards innovation more generally. For example, Jelena McWilliams was proud to be called the "most tech-forward FDIC chair ever". I would expect policy statements on crypto to come out relatively quickly (e.g weeks), with more detailed supervisory guidance to come in a few months, and then new bank charters granted within a year or so.

The Fed leadership will not change in the next year, but they'll likely be amenable to at least some of the policy changes and de novo banks — since the FDIC was the main blocker on those. However, one big issue that relies on the Fed is access to the Fed's payment systems. A tiny number of non-banks and trust companies have this access and it is highly coveted by crypto companies — most notably Kraken and Custodial who sued the Fed. With Republicans in charge, there will be immense pressure on this policy change. The Fed itself will argue that no policy is necessary and that they will consider applications as they come, but that won't satisfy crypto advocates in the House, Senate, and WH.

Deepfakes are here, but they are still more anecdote than data. Expect to see large scale deep-fake driven frauds in 2025. I would bet that these incidents will grab headlines, and enable tens of millions of dollars to be stolen. In addition, we'll see consumer oriented frauds powered by deepfakes drive account takeover and "help grandma, I'm your grandchild stuck in a foreign country" type scams against every major consumer platform. New, device driven identity companies like portfolio company Footprint are designed to defeat these at the account takeover level.

For romance/foreign-prince scams, the UK is already requiring both the sending and receiving banks to split the costs (rather than consumers). This SHOULD create opportunities for new data sharing and analysis startups like Tunic Pay, but it will definitely create strong incentive for banks to avoid this liability — you've already seen banks in the UK shift blame to tech platforms who control the communication channels where victims get lured into these scams. In the U.S. in particular, expect banks to actively campaign against the idea that we should follow suit.

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Laura Bock, partner:

The last three years have been challenging for tech businesses - founders have needed to do more with less, in some cases scaling back and reducing science experiments. We have turned the corner - global fintech deal activity exceeded the full year 2023 by the end of Q3 of 2024. We are seeing more outside led-up rounds and public fintech valuations are bouncing back - the fintech index is up 200% in the last 2 years.

Thematically, there are a number of interesting trends to look forward to in 2025:

Embedded fintech
We will continue to see big strides in embedded finance. In fact, QED recently published a report with BCG that predicted that, by 2030, embedded finance will account for $320B in revenues worldwide. We see financial services being delivered more contextually within the platforms that consumers and businesses use day-to-day. And, in support of this, an infrastructure layer will emerge to help companies quickly and easily launch industry-leading products in banking, payments, credit, investing, insurance, and debt management.

Payments infrastructure
About 10-15 years ago, companies like Stripe and Adyen captured the market opportunity created by the e-commerce boom and have created $70B and $40B market cap companies, respectively. Today, we believe software-led distribution in payment infrastructure is opening the door for similarly massive businesses to be built. We are seeing a tectonic shift of trillions of dollars in payment processing volume migrating from legacy technology and traditional distribution channels to becoming embedded within software platforms. Even capturing a small portion of this market could lead to the next big fintech company.

Wealth management
The ‘Great Wealth Transfer’ is underway wherein $85 trillion is expected to change hands from baby boomers to millennials via inheritance over the next two decades, and more than 80% of recipients are expected to change advisors. The traditional model of in-person meetings, static financial plans, one percent of AUM fee structures, and 60/40 stock bond rules of thumb does not appeal - we see a future where real-time, digital-first financial planning and advice becomes democratized and delivered more efficiently through technology.

We believe there will be a winner offering a next-gen consumer experience with a fee-for-service model targeting households with money. In addition, advisors at traditional firms spend around a third of their time meeting with clients and prospecting, and AI/tech platforms have the potential to drive that number up to 90%.

Generative AI in banking
When we think about the impact of Generative AI, banking and insurance are ripe for disruption. Banking and insurance both have around 50% of working hours rated as having a high potential for automation and another 10% as having a high potential for augmentation. It’s not a question of if - it’s when and how - generative AI will make financial institution workforces more efficient. While many of the gains will be incorporating more efficiency by replacing manual efforts (e.g., in loan origination, customer support), we also expect incumbent financial institutions and fintechs will leverage generative AI to offer more personalized customer experiences and better manage risk and comply with internal policies and industry regulations.

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Victoria Zuo, principal

M&A activity poised to surge in 2025
With the current administration's strict stance on antitrust enforcement under FTC Chair Lina Khan, many transactions - especially larger ones - have faced significant regulatory hurdles. However, with a new administration taking office, we anticipate a shift toward a more business-friendly and M&A-friendly approach. This change could unlock pent-up demand for mergers and acquisitions, particularly among high-value deals, setting the stage for a surge in M&A activity across various sectors.

Fintech to thrive amid trade tensions and volatility
Rising trade tensions and market volatility will create a fertile ground for fintech startups to innovate. Businesses will increasingly seek solutions to manage risks such as currency fluctuations, evolving tariffs, and regulatory complexity. Fintechs offering insurance, credit, and hedging tools, along with platforms that automate regulatory compliance for cross-border trade, are well-positioned to capture this opportunity. As global supply chains face disruption, these startups can become indispensable in ensuring smoother operations and financial stability.

Inflation and interest rates to shape the financial landscape
Inflationary pressures are likely to intensify, driven by proposed policies around immigration, tax cuts, and tariffs. This environment suggests that interest rates will remain elevated, barring any fundamental changes to Federal Reserve independence. While this will prolong challenges for balance-sheet-heavy businesses, it could also spur increased equity market activity as investors seek growth opportunities. The resulting uptick in equity markets may provide a silver lining, particularly for tech-forward and capital-light companies.

Adams Conrad, principal

AI bubble will continue to balloon ‍

I had hoped AI would have written this post for me but, alas, here we are. In 2025, the AI bubble will continue to balloon. Generative AI will continue to create magic in certain use cases, but it is not a panacea. As we identify where Generative AI creates positive ROI, and equally importantly where it does not, there will be volatility.  

Contrary to popular discourse, AI will not lead to mass unemployment. The rate of AI adoption is so fast that it will raise “the bar”  rapidly and with ubiquity. The result will be better services and solutions for customers and changes in roles for employees. My hope is we take this opportunity to create more fulfilling jobs for all. Humans are not robots and robots are not humans. Advancements in AI allow for a clearer division of roles and responsibilities between humans and robots.

Banks will buy technology
‍Across all sectors, the rate at which tech is adopted and becomes status quo will be measured in months rather than years. This is driven by a confluence of factors, but the net result is people and businesses have built the necessary capabilities to buy and adopt technology. Selling technology to banks has long been viewed as a Herculean, if not impossible, task. While selling to banks will continue to be a hard go-to-market motion, banks are engaging in POCs and testing cutting edge technologies.

Businesses that are able to articulate how their technology will increase efficiency ratios, expand deposit base, and increase loan originations are well positioned to capitalize on trends.  

Stablecoins will hit critical mass in emerging markets
‍First and foremost, I am long on U.S. Dollar-denominated Stablecoins because I am long on the U.S. Dollar (and the United States). As globalization thrives and demand for international money movement continues to grow, the demand for stablecoins will too. Blockchains are one of the best ways to give people in emerging markets access to stable, secure payment rails, a critical ingredient to improving financial accessibility; However, the adoption of stablecoins is also influenced by availability.

Fintech must continue to work on ensuring that people have access and trust in the tools they use to interact with stablecoins.

Globalization will apply pressure to improve SMB banking tools
‍Right now, those managing finances for SMBs have more sophisticated tools to manage their family finances than they do to manage their businesses. These finance professionals should have access to tooling that is as good (if not better) to manage the company’s cash flows.

Managing global cash flows, spawned by an increasingly interconnected and fast world, is non-trivial. In 2025 we’ll see more fintech tools and products purpose-built for SMBs.

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Alex Taub, principal, growth‍

The year of quantum computing
If 2024 was the year of AI, 2025 will be the year of quantum computing. AI isn't going anywhere, but like AI, quantum has the rare ability to completely revolutionize the financial services industry as we know it. True quantum supremacy is still a distant goal, but banks are already exploring its potential, leveraging quantum technology for superior credit risk modeling, fraud detection, portfolio optimization, and beyond.

The arrival of quantum computing also brings new challenges, particularly for any enterprise that safeguards financial information. Financial institutions must grapple with the post-quantum cybersecurity and cryptographic risks that will inevitably emerge once quantum technology falls into the wrong hands. As a result, significant investment and resources from financial services players will be directed toward both harnessing quantum's capabilities and protecting against its threats. This shift will fuel the rapid formation and funding of new quantum-forward companies designed to fill these critical gaps.

Growth in 2025
Growth-stage fintechs will raise larger rounds with more aggressive capital deployment strategies after nearly two years of recalibration. Easing interest rates and a more favorable regulatory environment will reduce pressure across the industry, encouraging fintechs to take bold steps into new markets and product lines.

High-profile fintech IPOs from companies like Klarna, Stripe, and Chime will bring liquidity back into private markets, creating a flywheel effect that revitalizes the exit landscape for growth-stage businesses. Fintech CEOs will apply the lessons from the previous cycle, using fresh primary capital to build more resilient businesses with sustainable growth.

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Shruti Batra, principal

Wealth management
‍The wealth management industry is undergoing a fundamental transformation, which will continue into 2025. The ‘Great Wealth Transfer’ is underway. That means we’re likely going to see $84 trillion change hands via inheritance over the next two decades as baby boomers transition. As a result, this among other factors will drive more than 70 percent of millennial recipients to change advisors.
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The mass affluent segment, which accounts for approximately one-third of the U.S. households and investable assets ($21 trillion), represents a large and untapped segment. Given existing wealth models are designed with high-net-worth individuals in mind, and 80 percent of the mass affluent segment have never worked with a financial planner, the mass affluent segment of the U.S. wealth management market presents a greenfield opportunity for founders to build in the space.
Future generations are digital natives, and consumer preferences continue to shift towards a digital-first, self-service style approach to wealth management, but one that still involves human support.
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Moreover, with the advent of technology, the nature of advice sought is changing. As we see an increase of robo advisors helping automate saving, investing and diversification through a simple solution, we’ll also see customers becoming more savvy in how they think about wealth management. This will create demand for advisors who can offer holistic financial advice, being able to address questions on tax-advantaged strategies, estate planning and alternatives.
This shift, which was accelerated by the pandemic and changing generational preferences, underscores a growing demand for advisors who can provide holistic financial guidance while leveraging modern technology.

Alternatives
The traditional 60/40 stock-bond portfolio allocation is becoming outdated as investors increasingly shift towards alternative assets driven by the potential for higher returns, improved diversification, and lower overall portfolio volatility. The expansion of the alternatives asset class will be accompanied by a major overhaul of the underlying digital infrastructure to help streamline investor onboarding, modernize back-office operations, and enhance data analytics capabilities. This will lead to more informed investment decisions.

Additionally, the development of standardized data frameworks and advanced analytics tools will provide investors with deeper insights into private market performance, fostering greater transparency and accessibility. These innovations are anticipated to democratize access to alternative investments, enabling a broader range of investors to participate in this evolving asset class.

AP Automation
With domestic business-to-business (B2B) payment volumes estimated at ~$25T annually, it's startling that paper checks still account for 40 percent of payments. At the same time, despite being the largest incumbent in its segment, Bill.com only serves less than two percent of SMBs in the US. Accounts payables (AP) automation is both a data and a workflow problem. Incumbent solutions do a poor job of capturing, structuring, and coding all relevant data from an invoice, which has downstream effects on workflow efficiency and results in garbage in, garbage out.

Depending on the complexity of the end vertical, SMBs might experience very high bill volume and hard-to-reconcile line-item details that need to be manually extracted and categorized. As such, we believe that massive opportunities exist in AP Automation, even within a set of verticals, and that a verticalized Bill.com could become a large company down the road.

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