Interest Rates
Look Back: Interest rates were a major backdrop (macro-economic) heading into 2025. As expected, the Fed continued its easing, completing three more 25 bps reductions ending in December.
Look Forward: In 2026, we don’t see interest rates being a major factor affecting investment and M&A activity. We feel strongly that interest rates will be tightly range-bound and that the market has already built this into its forecasts and projections. Thus, as it relates to capital raising and M&A, we don’t see cost of capital volatility impairing those trends that are currently in place. Although Trump has been vocal about replacing Jerome Powell in early 2026 with a Fed chair who will aggressively drop rates, we don’t believe this (aggressive interest rate reduction) will come to fruition: a conclusion driven by our observation of the market reaction after the final rate reduction in December, when off-the-run, 10-year yields rose. The market reaction suggested an aggressive drop in short term rates will not have the desired effect, as longer term market concerns about US debt and dollar stability will counteract any desired benefit.
Banking-as-a-Service (BaaS)
Look Back: As predicted, Banking-as-a-Service (BaaS) saw a revival in 2025. For all intents and purposes, the market appears to have taken its medicine (postEvolve, Synapse, Mercury debacle) and the accountability pendulum has now swung the other way with KYC and KYB processes having become extremely rigorous. Further, both fintechs and banks now know who is ultimately responsible for tracking customer balances (banks), and this year we saw meaningful deployment of real-time, auditable shadow ledgering for FIs and fintechs operating pooled (FBO) accounts.
Look Forward: BaaS continues to expand throughout the ecosystem as more and more banks get comfortable with the necessary compliance protocols and requisite technologies to operate the model. Demand for BaaS, especially from digital asset firms, will continue to grow at a healthy clip. We also see the BaaS model opening up from the “other side”, as the OCC, under the Trump administration, continues to consider and issue Special Purpose National Bank (and Trust) Charters to fintechs, effectively allowing them to back-in to the BaaS model.
Open Banking:
Look Back: Open banking had a mixed 2025 (a generous synopsis). Net net, it really took it on the chin, specifically when the new administration defanged the CFPB and threw Rule 1033 in the trash bin. The biggest loss from this was a framework for consumer data rights. On a positive note, the lack of regulatory resolution was largely responsible for driving the economic model of open banking forward through free market forces, most notably the high-profile kerfuffle, and ultimately, agreement betweenJP Morgan and Plaid.
Look Forward: The JP Morgan/Plaid “accord” will leave a lot of open banking’s “first movers”, those without the scale or runway ($$$), vulnerable to collapse or acquisition because the economics (cost) of API calls wasn’t built into their original financial models. By way of example, GoCardless was just acquired by Mollie. Expect more fallout for sub-scale firms. We say this with one caveat: open banking firms and/or data aggregators with specialized data extraction, normalization and structuring will continue to attract investment because of what we anticipate to be aggressive growth in cash flow underwriting, the specialty lenders of which need these specialized players to continue to feed their decisioning models. As heard at a recent ABS lenders’ conference, “open banking has pierced the FICO veil”.
Stablecoins & Digital Assets
Look Back: Stablecoins and digital assets had a monster year, full stop. The GENIUS Act set the stablecoin world ablaze with investment and M&A, and at the same time, the tokenization of financial assets by banks and exchanges has built up some serious MOMO. The progress on both fronts has validated our longtime thesis that the crypto phenomenon has never been about the coins, it’s always been about the blockchain. The speed, transparency, low cost, and decentralized (comparatively speaking) nature of distributed ledger make it an incredibly elegant technological solution for use in financial services.
Look Forward: With the passing of the GENIUS Act, and imminent passing of the CLARITY Act in early 2026, the digital asset ecosystem will have the necessary regulatory scaffolding in place to supercharge innovation and growth. We believe with the highest degree of confidence that all things financial will, partially or entirely, be tokenized and comport to blockchain infrastructure in the future. On the stablecoin front specifically, expect to see a few convulsions in the private issuer market as the industry slowly comes to terms with banks being able to convert USD in depositary accounts into stablecoin-like tokens (“tokenized deposits”), having all the same features, but minus two really important constraints: 1) unlike private issuers, the banks’ tokenized deposits won’t require a third-party conversion from USD to token (eliminating a cost constraint), and 2) and perhaps more consequential to the stablecoin industry overall, banks are not prohibited from paying interest on deposited funds (yield), while private issuers can not per the GENIUS Act (as currently written).
AI in Fintech
Look Back: AI has also had a monster year, but for us, we’re leaning toward a “more sizzle than steak” impression, this within the context of fintech, payments and commerce. AI is a General Purpose Technology (GPT) and will be used everywhere. And not unlike most, we are astonished at how powerful generative AI and LLM models have become in just the past twelve months. AI is beginning to meaningfully affect commerce through the automation of menial and “menial+” tasks, document processing and summarization, and search, and now finds itself on the precipice of having agency (autonomy in decision making) in what is no less than a technological inflection point for all mankind. We, like so many of our peers in fintech and payments, have been deluged with “Agentic Commerce” headlines in industry and mainstream publications, and inquiries from clients as to the significance thereof. However, for all the hype, we believe there are some serious deficiencies with generative solutions and the forthcoming agentic model. Regarding the former, prompted generative AI outputs still remain “low trust” outputs that require human oversight and confirmation/re-confirmation. On the latter, we strongly believe that most consumers and merchants don’t fully comprehend the massive amounts of (historically) private and/or sensitive data needed for the consumer-to-merchant (AI agent-to-AI agent) model to work.
Look Forward: 2026 will be the first year where generative AI’s deficiency in “high trust” outputs is exposed, in a mainstream way, for its limitations. The models will continue to improve asymptotically toward “error free”, but will still require human oversight. Though we believe agentic commerce is in the offing, we do not believe it’s as close to commercialization and widespread adoption as the media and invested stakeholders proclaim, with the exception being within very niche verticals. When consumers understand the depth and breadth of the personal data they must provide access to for their AI Persona and/or Agent to operate effectively, they may not be comfortable with the degree of disclosure. On the merchant side, though we anticipate greater adoption of “owned channel agents”, we do not believe merchants appreciate the data considerations and potential unintended consequences of “ecosystem agents” operated by third-parties like ChatGPT, Grok, Anthropic and Gemini, which through API’s and real-time data extraction, will have access to all their proprietary information, including pricing, SKU availability, shipping costs, shipping timing, brand affiliations, tax considerations, and geography and corresponding political implications. Without a true user experience with the consumer, the Agentic Commerce model could potentially commoditize the merchants themselves. In sum, we believe there’s sufficient cause for both consumers and merchants to think twice about the business model, at least for now.
Private Credit
Look Back: Private credit is a capital machine that continues to hum. In 2025 we witnessed a compression of spreads as a function of a supply/demand mismatch, particularly in quality opportunities. Banks moved back into syndicated, larger deals, recapturing market share lost during the pandemic years. The supply demand mismatch also put pressure on many lenders to “flex” their respective credit boxes in an attempt to put more deals in play and substantiate to LPs they could effectively deploy.
Look Forward: 2026 will be another blowout year for private credit across the spectrum of allocation options, from consumer and SME lending to receivables factoring and secondary market purchases of debt obligations. Continued spread tightening will favor borrowers of all types and cash flow lending (mentioned above) will accelerate. We even expect banks to adopt (build/buy/partner) better underwriting and decisioning tech in an aggressive effort to be more competitive with specialty lenders. On a cautionary note, we see a massive divergence in consumer creditworthiness which may have intermediate to long-term implications for the economy: despite the countless credit solutions available today, in large part due to alternative credit signals, machine learning, new types of cash advances and BNPL, we expect to see covenant tightening and full scale shut outs and shut offs of certain classes of borrowers.
Quick Take Predictions
Take-Privates: We fully expect the take-private trend to continue in 2026 despite a meaningful thawing in the IPO markets this year. But in 2026 we’ll be paying closer attention to B2B software companies that got caught flat-footed in 2025’s generative AI explosion. Unlike the public markets, the private markets will provide these B2B software companies with the time to thoughtfully implement – create operational efficiencies and better user experiences – through the incremental deployment of generative AI.
Crypto Wallets: Expect to see more businesses, both large and small, add corporate digital wallets for digital asset pay-ins and pay-outs.
Insurance/Insurtech/IoT: The insurance sector, one of the last major areas of financial services to undergo digitalization, is going to see a reckoning (it ought to!) on two fronts with state regulators and licensing bodies. First, the implementation of rate escalator caps to stem the outrageous increases in YOY premiums. Second, we expect to hear the rumblings of consumer protection issues relating to carriers’ incorporation of IoT everywhere, from drones flying over homes to sensors in automobiles. These IoT devices are extracting tons of data and using the same to raise premiums or lapse policies without consumers having the right to cure, have access to the collected data, or even, at a minimum, understand where the boundaries of consumer privacy exist.
