Looking Ahead: What Are the Top Trends for Fintech in 2025

Speaker A: Foreign.

Speaker B: Hello, and welcome to episode 25 of the Deciphered podcast by Bain Company. On this podcast we unpack the stats to give you an in depth perspective on different topics related to fintech and the financial services industry. I'm your host, Adam Davis. I'm an associate partner of Bain Co. And the title of this episode is Looking Ahead, what are the top trends for FinTech in 2025? And I'll provide a little bit of context. So a lot has happened in 24 to shape the fintech industry. Despite a cautious investment and funding landscape, there's been key regulatory news, continued development of AI and general product innovation, as well as a couple of large political events that may well have a disproportionate impact on the sector. Uh, heading into next year, as we've been doing every year since we started this show, we want to bring you our new Year's predictions, uh, covering topics, the investment landscape, payments, our view on those political events, their impact and more. And to discuss this, we have an all Bain lineup representing different areas of our FS business. And first up is my co host, Jeff Tyson, who's the global head of fintech at Bain. How's it going, Jeff?

Speaker C: Very well, Mr. Davis. Um, since we started this a couple of years ago, this has been one of my favorite shows, so I'm delighted to be joined by some of my amazing colleagues. Uh, I'm usually wrong when it comes to doing predictions, so let's see how this one goes and whether we look back at this in December 25 and at least some of my predictions were right. But, uh, let's see how it goes.

Speaker B: I was going to point out in the next section, you did make one right prediction last time, which I'll bring up in a sec.

Speaker C: I know we'll come on to it in a second.

Speaker B: Yeah, shocked us all. But anyway, joining the two of us is now podcast regular Mike Smith, who leads our private equity practice in the uk. How's, uh, it going, Mike?

Speaker D: Hey, Adam. I'm very well. Thank you for inviting me once again. Um, I always enjoy our end of year roundup on fintech. It's a lot of fun and I'm looking forward to today.

Speaker B: Yeah. Ah, it's good to have you. And I'm also delighted to say we're joined by Tevye Segovia, who leads Bain's payments practice in the Americas. Uh, Tevye, awesome to have you on. Welcome to the show. How's it going?

Speaker A: Great. Thank you so much for having me on my first podcast recording ever, so couldn't be more excited.

Speaker B: Uh, we will be kind, I promise. It's great to have you here. And finally, we're joined by Kareem Ahmed, who's a partner in RFS practice and leads many of Bain's engagements in payments globally. Welcome back, Kareem.

Speaker E: Thank you, Adam. On the topic of predictions, I think I did this one last year and I have absolutely no recollection what I predicted. So I'm very confident that once again my predictions will be lost in the maelstrom of payments in 2025 and you guys will have me back again.

Speaker B: Yeah, it happens. I think we're covering some of the same predictions. We'll come on to it, we'll come on to it, but I don't think you were too far wrong. But let's move on to the show. We'll start, as we always do, with the answer first. So we always use the concept called an answer first, which is essentially having a relatively formed quick hypothesis using all the facts and the stats and the brains from our organization. And we always adapt it a little bit for the podcast and ask, uh, everyone for their 30 second answer first to the top line question. So, Jeff, I'll start with you. And the top line question is looking ahead, what are the top trends for fintech in 25?

Speaker C: Thank you. There's a couple of things I would highlight and let's start with the one prediction that I actually managed to get right last year, which is I remember saying crypt crypto will make a comeback in 24. And everyone started laughing. But hey, turns out I was actually right and if only I would have doubled down on that and put my money where my mouth is. But, uh, but hey. So a few things I would highlight. One, I think we'll see a continued focus on, on profitability and revenue diversification. You know, as we've started to witness, of course, in the last 12 to 18 months, I think that will continue. I think we'll likely see a healthy degree of M and A, uh, but also a fair bit of consolidation happening in the markets. I think some of these companies just will not survive and, uh, that current environment won't necessarily change in the short term. I'm pretty optimistic about some fintech companies going public now. Some, the likes of Klarna have obviously been pretty vocal, uh, about their desire to go public in the not too distant future. So I'm very much looking forward to that. I think it's a great sign of optimism as well. We need more success stories. We need More companies going public and be successful in the public markets and not just in the private markets. As I mentioned, I think when it comes to crypto we'll likely see the market calm down a little bit in the next couple of weeks. But uh, overall I'm pretty bullish about the outlook for the sector next year. And then finally, I think the only other thing I would highlight is considering some of the instability that we've witnessed in the markets in the past 12 months, we'll likely see or continue to see a fair bit of regulation and an even larger focus on compliance. So those are probably the key things that I would highlight to kick us off.

Speaker B: Um, sounds good, Mike.

Speaker D: I tend to view the market through the lens of uh, investors and I have to say I think 2025 is going to be a, um, consolidation and a growth year for the sector. Uh, I think we've seen an extraordinary level of market volatility in recent years. The rapid increase in interest rates, obviously the spike up in inflation, um, the uh, decline in uh, fundraising by investors over that period as well. And I think 2024 was always going to be a year of uncertainty with, what was it, half the world's population going to the polls at some point in the year. So it's made for a pretty tough environment to be investing. I think the dust is now settling somewhat and we'll see a return to growth, we'll see a return to more deal making investors now happy to find the right valuations for companies and backing those great companies. So I think the outlook is a lot stronger now than it was for example 12 and 18 months ago. Within that, where do I think investors can be looking predominantly? I think, um, AI will be a strong theme, um, across the different fintech sectors. I think we're going to see a resurgence in crypto and blockchain as Jeff had predicted 12 months ago. I think we're going to see continued interest in the real sort of core subsectors of fintech, where investors have appetite, payments, wealth, regtech, all of which I think um, have pretty strong fundamentals as we go through the next 12 months.

Speaker A: Tevye, I'm with Mike on this one. In terms of crypto and all things growth, I think we will also see continued embedded finance expansion. I think non financial platforms will continue to integrate financial services and we will see a shift in customer ownership to these platforms. I also see um, significant use cases for AI, not only in terms of efficiency and effectiveness internally, but also in terms of new products for their customers and then an Emphasis on cybersecurity and regulatory compliance. Uh, with the growth of crypto and the increasing digitization of financial services, um, we'll see that cybersecurity will remain a critical concern. We will see an evolution in regulatory

Speaker E: and Karim harassing a little bit on some of the themes mentioned already. I think double my list is compliance. I think between sort of the increasing emphasis on KYC and AML and also the fact that Schroed transaction fraud in particular continues to grow across the world following and in fact outpacing E commerce growth in some of uh, some regions like Latin America, I think that's going to be, continue to be a huge amount of pressure that, that our players in the industry face. I think that gets compounded when you have non financial platforms starting to engage in financial activity and we are sort of seeing how a lot of our sort of fintechs are getting caught out by what happens when you don't pay attention to the minutiae of onboarding and kyc. So I think that's going to continue to be a big theme and then I'll sort of put open ecosystems and multi rail payments together in a sort of a big sort of mush of interesting developments and thinking of things such as what the card networks are doing about diversifying away from car platforms and really embracing account to account. There'll be a reckoning around account to account I think in the US uh, with sort of the fate of the 1033 rule and the technical standards underneath that being rolled out in the US but that's obviously not going to impact other markets where account to account payments are becoming significant in volume and impact. And I think the other piece in terms of open ecosystems is the stripe announcement, allowing their customers to have a choice of processor but still use the stripe portfolio of products. Sort of the next horizon if you will, for the industry. We've known for a long time that transaction processing isn't really where the juice is uh, in the industry. It's really been in all of the other stuff you do to support your customers and I think that's going to put pressure on competitors to follow. So we're sort of starting to see this separation of um, product and value added service from transaction processing with transaction processing not necessarily being the enabler of those revenues. So the question is now for a lot of the large part of the industry that's not able to decouple these things in quite as neat a manner, how do they respond? Which I think is going to be a big investment theme for all of the famous incumbents. So I think lots to look forward to, to be completely honest. As before, the industry is going to continue to be quite turbulent, quite volatile, and very, very fast paced.

Speaker B: Thank you, Karim. Um, right, let's move on to the main part of the show. We're going to start a little bit on 2024. Jeff, I'm just going to ask you a couple of questions in terms of your viewpoints on pretty much the last 12 months. We did predict last December for a potentially subdued market through this year. Obviously, this was off the back of a pretty tumultuous market in 2023. We did speak about potentially IPOs happening this year, which in hindsight hasn't necessarily materialized, albeit the column news a month or so ago. But we also talked, as we have done just now, around trends like AI, embedded finance, and then obviously crypto as well, which obviously, again, if we'd taken your investment advice, we would have all been probably in a very different place than we are now. In terms of your viewpoint on the year just gone, has this, I guess, more stable environment actually materialized? Uh, and what are the proof points if it has?

Speaker C: Yeah, it's a good question. And I think from a broader market perspective, if you look at what's been happening to things like interest rates, if you look at what's been happening to, uh, public markets, if you look at the broader investments that we've seen in fintech, I think it feels not just more stable, but there's a real sense of optimism that wasn't necessarily there a couple of months ago. And I think if you look at the outlook for 25, taking all of that into account, most investors, most corporate clients, most fintech CEOs that I've spoken to, they're pretty optimistic, they're pretty bullish about 25 and what next year will bring. I think the other thing, Adam, is that we really needed a few more success stories. And if you look at Nubank now having 100 million customers, Revolut having 50 million customers, we've had a lot of good news in the past couple of months. M and A is sort of on a bit of a rebound, or at least we're starting to see some signs of optimism as well. So to me, I think the market feels definitely more stable than 12 months ago. Yeah. Have we seen a, uh, full rebound? Are we back to the golden days of 21? No. Do I think that's a good thing? Yes, because 21 just wasn't healthy. And we've talked a lot about that in previous Episodes. So, again, I think more stable, lots of optimism, lots to be excited about as well. And we'll come on to that a bit more in a second. But, yeah, the vibe, and even, uh, at Events like Money20 20 and other events that I've been to, it's a very, very different vibe compared to a couple of months ago.

Speaker B: Yeah. And if you could point to one thing, I think through the year, maybe even recently, because I also feel that sentiment shift has been across the last sort of three, four months. Has there been a new story or a capital raise or something in mind which you think has triggered that might even be linked to the slope. What is it that you feel that has changed suddenly, or has it just been a sort of more gradual move through the year?

Speaker C: As Mike pointed out, the fact that the majority of elections are now out of the way, and it doesn't mean we've got full clarity in terms of what's going to happen next year, but that played a major role as well. And I think the uncertainty, um, in terms of what's going to happen, what's the outcome going to be of some of these elections, how will that affect the financial market more broadly? How will that affect the investment landscape? Again, what's going to happen to, uh, the rate environment? Again, a lot of those things are now out of the way and we can actually focus more on the future now, as I mentioned, I think the fact that we have seen a fair few fintech companies be pretty vocal about their desire to go public again, not necessarily something that we were seeing 12 months ago. If you just look at the user base, the profitability figures for organizations like Monzo and various other fintechs around the world, that's fantastic. And that foundation is there now for those organizations to continue, uh, to grow and to scale on the fundraising front. Again, early stage has never really completely disappeared and that's always remained relatively stable, despite what was happening in the market more broadly. But we're now also seeing larger deals. You will have seen Robinhood's acquisition recently as well, of 300 million. And again, I think that's something that we will continue to see. So I think what we're seeing, Adam, is there's a lot of proof points in the market right now of things that you're weakened collectively as a fintech sector. Be very, very excited about if you look at the next 12 to 18 months.

Speaker B: Yeah. And let's focus a little bit more on that investor appetite. So as we come to the end of the year, you start getting sort of the Q3 statistics that come through and they sort of give us a better picture of where the year is going to land from an investment perspective. And Generally in the US, VC investment in FinTech remains near a six year low. This is according to SVB, who's now of course part of First Citizens Bank. As you say, Geoff, you're correct. Focus, uh, has shifted most certainly to early stage funding. So with three seed deals occurring for every one series deal this year, which is an interesting statistic in the uk, uh, we've seen, I would say a significant uptick, believe it or not, in fintech investment during the first half of the year. So it reached around the 7 billion amount. But there were two big obviously investments that were bound, which is the credit tech company which raised around $1 billion and then Monzo of course famously raised around £400 million earlier on this year. But globally fintech investment in 24 is expected to decline compared to 23. Mixed outlook for the sector. Uh, and there's obviously regional successes sort of dispersed in between that. Mike, where have you specifically seen investors placing dollars this year? And just from a macro perspective, what's the sentiment moving into 25?

Speaker D: It's been a really tough year in 2024. I think there's been investor appetite for really great businesses in good markets. I think investor appetite has weakened for any businesses that have really suffered as a result of some of the uncertainty that we've seen. And that's made it more difficult for the vast majority of firms to raise capital over that period. I think the reduction in uncertainty will help. It will move a lot of businesses and a lot of subsectors back into the spotlight for investors. And I would particularly expect to see those investors spending a lot of time in payments, spending a lot of time in wealth, um, interestingly also spending quite a lot of time in um, fund services and some of the related capital markets infrastructure as well. Um, all of which I think are segments that um, particularly will benefit from technology disruption and from the deployment of AI.

Speaker B: And uh, just very quick, because Jeff mentioned it, obviously the impacts of the election, which are seeing public markets soar, has that, do you find had any impact on private markets? And how are private equity firms, I guess navigating the challenges of fintech valuations in the market? Where we stand right now, the first

Speaker D: thing I'd point out is that um, one of the benefits of private markets is they don't tend to show the same volatilities. Uh, you see in public markets the reaction, overreaction, sometimes to different events. In that context, I think there is a continuation, if you like, of the appetite and the trends that we see investors pursuing. That said, obviously the outlook for lower interest rates is a good thing for doing deals. I think that's something that the industry as a whole, uh, welcomes. I think also the declining inflation figures helps investors get more comfort with some of the targets that they're looking at. So all in all, I think the events through this year have generally mean we are leaving the year in a better place than we started it.

Speaker B: Yeah. And I know you focus obviously a lot on fs, um, but just a little bit more broadly is when a PE company looks to invest into a fintech company, is there any factors, if you think that differentiate them from other sectors, uh, from what you know. So I'm sort of thinking about obviously, you know, its proximity to risk or, you know, the ability to have sort of regulation first and foremost at the front of their mind. Is there anything that you, that you've seen that sort of grown when you look at the appetite for a PE company to invest into a fintech company? You know, aside from just how it's doing financially?

Speaker D: Yes. Fintech is a great sector of VC and private equity. Financial services generally is a sector that rewards innovation and um, particularly that combination of changing customer behaviors, disruption from new technologies, some of the regulatory changes that we've seen as well, all of these have created an environment that is uh, ripe for disruption and for innovation. And I think PEMBC like to back that. I think if you then combine that with many of the incumbent institutions struggling to put technology at the heart of their businesses, struggling to deliver on some of those disruptions, that makes for a pretty attractive space for um, investors to back businesses. And particularly in fintech, you tend to find that the business models can be scaled really rapidly. So when you find a winner, you can back it. And many fintech investors have uh, generated some pretty attractive returns off that.

Speaker B: I was going to ask you, uh, well, I'm going to ask everybody at the end obviously for a fintech projection into next year. But I think just going back to what you said before, you mentioned regtech, you mentioned wealth Tech. If there was a specific part of the sort of the FinTech FS ecosystem where you would put your dollars next year, where would it be or what are you most excited? What do you think is going to sort of cross your desk in a higher volume than you've ever seen before into 25?

Speaker D: I think we'll see everything grow next year or Pretty much every one of those subsectors. I think that, um, decline in the uncertainty is a rising tide that will lift all boats. I get particularly excited about some of the trends that we're seeing around the capital markets and the market infrastructure. That's a segment that I particularly enjoy spending time in. And I do think that that's a space where there is a particularly strong case for some of the fintech disruption that we're seeing. That said, I'm also very aware that the payment space will continue to be very, very innovative. It has been for a long time. It's uniquely exposed to changes in consumer behaviors that directly impact it and, uh, can deliver changes really quickly.

Speaker B: And that is a good segue into payments in which a lot has happened this year. The most probably pertinent, I think on most people's minds at the moment is that open banking feels like it's finally arrived in the us and the reason why I say it's at the front of my mind is because I think we've done what, three of these shows now, uh, and we've mentioned these impending regulations on every single show. And we finally got clarity from the, uh, CFPB this year, followed, uh, by some very quick lawsuits. Um, and the question is, I think off the back of that is will this work? Uh, so obviously learning the lessons from Europe and something that'll be good to touch upon in a second. Uh, we also this year saw the largest private fintech in the Western world make their largest acquisition ever. And it was for a stablecoin startup, which is interesting to note. Um, and we've also obviously seen Klarna file from an IPO in the US which is the first household name really to trigger that, uh, IPO process this year, seeing the continued creation of course of digital asset payments, uh, and infrastructure, and then a whole host of new capability out of Visa and MasterCard. An absolute enormous amount over the past few. And then just when we thought that that was it, we've seen a new payments vision from the UK government which was released just after Labour took office. Uh, all while last year we spent a lot of time talking about the digital euro. But that feels like it's been caught up a little bit in Brussels in sort of the political mire. So a lot's happened this year. Karim, um, distilling all this down. What's caught your eye this year in the world of payments? One of those 300 stories.

Speaker E: Give me an easy one to answer. Why do you.

Speaker B: Well, we start with, we start wide and then we Narrow in. You see that's the way we run.

Speaker E: I guess there are two perspectives that encompass all of these themes. The first is there are some very rich profit pools to go after in the industry. And so things like 1033 and the attempts uh, by a number of different players to mainstream account to account is really going after the interchange based profit pool to try and take share from card and already enable payments. There is another vein there which is around identity verification and data use cases which is extremely lucrative to go after as well. And so that's what you see players like Platt going after in the US and obviously a number of other aggregators in Figurope. So one is people are trying to follow the money but using newer approaches. Um, and in that regard I have a lot of time on for account to account in particular and some of the efficiencies it can bring. The banks are obviously playing an interesting game in the us. On the one hand you see them sort of filing a lawsuit against the CFPB ruling. On the other hand you see banks like uh, Chase actually starting to launch their pay by bank products now clearly sort of creating some option value for themselves as the industry does. The other big sort of overarching theme from a regulator perspective is choice and consumer protection. And I do think we're at that tipping point in the industry where unless regulators and markets like the US step in and preserve that choice and consumer freedom, um, and also the space for innovation where we're seeing so much consolidation in transaction volumes now you start to get worried a little bit about whether if you're a startup with a smart idea, you have a halt of actually scaling a business given the massive amount of, of embedded competition you have to overcome. And is that competition actually um, looking to continue to sort of work in favor of the consumer. So I have some sympathy for what regulators are trying to do in terms of treading a line between enabling innovation, um, opening up the door to access to capital, but also not over regulating markets. And we could argue for many, many hours on whether they've actually landed on the right spot on that. But that's essentially the game that's been played everywhere you look. So Underneath that is 1033 going to work. I think the US is ready for it and pretty much every retailer of note that we talk to is groaning under the weight of the cost of acceptance, um, in environments where margins are challenged. So there's a huge amount of pent up energy um, that 1033 could unleash in terms of innovation, uh, on Payment acceptance. So I actually would keep an eye on that. Obviously elections are behind us, as Jeff said. So let's see what the new administration has in mind because while they have been very vocally anti regulation, have also been very vocally anti big tech and do big banks and also get caught up in that same vein. So I think the US is going to be a particularly interesting space over the next 12, 15 months to see what happens.

Speaker B: Yeah, you're right. There's a significant financial impact to 1033 which I think probably escapes the headlines and you need to sort of do the digging and the modeling underneath it. But it could be pretty um, seismic. Uh, and that's obviously in the us more closer to home. Well, I sit anyway in London in the eu, the European Commission have published a draft for the third iteration of the PSD regulations and requirements and we're expecting the final version to be published anytime now. Um, what they've said is that's going to then follow, uh, or what's going to follow is an 18 month transition period for Member states to then then transpose the directives of these final recommendations, international law and then prepare compliance. So you're looking around and I'm being, I think optimistic. But I'd love to get your thoughts. 2026 at the earliest for any of this to actually hit. We don't know yet what's in the regulations. It seems like there's a drive for open finance, uh, to your point in terms of consumer protection, loads of things in there around, uh, better authentication. Um, and for prevention. Do you feel 26 is about right? And what does PSD 3 have in terms of consequences for the customer?

Speaker E: First of all, I think if you look at the track record, PSD2 took a heck of a lot longer than 18 months to roll out. Changes were probably more severe. You could argue that the industry is better prepared. Uh, there's been significant, uh, lead up to this and so forth. So could you pull it off in 2018? Potentially in 18 months? Potentially. Um, I don't think uh, that that is actually going to happen. Um, I suspect the actual release of the rule will be delayed even further and then I think there will be sort of a significant amount of pushback against getting some, some of the big aspects in market, uh, you know, in 18 months, but could be wrong on that. Maybe the regulators and the industry will move faster. I think the big thing about the regulation is it's starting to broaden the framework and the notion of a participant in the industry. Right. Which is material so to the extent now that you're looking at players like Apple being recognized as sort of providers of authentication under the SCA sort of requirement and therefore regulated as such, that's an important recognition of the role uh, that those players have in the ecosystem. Probably a delayed recognition given the outsize weight that Apple and Google are already playing at the payments ecosystem. Right. So does this in fact seed the ground for a more comprehensive set of legislation that includes some of these open platform use cases? I think it does. But uh, it also remains to be seen whether local regulators are going to take this as an opportunity to really sort of hone country specific regulation or whether they're going to allow sort of the general framework govern everything. PSC2 we saw sort of a uh, mix of both of those things up. Regulator pushed it a lot further. Some of the local regulators didn't. As an example, it's a cleanup on PSD2. I don't think it's a massive change in direction. I think it's an expansion of the framework which is going to be net helpful to the industry. But let's see what it looks like when it's finally released.

Speaker B: I just want to ask you one more thing you said at the beginning of the show about Stripe becoming processor agnostic. Uh, pretty much. Can you just go into a little bit more detail into that? But then also the connotations that it will have on businesses that choose Stripe and the commoditization potential of the processor market in general.

Speaker E: The concept is a new um, obviously large tier one custom merchants have always insisted that they be able to switch between processors and have built a lot of the services that sit around the transaction processing themselves or they've procured them in a best of breed framework. Right. This is now that same concept being brought further down market where you're going to basically say to a small business who processes with Stripe or processes with another processor, I don't care who you process with, I'll still enable you to use to get access to some of the products that I have built. I was in New York City last week and Stripe uh, has adverts on bus stops advertising their billing solution that has nothing to do with payments and it's on m a bus stop. What's interesting about that is they have recognized that their products are so powerful in and of themselves that if they can empower people to use their product independent of where the transaction is being processed, they're opening up a massive addressable market for themselves. So it's a very smart uh, It's a very smart strategy and it's just the ultimate recognition of something we've known for a long time. Really the value to the user comes not from the transaction processing which happens in the background and as long as it happens you don't really care. It's around all the other things that sit around the transaction, whether it's product management or the billing or the invoicing solutions or the ability to communicate with your customers in an effective way and so forth. So that's what I meant by the comment on open ecosystem. Adam, I do think that this is now the next frontier in the industry where you start to sort of disaggregate all of the different services that today are bundled together in a tightly coupled bundle, uh, and you start to be able to offer those services to different customer segments in different configurations. Some will value the all in one approach because they don't have the wherewithal to deal with the complexity. But a lot of more sophisticated buyers would love to be able to use fraud detection from a network provided solution. A couple of the other value added services from Stripe and payment processing from the lowest price provider who is willing to bid for that business.

Speaker B: And just sticking with Stripe for a second. Tevye, I mentioned uh, in my blurb around the purchase of Bridge by Stripe, the stablecoin company of course and what it meant for the payments industry going forward. It feels like we're very much sort of at the beginning of stablecoins coming into sort of the public consciousness in terms of what they can do and the usability. How do you think that will affect the market in 2025 or the influence of that acquisition might have on the payments industry going forward?

Speaker A: Yes, incredibly exciting acquisition and Stripe's largest to date, uh, really demonstrates their commitment to integrating stablecoin technology into its payments infrastructure and in many way validates the utility of stablecoins as a legitimate use case for public blockchains and global transactions. I think um, Bridge will enhance Stripe's cross border payments offering and allow them to offer faster and more cost effective solutions. More broadly. I think it will accelerate the adoption of digital currencies in 2025. It will also probably intensify competition amongst fintechs and influence the broader financial sector's to digital currencies. With all of that happening it will also probably draw regulatory scrutiny on digital currencies. Right. With authorities likely to develop new frameworks, better frameworks to ensure financial stability and consumer protection.

Speaker B: It's going to be an interesting one and a really hot topic I think going into next year, um, certainly if Stripe decides to operationalize Bridge and can integrate it quickly. Um, I just wanted to also touch, before we go into the U.S. more generally, I just wanted to talk about Klarna a little bit that it's essentially they are floating an IPO potentially for around a 15 to 20 billion valuation, which I think is down from the peak. We will fact check that. Um, but nonetheless fantastic amount of money for ultimately what is at its core BNPL product. Albeit they've got a banking license, they do a myriad of other uh, services as well. Bear in mind that Affirm is currently worth around 20 billion at the time of recording again in uh, the public markets, which is seen, seen a significant shift upwards, uh, since the election. Do you feel uh, that this is sort of vindication, if you like, for the BNPL model going forward? Because it's obviously been much vilified in the public consciousness over the last sort of two, three years.

Speaker A: I mean I think this IPO valuation showcases the resilience and adaptability of the buy now, pay later model and the fact that the market is rewarding its expanding services like subscription services and the integration of AI that they have been pushing on to enhance their operational efficiency and user experience. From a model perspective, there's clearly a real consumer and merchant need for a product that offers transparency, predictability, seamless integration and ease of use, especially in the macroeconomic environment we're in, uh, with rising inflation and cost of living. However, I don't think this valuation does not fully vindicate the buy now, pay later sector. It still faces challenges, regulatory scrutiny, concerns over rising consumer debt. So there's a clear need for this financial flexibility product, um, but its sustainability will rely on responsible usage and effective regulation.

Speaker B: Yeah, which I know is also a hot topic which we would get into and we have touched on in other shows. But we do want to move on just to the US in general. Tevy, whilst we have you here, obviously I think next year is going to be dominated by the return of President Trump for all sorts of reasons. In terms of his impact on more topical matters, how do you think the election result we've already seen, again, we talked about it again, the shot in the um arm to a lot of public valuations and obviously crypto. But how do you think his result will specifically affect Fintech and FS endeavors going into next year?

Speaker A: Yeah, I think a pro business administration, uh, will probably ease regulations, um, and by doing so foster innovation and expand opportunities in Fintech. I think we will also see favorable Cryptocurrency policies that could accelerate the adoption of digital currencies and blockchain technologies. And so all of that will probably result in us seeing an increase in venture capital and institutional investments, driving more growth, but also more competition within the fintech landscape. I think we will also see, uh, more technological advancements, particularly in AI and decentralized finance. But again, all of this expansion, uh, will continue to highlight the need for strong data privacy measures to maintain trust. And so I think the election results could create a favorable environment for fintech growth. But we will need to balance this innovation with the challenges of privacy and competition.

Speaker B: Which actually leads me to my next question. So we've spoken about crypto and how much do you feel of the pre election promises that were made to sort of the crypto community for deregulation and all sorts of other stuff? How uh, do you feel that that was others sort of posturing, if you like, to garner the votes from what is a pretty influential community versus actual intent that we'll see play through next year?

Speaker A: Yeah, I think the cryptocurrency sector is closely monitoring President elect Trump's administration's commitment to its pre election promises. I think during his campaign Trump pledged to transform the U.S. into the, quote, crypto capital of the planet, indicating a very pro crypto stance. A couple of indicators of genuine intent. We've seen, um, strategic appointments, Right. They're considering, uh, pro crypto candidates for key financial regulatory positions. I think, uh, there are plans underway to establish a presidential Advisory Council on cryptocurrency. There's legislative initiatives already underway. Right. They have expressed intentions to halt anti crypto actions and SEC crackdowns and aiming to foster a more supportive environment, uh, for digital assets. So I think we'll wait and see. I do think again, implementing pro crypto policies will require navigating complex, uh, regulatory landscapes. They know that. And while the administration support could boost the crypto market, it must balance that innovation with consumer protections and financial stability. So we'll wait and see.

Speaker B: It is amazing. I mean we are about three quarters of the way through the show. We must have mentioned crypto a dozen times, whereas last year we didn't mention it until Jeff made the, uh, claim that the crypto was going to go up this year and we all nearly fell off our chairs. But it is amazing. I mean, What a sentiment. 12 months in the market and this is what can happen. Incredible.

Speaker E: Look, I think it is exciting to see it being brought back as a theme. I'm personally looking for people to do more with crypto than speculate or enable hackers stolen your credentials and sort of frozen your computer to paid. So to me the technology uh, has a massive promise. I'm yet to see sort of that promise realize itself in proper mainstream use cases that are beneficial to society. I'll put myself on the hook for moralizing a bit. A big part of that obviously has to do with a stable uh, regulatory environment in which you do that, that. But if you can have things like FTX going down in the context of what would be. Look back, what would we look back and say in terms of a relatively uh, stringent regulatory environment? What does a liberalized regulatory environment offer in terms of the potential for mass scale fraudulent activity, lack of consumer protections and so forth. And that's not good for the industry. So as much as we are sort of skeptical of regulation, the fact of the matter is that the industry needs a stable playing field on which to innovate. And so I guess we'll see a lot of noise and continued sort of valuation levels and whatnot in the crypto world. I'm still looking for people who actually bring that technology mainstream and start to solve real problems such as the settlement friction, such as FX related fees and the cross border friction that we see every day, such as, you know, industrialized identity verification. These are real problems that the industry needs to solve. Right. I'd love to see a lot of activity and conversation around those things than crypto for crypto sake. But that's just kind of. It is what it is.

Speaker B: Let's move on to general trends. We've talked about share prices a little bit, but obviously aside from sort of the big tech companies, which have obviously been catalyzed by uh, what's happened recently, you've also seen NatWest and Barclays and JPM and some of the real tier one banks all registering nearly 52 week highs. Mike, I'll come to you first. Is this a sign in your perspective that the sector was underweight or is it more reflective that, uh, there was. The conservative stance, if you like, by the regulators on falling interest rates has now sort of subsided a little bit, or neither. Can you explain this sort of growth in valuations for tier one players in particular?

Speaker D: I mean, I'm not sure I'm able to explain each and every one of them, but what I would say is that I do think, uh, and I'll come back to a theme I mentioned earlier, earlier, I do think the reduction in uncertainty has had a big impact on the sector. I do think, um, as TEVYE touched upon a pro business administration in the US does provide a steady tailwind for the bank keep segment as well. So the outlook for potential deregulation re regulation, change in regulation, whatever it may be that enables um, the sector to drive more innovation and growth. Growth is something that shareholders welcome and I suspect that's what we're seeing in part reflected. It's also important though to recognize over the same period through this year we have seen some marked improvements in many of the macro indicators as well, particularly the reduction in inflation, um, particularly obviously the outlook for um, further changes in interest rates this time downwards. And again those changes in interest rates, that stabilization of inflation I think could all play to the positive for the sector overall. I think um, the industry is leaving this year with a greater level of confidence than perhaps it entered the year.

Speaker C: Very much agree with Mike's perspectives. I think the banking sector as a whole has been pretty resilient and I think the sector has shown a tremendous ability to weather the storm despite the political and the economic turmoil that we've witnessed uh, in the past 12 to 18 months. I think the other thing as well is for the majority of banks around the world we've seen this huge focus on cost control, this massive uh, efficiency drive to look for ways to improve cost to income ratios. And to come back to your original question as to whether or not the sector is on the way. I don't think the sector is on the way at all. And if I'm perfectly honest, I would probably question whether the significant rise in share price of some of the major banks is actually justified or whether this is largely driven by this wonderful phenomenon called net interest margin. And I think if you look at the Dow Jones US Bank's index, so year to date performance, 41% up, uh, if you look at the last 12 months, 61% up. If you look at that over a three year period and this is annualized um, returns 4.6%. So you see the massive difference that we've witnessed in share uh, price of the banking sector. And again this is us focused over the last year versus the three year uh, period. So I'm very curious to see as rates will start to come down, as the environment will start to stabilize with inflation stabilizing as well. What would that look like for the banking sector going forward and will they continue to be able to demonstrate very very good returns? Will that lead to a uh, continued increase in their share price? Or will the market also start to realize that this drug uh, called net interest margin is Sort of masking the real performance of some of these organizations. Because again, I think the challenge for many banks around the world is their core business isn't necessarily growing. It is one of the key challenges for many banks is where's new growth going to come from?

Speaker B: From.

Speaker C: So I'm very, very curious to see how that's going to play out.

Speaker B: Yeah, um, one of the areas where growth could come from is the application of AI. I haven't asked one a question yet on this podcast, which again is definitely, uh, a break from last year, Jeff, just extremely quickly you could almost do what's your top tips for AI into next year. But I think, uh, if you could think about sort of an application or a use case. I've been to a few talks recently, talked about enterprise level Copilot and getting the, you know, the pure value realization out of AI. What do you see? You've been studying it recently. What do you see as sort of the use case breakthroughs that we'll see in uh, 25?

Speaker C: The challenge for the majority of players in the ecosystem is I can easily give you 257 use cases to get excited about. But where do you start? How do you successfully scale this? I was chatting to another client this morning and they've all done their homework. They've all invested heavily into building out certain skills and capabilities. They struggle to scale this across the organization and make sure that, well, uh, in the same way as the likes of Klarna have done that over 90% of people in the organization use this day in, day out. And I think the main challenge for many organizations looking at this amazing piece of technology, uh, is how do you embed this into the culture and the DNA of the organization? How do you fundamentally change ways of work? Because again, looking at a bunch of different use cases is helpful figuring out how are you going to scale this and how do you also use this as an opportunity to fundamentally rethink not just what you do, but how you do it. And that is a huge, huge challenge because I think a lot of organizations underestimate or say, listen, we've got a data science team, Clara, we've got a bunch of clever people, we can do this. And therefore, I think it's really interesting if you look at, if you take the likes of Clara as an example and what they've done, they've been very vocal about the role that Genai can play as part of a broader efficiency drive. But also I think this also plays a major role in the broader equity story that they're trying to tell to the market, but I think the main difference between Klarna and other organizations is they've been going at this for many, many years. They've been investing in talents, skills, capabilities for a significant period of time.

Speaker B: Yeah, and you mentioned equity stories there, so I'm jumping around a little bit. But I wanted to touch on this before we close. We know that there are a fair few digital banks certainly that sit here in the uk, let alone in the US and then broadly into Europe. Europe that are looking to potentially IPO and have made those signals to the market across the last few months. What you would imagine that that would lead to is if you like a clamor for the same investment dollars. Right. So you're going to imagine a congestion at some of the larger funds who are looking at these assets, but will have maybe four or five to choose from rather than just one or two. If you think about the equity story and the narration of that to the market. How can some of these banks, Neo banks, et cetera, stand out in 25 if they want to be top of that pile?

Speaker E: Pretty old fashioned answer, Adam. They can demonstrate that they have high quality revenue growth and a path to sustained profitability. Right.

Speaker B: I would counter by saying, I think uh, from a growth perspective obviously Revolut Monzo, uh, I think they're all exhibiting significant growth but they're also all exhibiting some form of profitability now on uh, a quarter by quarter basis, which is new.

Speaker E: That has been a focus coming out of the last 18 months and it's actually forcing a level of discipline that I think is extremely important. And they're picking different strategies. Right. Monzo is much more concentrated from a geographic perspective and trying to build uh, a, uh, sort of a high quality bank. Revolut sort of taking the world by storm. And so this next question then becomes is your operating model scalable? Are ah, you sort of capable of handling that growth and sustaining that high quality of revenue generation and profit generation. Right. Which is a pretty weird test of the maturity of not just the management team but also the processes, the scalability and the technology and things like that.

Speaker B: That.

Speaker E: Right. I think it's a welcome development for an industry that's been marked by really frothy valuations based on you know, upside down sort of transaction level economics. Um, so I think this is great. When you sort of emerge from your path to profitability, you're immediately into the scaling phase of your business which puts a whole different set of pressures on

Speaker C: the base to build on what Karim was Saying I think there's an element of predictability as well. Well, public markets can be absolutely ruthless. So if one year you have a very successful year and the following year it looks very, very different, you need to be able to demonstrate more predictable revenue growth. And I think the challenge for some of the organizations that we talked about is also that there's a lot more that they can do with their existing business. If you look at how do you better monetize that existing customer base, how do you grow average revenue per user? Again, what's your plan around broader product and revenue diversification? Those are all very, very important topics. And again I think Green makes an excellent point because life as a public company is so fundamentally different. And uh, I think there's a cultural aspect to all of it as well. So how do you maintain that culture? How do you maintain that thing that made you so unique as an organization? Well as you continue to, as you continue to scale, it's hard. It is very, very hard. But again the fact that some of these organizations have been very vocal about their desire to go public public is a great sign of optimism and I think it's something that we should all be very, very on one hand proud of, but also very excited about.

Speaker B: Let's go towards the close of the show and this is make a prediction time. And as we've seen on this show, your predictions can come back to bite you or to potentially make you look like a hero. Jeff, um, uh, what I'm going to do, I'm going to go around the group uh, and just ask you for your main FS prediction for next year intake FS prediction. Karine, you're right next to me on my screen so I'll go to you first.

Speaker E: I think we're going to see the launch of a digital Europe in a meaningful form next year. We haven't really talked much about that but uh, that I'm really excited about from a uh, payments infrastructure perspective.

Speaker B: We should have talked about that more to be fair. Maybe we'll come back to it as a um.

Speaker A: Tevye, I ah, would put my money on continued expansion of embedded finance. I know it's not new but I think, think we're going to see dramatic acceleration and just a shifting of uh, profit pools towards software providers.

Speaker B: Sounds good. Sounds good Jeff.

Speaker C: I think 2025 will be the year where stablecoins will really start to take off to build on Kareem's criticism. I think we will also see more real life use cases emerging next year at scale and not Just based on,

Speaker D: on speculism and Mike and I think M and A is back. Deals will be done. I think we will see a recovery in the, uh, M and A market and investors being much, much more active, supporting great businesses that will now suddenly be exposed, uh, to growth trends in this sector.

Speaker B: Awesome. Thank you very much. We will remember them for next year. Uh, and thank you all for listening to our top 25th episode of Deciphered. What we'll do, we'll go around the group. Uh, just let the listeners know where they can find out more about you. Tevye. I'll stop yourself.

Speaker A: LinkedIn. Uh, Tevye Philomjia.

Speaker B: Awesome.

Speaker D: Uh, Mike, probably best also on LinkedIn. So Michael Smith or Mick Smith. Bain.

Speaker C: There's a fair few at Alice there.

Speaker D: M. Mike, the at Bain bit differentiates me at that point. Not Bain Capital at Budding and company.

Speaker B: How many times, by the way, do you get stopped at a conference for being somebody at Bain Capital rather than Bain? I think it must happen. Uh, I can't even like always, always, always.

Speaker D: It's always a little bit embarrassing when you realize somebody has met M Got that slightly confused and um, how long until just clarified because it's not always obvious. They've immediately got it confused. Yeah.

Speaker E: Ah.

Speaker B: And it's funny to see whether they stay or run away.

Speaker D: But anyway, most people run. Jeff, how about yourself at Jeff Tyson?

Speaker C: Or you uh, can obviously find my musings on LinkedIn as well and Kareem

Speaker E: on LinkedIn with the rest of the gang, Kareem Ahmed. Also time to time of uh, bain.com writing something or the other of our bin.

Speaker B: Yeah and you can find me on LinkedIn or at bain.com or at the deciphered podcast. And if you enjoyed that, please leave us a review on Apple and Spotify and also please subscribe to the podcast so you never miss an episode going forward. Thanks so much for listening this year and we will see you next year for more. It.