Thought Leadership· 3min January 14, 2025
The key trends shaping the payments industry in 2025 are likely to be iterations on key themes we have seen in the industry for year, but what new dynamics do we expect to see? Key to answering this question is to kick off with a review of 2024, and look at how this is likely to influence 2025 activity.
I think the big challenge for banks in 2024 was ISO 20022 migration, which proved to be a massive pull on bank’s resources and investment which may have been otherwise allocated to other payment modernization activities. Thankfully, the end of the road for at least this initial phase of ISO migration is in sight - the CHIPS network was successfully onboarded in April, and looking ahead, the Fedwire Funds Service will migrate in March 2025. This has been important and difficult work in laying the foundation for many advancements in payments to come in the future.
Following this ISO 20022 migration activity, I think what we're likely to see in 2025 is that banks are able to move on from regulatory work to look at true modernization activities on their platforms.
With this modernization in mind, I will address key payments trends in 2025 and for the rest of the decade that US banks need to be on top of to best serve their customers.
The first big trend we will see in 2025 is major retailers potentially adopting account-to-account payment methods, underpinned by real-time payments (RTP).
It was interesting to see Walmart’s recent announcement that they are going to start offering account-to-account payments because it's the first time retailers are balking at the interchange fees they're paying on card rails. In theory, Walmart now has control of its payment destiny, potentially bypassing the need for card rails, which could in the future drive both brand and customer loyalty.
In terms of the benefits of account-to-account, when retailers realise that these transactions are cheaper than the 3% they're commonly paying on card fees, these savings could be passed back to the consumer in the form of lower pricing for goods.
Another benefit for retailers is that this payment method is instant and irrevocable. The fact that the money is going directly from a customer's bank account to a merchant's bank account, without a kind of middleman, is a significant advantage.
Moving forward, big retailers have the power and influence to start to drive the account-to-account practice. An example of this is aligned to the new Apple iOS 18.1 for its smartphones. For the first time the NFC chip that Apple uses for contactless payments has been unlocked. This opens up options for other payment methodologies outside of Apple Pay - and therefore outside of the card rails.
Aside from retailers, how will account-to-account payments affect banks? The banks, as card issuers, benefit from fees associated with retail transactions, so there may be a resistance to offering account account payments. At the end of the day, it could come down to client preference and client satisfaction. If your bank is not able to offer account-to-account payments, another bank can, and will take the business.
While I expect the impact of account-to-account payments on card activity to be minimal in 2025, I also think the increased uptake we will see in 2025 will lay the foundation for what will likely be a much larger shift in consumer behavior in future years. Key to this is better implementation of RTP mechanisms, especially as payment rails like Zelle can’t facilitate this activity. Ultimately, it is the consumer who benefits the most, and we'll have to drive that behavior in payments the market in 2025.
Linked to Walmart’s activity is the question of whether real-time payments will truly take off in 2025 – especially as many banks are still deciding to get on this bandwagon.
What is interesting is that the Automated Clearing House (ACH) recently announced that they will be increasing the limit on RTP transactions to 10 million, which is a significant 10 times increase over their higher limits. This opens up RTP to more businesses and other use cases such as real estate transaction settlement and supplier inventory settlements.
In addition, those banks that have implemented RTP in many cases have done so tactically, and I think they are finding that some of the solutions that they've implemented are not scalable. I think the need to address that gap is key in 2025.
We’ll also see banks needing to invest more in RTP infrastructure that allows fungibility between various payment rails. Depending on the time-sensitivity of a payment, it might need to be directed to ACH, where it's on a lower-cost infrastructure. Whereas if the payment needs to go out immediately, it's better to route the payment to RTP or FedNow.
In 2025 banks will need to create an architecture that allows for flexibility in payment rails. Traditionally, the rails have been highly separated, highly segregated. Unfortunately, that's not going to fly in the future where banks need to be able to present omnichannel payment opportunities for clients.
One major project that will take off in 2025 is addressing the future of the Automated Clearing House (ACH) network, and how this integrates with real-time payments. This work is needed, as the ACH, arguably the granddaddy of all payment rails, needs to be fit-for-purpose for a changing US payments landscape.
This modernization is essential, as some banks are operating on 30-year old tech architecture. However, this project is a delicate one, as some of these banks are loath to tear out this tech, as it's such a complex process to replace.
To address this challenge, we are working with a group of banks around what the vision for ACH looks like in the future. This focuses on integrating ACH with real-time payments, with the ultimate goal of creating an omnichannel environment that banks are going to need to best serve their clients in the future.
I think the investment spend needed for this vision will potentially be there, so I think it's a question of taking the time to lay out the architecture and the vision of the future, and selecting vendors that can accommodate that.
In addition, I think there needs to be a recognition of the timeframe that this project needs. If it is a case of replacing the ACH platform, that is at least a three-year job. Therefore, if work commences in 2025, the earliest it’ll get completed will be 2028.
In terms of pros and cons, this project is a massive challenge, and if it’s not addressed today, this has long-term repercussions for US payments; on the plus side, banks that are willing to take on today’s big technology challenges can deliver services for customers in the future.
I anticipate a more benign regulatory environment when it comes to the banks’ role in the US payments industry. Regulations are always challenging, but I think the regulatory environment has stabilized over the last couple of years.
That same more benign environment is likely to lead to further consolidation. In the US, there are too many banks and there is significant pent-up appetite for M&A. The Trump administration is likely to be more open to allowing greater market consolidation. The banks that emerge from this environment are likely to be those “fortress” balance sheets and the ability to invest in the technology required to serve their clients as efficiently and nimbly as possible.
Aside from the traditional banking and payment model, the digital currency conversation will no doubt continue to bubble in the background. An example of this is the continued discussion around Central Bank Digital Currency (CBDC) in payments. Currently, I have yet to see a use case where a CBDC presents an advantage over traditional, already digitized payment mechanisms, but I think we'll continue to see that discussion happen over the next few years.
Overall, the key to success in the payment space will increasing rely on having the right technology infrastructure in place. In order to do the customer experience work at the front end, you have to do the right tech at work at the back end. That's how you make a difference to your client. The groundwork has to be laid now over the next five years to ensure banks are competitive in 2030. The key is to start tech modernization work sooner rather than later.
Written by
Dave joined Form3 in 2022 in order to lead the charge to bring Form3’s platform and capabilities to bear on the US market.
Dave has worked in transaction banking for over 20 years and has joined Form3 from SWIFT where he was Chief Executive for the Americas, UK and Ireland with responsibility for the company’s largest relationship as well as its global securities business.
Prior to SWIFT, Dave was the Global Head of Financial Institutions at Barclays, responsible for the bank’s correspondent banking, FI trade, flow FX, and liquidity management businesses for FIs.
He has also worked at Deutsche Bank and Bank of New York in both product and strategy roles and across various products lines including cash, trade finance, custody and corporate trust.
Dave holds a MSc in Development Economics from the School of Oriental and African Studies in London, and a BSFS in International Relations from Georgetown University.