Financial innovation 2025: today’s decisions shaping tomorrow’s financial landscape

Financial innovation has been challenging to predict. So far, 2025 has been a blend of carefully planned developments and unexpected twists. Commentary by Anneli Krunks, Head of FinTech, and Marko Kairjak, Partner at Ellex in Estonia.

Among the planned changes, the central focus has been on the cybersecurity reform known as DORA, with its new requirements taking effect at the beginning of 2025. With that the EU aimed to ensure that the European financial sector operates under robust rules to prevent data breaches and cyberattacks. The framework introduces obligations for risk assessment, testing, and continuous monitoring, as well as specific regulations governing the use of third-party IT service providers. If the reform is successful, Europe could emerge as a significantly safer environment for financial services compared to the US and Asia, contributing to broader security in light of current geopolitical trends.

Geopolitics has inevitably infiltrated also the financial sector, shifting the focus from early 2025 towards the independence of payment systems. We have previously assumed that the euro – and euro payments – are entirely under our control. However, the reality is that today most payments are made through phones and smartwatches running on US operating systems (Apple, Google) and frequently using US-origin cards (especially Visa, but also largely Mastercard). Beyond the fact that this sends our payment data overseas, it also poses significant systemic risks: a sudden policy shift in the US could disrupt our entire payment ecosystem. In response, Europe is exploring ways to strengthen autonomy in payments – primarily through the reform of payment services (PSD3/PSR) and the introduction of a digital euro. Therefore, it comes as no surprise that, following the test phase, the EU has decided to advance the digital euro project, aiming for it to become a usable payment method by 2029.

As anticipated, AI will significantly transform the financial services. It has become the most reliable evaluator of creditworthiness, an essential tool for detecting money laundering and terrorist financing risks, and a daily support in customer communication and various other aspects of service provision. At the EU level, the pressing question is whether the traditional financial regulatory framework remains suitable in the age of AI. As AI is the new norm – not just in finance – it is hoped that regulation and innovation will evolve in harmony.

This year has also reshaped the crypto sector, which is now regulated similarly to the rest of the financial industry through MiCAR. As a result, the first crypto-asset service providers have entered the market offering services consistently across all Member States. The EU has succesfully attracted both smaller market participants and major US firms into its single market. We have also seen growing interest from the traditional financial sector in offering crypto services, alongside established industries explore a more regulated and secure future for crypto-assets.

Finally, an ongoing challenge for the financial sector is the sheer volume of regulations, particularly affecting fintech companies. This issue has been acknowledged for over 15 years, yet no effective solution has been found. While certain areas have seen efforts to simplify regulations, new rules continue to surface almost daily, especially in the realms of payments and cybersecurity. Many of these requirements are highly technical – no longer resembling “rules” in the traditional sense – and demand specialised expertise. In this context, Estonia’s initiative to alleviate the regulatory burden in the financial sector is something worth watching closely.