In 2025, financial institutions must prepare for a landscape marked by regulatory shifts and technological advancements. The geopolitical climate remains unpredictable, with a new administration set to take office in the U.S., leading to potential changes in government strategies that could impact industries widely.
Fintechs Will Shift Toward Value Creation
The fintech sector has evolved from serving as a single link in the value chain to competing directly with banks. Despite initial attempts, fintechs struggled against established financial institutions and have now refocused on solving specific issues rather than broad competition. In 2025, we expect these companies to broaden their services but will do so with a clearer path to profitability, aiming to create more tangible value for their customers.
Artificial intelligence (AI) is playing a crucial role in enhancing fintech capabilities by leveraging data and increasing operational efficiency. For instance, one provider of buy-now-pay-later services has introduced AI-powered chatbots that offer shoppers quicker and easier shopping experiences. These bots assist consumers with finding items and provide research-backed recommendations based on their searches.
Fintechs will leverage generative AI to drive innovations in payments, particularly blockchain and digital currencies. The technology can also be used for personal financial advisory tools, helping individuals optimize daily spending decisions while aligning with long-term financial goals. Corporate uses of AI, including blockchain transactions, aim to meet increasing expectations from investors regarding profitability.
AI and Automation Will Enhance Value-Creation
Both banks and fintechs will explore more ways to use AI for operational efficiency in 2025. AI customer service agents can augment human representatives by handling routine inquiries, enabling customer service teams to focus on more complex or value-added tasks.
A global wealth report noted that 49% of wealth management firms were already using AI for some applications as of 2024. Generative AI can help these organizations analyze customer data to provide personalized interactions with high-net-worth clients, enhancing overall client experience. Internally, AI can assist in updating IT infrastructure by automating basic coding tasks, allowing staff to focus on other projects.
Financial institutions using AI must develop policies addressing training, data security, and compliance. Regulatory advisories from federal agencies in the U.S., such as those related to AI fairness, highlight the importance of these issues. Similarly, legislation in the EU mandates strict guidelines for AI use. Additionally, FIs need to consider the environmental impact of AI, including increased energy consumption for data centers.
Wealth Management and Family Offices Will Expand
Fee-for-service wealth management and family office services are expected to grow in 2025 due to an increase in wealthy individuals and their holdings. Globally, high net worth individuals saw an average wealth growth of 4.7% this year, with ultra-high net worth individuals (those with more than $30 million in investments) experiencing the largest gains.
Effective management of complex asset mixes and diverse risks requires specialized services for wealthy clients. According to a report, 78% of ultra-wealthy individuals consider value-added services essential to their wealth management firm relationships. Firms that can offer comprehensive guidance on various investment options and family office services will build long-term customer loyalty.
ESG Strategies Will Adapt
The U.S. financial sector may face new challenges due to a less supportive administration regarding ESG initiatives, which could affect their ability to meet stakeholder expectations while remaining competitive. For instance, if federal policies and incentives shift towards fossil fuels rather than renewables, banks will need to decide whether to follow this path or remain committed to existing ESG investments, estimated at $50 trillion by 2030.
This scenario may lead to a rise in greenhushing, where financial institutions try to avoid drawing attention to their ESG investments that might attract criticism from certain quarters. The financial sector will be dynamic as organizations adapt strategies to maximize value creation and balance stakeholder needs amidst changing regulations and oversight.
