Banking startups reset: profit focus, real‑time rails, and regulation

The funding reset and the pivot to profitability

In the Banking sector, Banking startups are entering a new cycle defined less by blitzscaling and more by durable unit economics. Global fintech investment has cooled from 2021’s highs and stabilized across late 2023–2024, a trend industry reports show. Founders in consumer and SME banking—spanning neobanks, corporate card challengers, and vertical finance platforms—are prioritizing deposit stability, risk controls, and fee diversification over pure customer acquisition.

At the same time, the macro backdrop has been more supportive than feared. Rising-rate tailwinds bolstered interest income for licensed challengers and sponsor banks, while fee-based models (payments, treasury services, FX) remained resilient. Global revenue pools for banking are expanding, providing room for insurgents that can demonstrate compliance discipline and monetize engagement beyond interchange, according to recent research. The net result is a cohort of startups—from consumer leaders like Chime and Monzo to SME-focused players such as Mercury—that are leaning into profitability milestones and recurring revenues as they contemplate the next wave of listings.

Infrastructure race: real-time rails and BaaS under scrutiny

Under the hood, the most consequential change is the normalization of instant money movement. In the U.S., adoption of The Clearing House’s RTP network and the Federal Reserve’s instant rail is accelerating, with banks and fintechs enabling 24/7 settlement as a competitive baseline. The participant list for the Fed’s service continues to expand, underscoring traction among regional institutions and service providers data from analysts suggest. For startups, real-time rails are powering pay-by-bank, earned-wage access, and cash management features that were harder to deliver at scale in the ACH era.

Banking-as-a-service (BaaS) remains a key route-to-market, but the model is maturing. Platforms like Unit, Treasury Prime, and Column have doubled down on compliance tooling—KYB/KYC orchestration, transaction monitoring, and program-level controls—amid heightened supervisory focus on sponsor-bank relationships. The 2024 shakeout, including high-profile BaaS failures, has pushed programs toward fewer, better-audited partnerships, standardized reconciliations, and clearer ownership of risk. The outcome is a slower but more robust onboarding cadence: startups are trading speed for durability, and banks are insisting on direct visibility into fintech program data.

Regulatory clarity: open banking and data rights reshape competition

Policy is now a growth lever rather than a hurdle for well-prepared teams. In the U.S., the Consumer Financial Protection Bureau’s proposed Personal Financial Data Rights rule would formalize consumer permissioning, standardize data-sharing, and curb screen scraping—setting the foundation for API-driven portability across accounts and services according to the regulator. For banking startups, that translates into lower integration costs, more reliable data pipelines, and a pathway to build switching-friendly products without sacrificing security.

Europe is moving in parallel. The European Commission’s PSD3 and the accompanying Payment Services Regulation aim to strengthen fraud prevention, enhance open finance, and broaden access beyond the PSD2 framework—potentially accelerating pay-by-bank and account-to-account commerce as outlined in EU proposals. Combined with instant rails across the bloc, these rules favor challengers that can package compliance-by-design and merchant-friendly flows. Outside the transatlantic corridors, markets like India—with ubiquitous UPI adoption and government-backed identity rails—continue to demonstrate how standardized access and real-time settlement can catalyze new banking-use cases at national scale.

Outlook: consolidation, listings, and the next playbook

The next 12–24 months are likely to bring selective consolidation and an IPO window for the most disciplined operators. Mature consumer fintechs with deep engagement and improving net interest margins, alongside SME platforms with strong card/treasury economics, are positioned to test public markets as rate paths clarify. Profitability metrics are increasingly consistent: more challengers are reporting positive contribution margins per cohort, expanding deposit products, and layering high-attachment features like bill pay, cash management, and cross-border transfers.

Expect continued rationalization in BaaS, with sponsor banks prioritizing fewer, larger programs and fintechs investing in first-party risk capabilities. Real-time payments will shift from differentiator to table stakes, pushing startups to compete on service-level guarantees, data-rich UX, and embedded finance distribution. Regulation will reward those that build with auditability and data rights at the core. In short, banking startups are exiting the “growth at any cost” era and entering a phase where durable compliance, instant rails, and customer trust—rather than raw acquisition—define the leaders.