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🚀 The fintech industry continues to evolve at a rapid pace and 2025 is no different. This year, we’re expecting this wave of changes to continue and companies will need to keep on top of these in order to thrive. From new security rules, blockchain taking over financial transactions and the one we can't get away from (AI) - 2025 is packed with game-changing shifts. We’ve highlighted what we think are the top 5 legal pitfalls you need to watch out for below - you can thank us later!
🏦 Open Banking continues to make moves
Open Banking has come a long way, evolving into Open Finance and Open Payments. These developments are reshaping how financial data is accessed and utilised, creating new possibilities across the financial ecosystem.
By 2029, global payment transactions enabled by Open Banking are expected to reach a whopping $186 billion1.
Although Open Banking encourages innovation and enhances customer experiences, it also intensifies competition and raises security concerns. With the increasing flow of sensitive financial data, institutions must remain vigilant against potential breaches, ensuring robust safeguards are in place to mitigate risks, and FinTechs will need to rise to the challenge to execute this effectively.
💸 Blockchain as a Mainstream Financial Transaction
Once associated solely with cryptocurrencies, blockchain is now poised to underpin a significant portion of mainstream financial transactions. Its adoption by traditional finance (TradFi) signals the integration of decentralised finance (DeFi) into the broader financial system, facilitating tokenisation and cryptocurrency transactions.
“Predicting the exact value of the crypto market in 2025 is challenging due to the volatility and rapid pace of innovation within the space. However, many experts believe that the market will continue to grow significantly, potentially reaching a valuation in the trillions of dollars”2. Tokenization of global illiquid assets is estimated to be a $16 Trillion business opportunity by 20303.
The technology offers unparalleled advantages - faster, more secure, and transparent transactions.
🚨 Fraud Prevention and Biometrics
Fraud prevention remains a top priority for the financial sector, and the UK government is taking decisive steps to strengthen its payments infrastructure through its recently published National Payments Vision4.
A key element of this vision is fighting fraud by enhancing the use of biometrics for secure and user-friendly identity verification. Technologies such as fingerprint recognition, facial scanning, and voice authentication are integral to reducing fraud and ensuring safer transactions. As part of the plan, the government intends to revoke certain payment authentication regulations related to strong customer authentication (SCA) under the Payment Services Regulations 2017. This move will give the Financial Conduct Authority (FCA) greater flexibility to incorporate technical standards into its rules, enabling more innovative and adaptive fraud prevention measures.
The National Payments Vision also highlights the benefits of digital identities across multiple sectors. The proposed Data (Use and Access) Bill5 will establish a framework for digital verification services without mandating a national digital ID system. These efforts aim to provide a seamless and secure way for individuals to verify their identities, enhancing fraud prevention while promoting convenience.
As per Transparency Market Research, the AI-enabled biometric market has shown remarkable growth and is poised to continue this trajectory in the coming years. Valued at approximately USD 12.7 billion in 2022, the market is projected to expand at a compound annual growth rate (CAGR) of 16.7% from 2023 to 2031, reaching an estimated USD 50.5 billion by the end of the forecast period6.
🏔️ Regulatory Landscape Evolving
The regulatory landscape in the UK and EU is becoming increasingly stringent and complex. A range of new rules and frameworks is set to reshape the financial sector over the coming years.
The EU’s Digital Operational Resilience Act (DORA), coming into effect in January 2025, will introduce stringent requirements for financial institutions to ensure the security and resilience of their IT systems. Alongside this, the forthcoming Payment Services Directive 3 (PSD3) aims to modernise the existing payment services framework, with a focus on improving consumer protection, enhancing competition, and addressing new risks.
In the UK, significant reforms are on the horizon for Buy Now, Pay Later (BNPL) products. These changes, expected to overhaul the consumer rights regime, will bring BNPL under tighter regulation to ensure greater transparency and fairness for borrowers. Similarly, new safeguarding requirements for payment institutions and e-money institutions (EMIs) are being introduced to enhance customer protection, particularly around the segregation of funds.
While these frameworks are essential for fostering trust and stability, they also bring challenges. Excessive regulation could risk stifling innovation, increasing operational costs, and creating unintended consequences for financial institutions.
Financial institutions must navigate an increasingly complex regulatory patchwork, including compliance with Know Your Customer (KYC), anti-money laundering (AML), and customer due diligence (CDD) obligations. Meeting these demands effectively and cost-efficiently will be critical for remaining competitive in a rapidly evolving financial ecosystem.
🤖 AI’s Transformative Role
Artificial intelligence (AI) is revolutionising the financial sector, particularly in areas such as compliance, fraud prevention, and customer engagement. AI’s ability to process and analyse vast amounts of data enables institutions to keep up with regulatory changes and ensure adherence across multiple jurisdictions.
75% of regulated firms surveyed by the FCA and the Bank of England confirmed that they are already using AI, with a further 10% planning to use AI over the next three years7.
AI is also a powerful tool for detecting fraud. Its pattern recognition and anomaly detection capabilities allow real-time identification of suspicious activities, enabling immediate intervention.
In addition, AI enhances customer experience through hyper-personalisation. By leveraging customer data, financial institutions can offer tailored products and services, strengthening customer loyalty, improving competitiveness, and driving revenue growth.
Want to know more about what this means for your business?
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