The next wave of payment innovation will come from areas poised for major growth, making identifying those areas a key focus for payment processors and venture capitalists who are chasing their next big opportunity.
A Javelin Strategy & Research report, Fintech Investing: 3 Trends to Watch in 2025, from Christopher Miller, Lead Analyst of Emerging Payments, dives into the areas poised to take off. If there’s one theme that emerges among high-potential trends, it is fresh thinking about the nature of data.
Room for Vertical SaaS
Payment platforms once focused on selling credit card processing to small businesses, but times have changed. Increasingly, these services are being offered through vertical software as a service (vertical SaaS). While a larger entity such as FIS might sell payments software that can be used across multiple industries, vertical SaaS is built around customized software for a particular industry vertical that happens to include payment resources.
These startup operations could be a prime target for venture capital assets.
“Vertical SaaS companies are selling a kind of operating system for medium size or small businesses, let’s say in the landscaping industry,” said Miller. “They say, ‘look, we’ve got you covered from top to bottom. This does advertising, marketing, booking, cancellations and yes, it’s also how you accept payments for your customers.’”
There are several long-term advantages for these companies. If a provider’s sole function is processing payments, customers can easily swap them out—especially if costs suddenly double. However, because banks find it nearly impossible to switch core systems, vertical SaaS companies develop lasting relationships with their customers. When a provider becomes the backbone of operations, abandoning them is far more challenging.
From an investment standpoint, another advantage of this industry is that successful vertical platforms are unlikely to be attractive acquisition targets for most payment and financial services firms.
Growing Use Cases for Stablecoins
Another area attracting investors is stablecoin development. In late 2024, a runup in crypto prices brought renewed VC interest in the space, with stablecoin use cases ready to accept the influx of capital. Silicon Valley Bank and Pitchbook data indicate that this surge in activity led to stablecoins exceeding 6% of all VC deals.
Stablecoins are generally pegged one-to-one to an underlying asset, like the U.S. dollar. Their resistance to volatility and ability to be programmed into transactions open up a range of compelling use cases.
The most significant use case Miller has observed so far is the back-office transfer of value, with banks are using stablecoins to settle transactions with one another.
“For example, when we use credit cards to pay for something, the money doesn’t go from our bank to the merchant’s bank right away,” Miller said. “What happens is they settle up all the transactions that Chase and Bank of America agreed to pay, netted out so that it’s not a single transaction being sent. Stablecoins seem to be suitable for that behind-the-scenes settlement of value.”
Startups in this area could gain an advantage by addressing a range of infrastructure needs. They could offer wallets for holding and transferring coins or integrate with traditional platforms and payment rails. The first step into this market will likely involve partnerships, particularly in cross-border payments, with acquisition being the most likely path to market.
Using Payments for Marketing
Another promising investment target is what Miller calls “marketing opportunities through payments.” This includes companies focusing on aspects the current incentive ecosystem, such as cashback offers, referral bonuses, discounts, and targeted, attributable advertising.
Consumers often see this as a chaotic jumble—a blizzard of offers scattered across issuer and digital wallet apps, emails, loyalty programs, and various sub-program shopping malls. Payment-first apps such as PayPal and buy now, pay later providers are using their existing relationships at various levels of the payment stack to offer first-party customer acquisition features to merchants, who must navigate this complex landscape of potential offerings.
In late 2024, a wide variety of startups secured funding by building technologies that embed rewards, such as cash back, into product offerings. These solutions can either drive business to specific merchants or help consumers consolidate their payment behaviors.
“If you acquire a big pile of data from your customer, then you know something that nobody else does,” said Miller. “That’s really valuable because you can do something with it, like sell him a mortgage or an auto loan. But maybe these transactions turn out to be a little bit less actionable than people thought. So what do you do? You sell it to somebody else. It will in fact be more valuable to them than it is to you.”
The Day of the Payments Founder Is Past
One area that may have less potential for investors is betting on the founders of payment companies. This strategy has been a common approach in tech investments since the days of Bezos and Zuckerberg. However, in a now-mature industry like payments, it is no longer viable.
“That concept of finding a founder who comes up with a killer payment idea works best in open spaces,” Miller said. “That became the model that everyone associated with startup innovation around the turn of the century. It made much more sense that founders who created entirely new companies would be able to set the parameters of that space would be able to seize new territory.”
Today’s payments sector leaves little room for such opportunities. A startup has almost no chance of overthrowing—or even forcing meaningful changes from—the likes of Mastercard or Chase.
“A founder-led startup ecosystem is one where ultimately the founders expect to lead companies that become behemoths,” Miller said. “Where we are now is a smaller universe, where payment startups can more quickly produce solutions to problems.”
That’s the key idea that connects these opportunities: they lie just outside what currently exists.
“If something is really obvious, a larger company will just build it,” said Miller. “We’re looking for places where the startup approach makes the most sense.”
