The Banking & Payments Show: Banking and payments trends in 2025—Pay-by-bank at checkout, the BaaS compliance crackdown, and more

In today’s episode of The Banking & Payments Show podcast, we talk about who the BaaS compliance crackdown will hit the most, why Walmart and Amazon will pilot pay-by-bank at checkout in 2025, and how consumer privacy will change under a second Trump administration. Join the discussion with host and Head of Business Development, Rob Rubin, and Principal Analysts Tiffani Montez and David Morris.

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Episode Transcript:

Rob Rubin:

Hello everyone and welcome to the Banking & Payment Show, a Behind the Numbers podcast from EMARKETER. Today is January 14th, 2025. I'm Rob Rubin, Head of Business Development at EMARKETER and your host today. Today's format's going to be a little different because it's our first of 2025 and we're going to chat about the banking and payments trends for the year. Joining me are our principal analyst for banking, Tiffani Montez and our principal analyst for payments, David Morris. Hi guys. How you doing?

David Morris:

Hey Rob.

Tiffani Montez:

Hey there.

Rob Rubin:

You guys are both show veterans and we've had some amazing shows with you, but I think it's the first time we've ever actually had you on together.

Tiffani Montez:

I think we must be forgettable David, because we did this last year.

David Morris:

Yeah, I think we are.

Rob Rubin:

No. No. No.

David Morris:

Forgettable and disposable.

Rob Rubin:

Were you both on the trend show from last year?

Tiffani Montez:

Yeah, I remember this because we were ranking some trends and talking about which ones were going to happen and which were... So what we could say is that this is the first time that we've been on the show together this year.

Rob Rubin:

This year. In 2025. Absolutely true. And you want to know what, before we jump into the 2025 then, maybe it'll be fun to review the trends that we highlighted in the episode that I can't remember from last year.

Tiffani Montez:

We'll refresh your memory.

Rob Rubin:

Yeah. I do have a list of the big trends though. The first one that we called out was that risky banking as a service partnerships will test the trust between FIs and fintechs. I think we nailed that one. Hey.

Tiffani Montez:

Yeah, we did. I think specifically, we said that banking as a service partnerships, specifically risky ones, were going to create a Milli-Vanilli moment in banking and that we were going to start to see things in terms of violations that we're going to, we'll say show the ugly underbelly of this type of business model when the right risk and controls aren't put in place.

Rob Rubin:

Right. The second one that we called out was a wave of social media players will push the boundary of banking with bold new ventures. So I think we were talking about social media companies creating sort of payment infrastructures, no?

Tiffani Montez:

Payment infrastructures, and then also with X declaring that they were going to be a super app by the end of 2024.

Rob Rubin:

I don't think they are a super app.

Tiffani Montez:

Yeah, maybe it was buried in the headlines, but most likely not.

Rob Rubin:

David, have we seen any payment stuff coming around with social payments? Have they built it out? I know Meta has, right?

David Morris:

Yeah. I mean if we're talking about Twitter, and this is an apolitical statement, I think Mr. Musk has been busy doing other things and ruining his platform from my understanding, and that users are fleeing in droves. I don't think he got around much on the payment side of the business.

Rob Rubin:

All right. Now the third one that we call that or that banks are going to get real about disruptive challenges of GenAI. How do we feel about that guys? Was that a good call?

Tiffani Montez:

Yeah, I think it was just more saying that there is disruptive challenges with generative AI and as a result, that banks were going to begin to more narrowly focus in terms of where they were going to invest their time in building GenAI solutions. And we've seen that happen more in the back end, back office operations versus customer facing use cases.

Rob Rubin:

The banks that I've spoken with about the topic have talked about pulling policies in place about how employees use GenAI, the kind of information they can share with GenAI to produce output. They are creating sort of internal rules and regulations for how everybody can work with GenAI. I think that was what was accomplished last year.

Tiffani Montez:

Yep, I agreed.

Rob Rubin:

And then finally, David, this one squarely on you. Pays will put banks back in the digital wallet game. There is a pays,-

David Morris:

It's wonderfully worded so that,-

Rob Rubin:

Wallet.

David Morris:

I can say yes actually, but.

Rob Rubin:

I know.

David Morris:

Yeah.

Rob Rubin:

But they're in the game, but they're on the bench. No?

David Morris:

I think that's a very good way to put, it's a really good way to put it. Yeah, I mean they did launch, but there were a number of things that didn't come to pass, I think by the end of 2024 to ultimately make them a current threat. I think there's certainly still gearing up to be one. It's just that I think the merchant adoption has been very, very, very slow.

Rob Rubin:

You know what, I think that when Zelle was first launched, everybody said they missed the window and Venmo is going to, they lost the opportunity and I don't think that's the case. Zelle's quite strong.

David Morris:

Oh, I agree. I think there's tremendous possibility here. They're just getting started.

Rob Rubin:

Yeah. I want to take a look ahead because we're lucky enough to have both of you here today, again for our trends episode and I wanted to chat about the top two banking trends and the top two payment trends that we saw that we're seeing for this year. And the first is that banking as a service compliance crackdown is going to shift market power to the larger FIs. And our prediction or one of our predictions is that the banking as a service compliance crackdown is going to hit small banks hardest. And what that'll end up meaning is about 20% of existing partnerships will be terminated. And you know I'm always on this sort of argument that everything's always in the big bank's favor to begin with. So here's just another example. Let me just read them through and then we can talk about them. The next one is real time pay by bank payments will land at online checkout and we're predicting both Walmart and Amazon are going to pilot pay by bank checkout in 2025.

The third is that banks are going to push forward with personalization despite open banking regulatory tensions. And we believe that a pro-bank Trump administration 2.0 will roll back the pending CFPB regulations designed to protect consumer's privacy. And the last call-out is that wallet competitors will weigh an Apple, NFC partnership seriously, and we see Block as the most likely candidate to pilot an Apple, NFC partnership in 2025. So let me start first with the banking stuff, Tiffani. You're saying that banking as a service compliance crackdown is going to hurt small banks and at the same time pro-Trump bank regulators are going to roll back pending regulations. So if they're rolling back pending regulations, how is that going to hurt the small banks?

Tiffani Montez:

Well, the first thing I'd say is there are two totally different things. I think you've combined, I think you forgot to read a couple of paragraphs in between.

Rob Rubin:

Yeah. I know. I did it on purpose.

Tiffani Montez:

So the banking as a service,-

David Morris:

It's why we're not on the show together, Tiffani.

Tiffani Montez:

Exactly. Exactly. Distinct trend where the comment around the CFPB and potentially rolling back regulation had more to do with open banking. So two totally different things, but if I take each one of them on their own, I would say that if we start thinking about banking as a service in smaller institutions, what we know is that first of all, regulars have reportedly advised banks with under $100 billion in assets to reconsider their banking as a service involvement due to compliance cost and challenges. We also know that 75% of sponsors banks have incurred losses of 100,000 or more due to compliance violations according to a report released by Alloy. So when you start to think about rising cost and just the cost to maintain these types of partnerships, this threatens the viability of a banking as a service model for some of those smaller institutions. And we believe that that will force them to reevaluate whether or not it makes sense to stay in the game.

Rob Rubin:

It's kind of funny, because they got the market going, right? The big banks were not going to do that, at least when the small banks did. So even though maybe they ran a little rough shot with compliance, they started a market and a trend and now sadly it's going to get taken away.

Tiffani Montez:

Well, I think one of two things could happen, right? They could decide that one, that it makes sense for them to completely exit because the cost of maintaining compliance and dealing with anything that might fall out as a result of that may be too costly for them or they could choose to scale back on the number of partnerships because there are some sponsors banks that have multiple partnerships and maybe it makes sense for them to pull back and only focus on building and growing through one or two versus five as an example.

Rob Rubin:

Right. But where will the big banks fall? How will the big banks start to leverage banking as a service?

Tiffani Montez:

I believe big banks realize that although their growth has been driven through the assets that they own, meaning their own physical and digital assets,-

Rob Rubin:

Yeah.

Tiffani Montez:

That they know that consumers are increasingly wanting to be able to get products and services on their own terms and on their own terms, especially as it relates to younger generations. That means that they're out using other ecosystems and third party apps and they want to be exposed to products and services in a moment that they need them versus being a reaction to a decision that they have made that has financial impact.

Rob Rubin:

I want to jump to the CFPB regulations because these regulations, as I understood it, were really around sort of open banking and how much information institutions can share with each other about customers. Am I wrong about that?

Tiffani Montez:

Yes, but it had to be based on consumer consent, but it was based on giving consumers the power to be able to decide who they wanted to share their information with.

Rob Rubin:

Ah. Okay.

Tiffani Montez:

And so if you think about it more along the lines of what most financial institutions do today, right, you're opting in to doing something and as a result of opting in, then you agree to share your information with another third party.

Rob Rubin:

Correct. So are you thinking that what we're going to see is that banks are going to start to push forward with some of those things despite the consumers providing consent, like without consumers consent?

Tiffani Montez:

So if you start to think about banks' personalization ambitions, which they've been ambitious about this for a very long time, right, but I don't know that we've ever really seen true personalization come to light just yet. And a lot of that has to do with data being in good enough shape to be able to personalize services. But the other part of it is really, comes down to making sure that you understand or that a consumer understands how you're using their information so that you don't come across as creepy.

So if I start to think about hyper personalization and offering consumers products, services, or even advice, if you don't want to creep customers out, you have to be able to be transparent in terms of the way that you use information and that you deliver something that is of value to consumers when you do so. I believe it's in bank's best interest to already work on creating some type of consent model, whether it is saying, if you use this feature, that I'm using your information to power that feature, that you are being transparent and as a result creating value. And so I think that needs to happen regardless of regulation. I think it's just good business, it's good managing customer relationships and setting expectations and truly delivering value to consumers and giving them the things that they want and demand.

David Morris:

And even,-

Rob Rubin:

Okay.

David Morris:

Educating them because I think a lot of people don't know what open banking is. They don't know what's at stake when it comes to all of this data sharing. So there's a positive role, Tiffani, I would imagine that banks could play in, in educating and making people aware of what this is all about so that they can make an informed decision.

Tiffani Montez:

Absolutely, and what I think it comes down to is, is there value and are consumers willing to share information? And based on a study that we did in September of last year, we asked consumers what type of information they would be willing to share with their bank in order to get personalized advice and guidance. And one of the responses was, I don't want the bank to use any of my information, but if you looked at the six or so different areas of data that we asked them about, only 25% of them said that they didn't want any of their data used.

Rob Rubin:

Right.

Tiffani Montez:

And 75% were okay in some way, shape, or form with their data being used to get personalized advice and guidance. So customers are ready, it's just now banks need to be ready to do that in a transparent way and to David's point, give some education around it as well.

Rob Rubin:

I think one of the challenges is that when they do disclose how they share information or if you're opting in for it, it's always sort of legally easy. They don't really make it very easy to understand who they're sharing with, why they're sharing it, the frequency, like what's the relationship, because people have tried this in the past with managing your cookies, giving you a screen so that you can, like a dashboard that you can control who your bank and share your information with seems over the top and kind of extra, like too complicated. So I don't know how it's going to get resolved because I think at the end of the day, consumers say they want to share the information, but they don't really understand, maybe this goes to what David's saying about education. They don't really know what they're agreeing to and then when they look further, like the small percentage that actually will look further, I think it's complicated for them. It would be complicated for me to figure out, so I'm sure it's complicated.

Tiffani Montez:

Or if they can even read it in four point font.

Rob Rubin:

Yeah. Right. David, I want to jump to our payments ones and let me just do a quick reminder. The first trend is that real time pay by bank payments will land at online checkout, and the second is that wallet competitors will weigh an Apple, NFC partnership seriously. So my first question is why does Apple care about football?

David Morris:

Why does Apple care about football? Well,-

Rob Rubin:

You got what I did because of the NFC, right? Like,-

David Morris:

Oh.

Rob Rubin:

It's not really football.

David Morris:

Rob, oh my God.

Rob Rubin:

I knew you didn't get it.

Tiffani Montez:

Don't worry, David. It took me for a minute too. I was like, what does football have to do with payments?

Rob Rubin:

What does the National Football Conference,-

David Morris:

You did that to me about a year ago, Rob.

Rob Rubin:

Have to do with Apple?

David Morris:

Just, yeah. Yeah. That's good.

Rob Rubin:

Yeah. Can you maybe explain what NFC is?

David Morris:

It's Near Field Communication, secure element technology that Apple uses.

Rob Rubin:

Right. So when you move your phone near the,-

David Morris:

That enables you to tap and pay at the point of sale. That's the easiest way to look at it. Enables contactless payments.

Rob Rubin:

What's the benefit to the consumer of pay by bank versus just using a debit card?

David Morris:

Well,-

Rob Rubin:

Comes from the same place.

David Morris:

Yeah, that's a good question. And I mean there's a hard argument to make I think, without bringing in a solution that I'll provide. I think there are benefits off the bat to utilizing real time pay to bank for consumers. You don't have physical card details for instance, so there's an element of fraud [inaudible 00:16:15] the pay by bank is real time. You're aware of whether you have the funds or not at that moment, and the transaction will clear if you have the funds, which means there's no chargebacks, there's no overdrafts or anything like that. Those are nice little things, but I think what you're sniffing around for and what I would agree with is if you just have those two things that's not nearly enough to create a sea change in consumer payment behavior. What is the lever that's required, I think in order to make real-time pay by bank a legitimate solution is to implement a merchant rewards program and wrap merchant rewards around it. That's what will drive consumers to switch from debit. Because would you consider yourself relatively affluent?

Rob Rubin:

I guess.

David Morris:

Yeah, in a relative scheme. I mean, I guess the three of us probably are in some way. I mean, we make a certain amount of money that's over the median in this country. The reason I'm bringing that up, because even you I'll ask, do you get any rewards on your debit card purchases?

Rob Rubin:

No, but I do not use my debit.

David Morris:

Right. You use your credit card because you're more affluent, but there are no rewards with debit. There haven't been. They tried that back before Dodd-Frank and limiting interchange and so forth, and they don't anymore. So if you're able to create a merchant rewards program that does incentivize cash discounts or other rewards, I think you've got a winner, especially among consumers who are not tied to their credit card rewards and there's going to be less affluent consumers that I think we'll see a shift.

Rob Rubin:

Okay. Let's jump to the Apple, NFC partnership. Why do you think Block's going to be the obvious candidate there to do a partnership?

David Morris:

Well, I'd step back first and just kind of set the stage here. Apple is half the smartphone market. Okay. And the other half is Android, so.

Rob Rubin:

It's not half Android.

David Morris:

Oh, it is. Yeah. I mean who else is left? There's a couple of, it's roughly half,-

Rob Rubin:

Okay.

David Morris:

iOS and roughly half Android, and then there's 0.3% of whoever's still using that phone that the Canadians made 20 years ago. That's it. So that you're doubling your reach via NFC because Google will already provide it and you're also unifying that reach across smartphones, period. Other than those people still using that Canadian phone. And then you're talking about Apple Pay, proximity payments, Apple Pay is the proximity payment leader by a mile. We've got some stats, I think over 65 million Apple Pay users in store in 2025. Next up is Google with less than 40 million and no one else comes close.

Rob Rubin:

Even close.

David Morris:

Comes close.

Rob Rubin:

Yeah.

David Morris:

And,-

Rob Rubin:

Not those pesky Canadians.

David Morris:

Yeah. And the people who are going to stubbornly try to pay with QR codes, which now let's get back to Block. Block has a very robust Cash App, cash card program. There's almost 30 million people who have that card. It's a prepaid debit card, but they're not able to utilize the NFC technology in an Apple phone. That's a problem. That's a problem, especially when Cash App users are younger, that they have a customer base that I think is,-

Rob Rubin:

I what you're saying is that because they skew younger and they have an install base of NFC enabled prepaid debit cards, it's a natural fit.

David Morris:

Well, entities like Block have relied on so far to penetrate in stores essentially QR codes. QR codes have not caught on, and if they can use NFC instead, you're opening it up that window in a huge way. It's a no-brainer. The only problem is what Apple would extract for the privilege of doing so.

Rob Rubin:

Yeah.

Tiffani Montez:

Haven't we already seen one bank announce that it is going to use NFC technology? David, I thought that there was a press release for, I want to say a Norwegian bank.

David Morris:

Tiffani, it's funny we read that same press release. There is a Norwegian bank that indeed has signed on. Yeah. I think Block is definitely a great candidate and maybe to Tiffani's point, it will not be the only one. I think,-

Rob Rubin:

Right. Right.

David Morris:

PayPal is a really good candidate. You've got buy now, pay later players who would love to be able to get in store utilizing NFC. All of these entities thereby can make money on the interchange because it'll be with their own issued cards. So don't forget that.

Rob Rubin:

You know what? For fun, let's take these four predictions that we just talked about and rank them each for likeliness to come true. Let's rank the one that you think is,-

David Morris:

Well, mine.

Rob Rubin:

Most likely to come true.

David Morris:

Right, Tiffani?

Rob Rubin:

And which one, okay. And then which one,-

David Morris:

Tiffani beat me last year. She was right about one of my trends right off the bat. I'm going to get her back.

Rob Rubin:

Well, let's each figure out which one we think is the most likely to come true and which one we think is the least likely of the four to come true. Business as a service compliance crackdown will hit small banks hardest and we predict 20% of existing partnerships will be terminated. That's number one. Walmart and Amazon will pilot pay by bank checkout in 2025. That's number two. We believe a pro-bank Trump administration 2.0 will roll back pending CFPB regulations designed to protect consumer's privacy. That's number three. And number four is we see Block as the most likely candidate to pilot an Apple, NFC partnership in 2025. So David, which one is the most likely and which one is the least likely?

David Morris:

I think the most likely is going to be Walmart and Amazon. I think there's a number of reasons that I would say that Amazon is going to follow in Walmart's footsteps, and I can give you all 10 reasons, but that's I think the no-brainer of the list in my opinion. The least likely I would actually go with least likely being Trump's position. I think that there's, he's a wild card. There's a populist slant to what he may want to do, but that may give way to the pro-business slant that others may want him to do and maybe the inside Donald Trump may want. So that's the one that is least likely because of that.

Rob Rubin:

Tiffani, what about you? Any consensus there?

Tiffani Montez:

I'm going to go with consensus on the least likely, which will be the rolling back pending regulation. Mainly because their predictions, they're based on a time horizon of 2025, and I think it would be incredibly difficult for them to roll all of that back within one calendar year. I think the most likely, my vote would be the compliance crackdown are going to hit the smallest banks the hardest and that we're going to start to see some exiting of partnerships as a result of that. But I do still think that there's hope in the model and I think it's just going to be more slanted towards the larger institutions.

Rob Rubin:

All right. Well that's good. I'm going to go with, I think that the most likely thing that will occur is number two, Walmart and Amazon will pilot a pay by bank at checkout in 2025. It seems like a no-brainer to me. I think Walmart's already preparing to pilot it. I don't know.

David Morris:

Walmart's already going to launch it, so it's really the Amazon other half of the coin.

Rob Rubin:

Right. Right. Right. And they're going to follow suit and I'm going to just sort of go a little bit different and say that I think that the compliance crackdown is not going to happen and that we're not going to see existing partnerships terminate, and I just think that the same reason why a pro-bank Trump administration's going to roll back pending regulations, I think they're not going to be crazy about compliance. I think we sort of already have seen that until the new administration is in and until the new leaders are in place there, like a lot of the compliance just isn't even happening right now because they don't know who their bosses are going to be.

David Morris:

I don't know. For what it's worth because this is Tiffani's trend, but I thought that trend was really solid. I think if you're just looking at the,-

Rob Rubin:

It was our number one trend.

David Morris:

The shift from smaller to large, I think the compliance argument is a good one, Rob, but you're also looking back, you're looking at who are the entrenched interests here, and maybe that is larger banks.

Rob Rubin:

I just think they're so slow. The big banks move so slowly and if compliance slows down, I could be wrong. You guys are the principal analysts.

David Morris:

I think what Tiffani taught me last year is to avoid using 20% and 2% and things like that. That's the only thing that could possibly go wrong, is that maybe it's 18 or maybe it's 25.

Tiffani Montez:

Or it won't matter because next year Rob is going to invite us back.

Rob Rubin:

And not remember again.

Tiffani Montez:

He's not going to remember that we were there, nor will he remember what I said. So I'm winning regardless.

Rob Rubin:

I'm 100% going to remember all of this and it's totally jogged my memory from last year too.

David Morris:

Yeah, I've learned not to second guess Tiffani, I guess is what I'm getting at. I will,-

Rob Rubin:

Yeah, no, that is a good rule. I want to thank everyone. First, thank you guys for joining. This was so much fun today.

Tiffani Montez:

Yeah, thank you.

Rob Rubin:

Thanks, David.

David Morris:

Thanks a lot guys.

Rob Rubin:

I want to thank everyone for listening to the Banking & Payment Show, an EMARKETER podcast. Also, thank you to our editor, Victoria. Our next episode is on February 11th, so be sure to check it out. See you then. Bye everybody.