The retail banking landscape continues to throw up challenges for industry leaders and customers alike in 2025. While inflation has eased somewhat, continued economic uncertainty vies with dramatic leaps forward in technology, creating a context that’s difficult to navigate.
Not only do banks need to push evermore innovative products and solutions to ensure engagement and satisfaction, but they need to do so without exposing themselves to risk – whether due to worrying global trends or regulatory compliance.
Despite the challenges, there are many promising opportunities mixed with the uncertainty. Here’s our pick of what key trends you should look out for in 2025.
1. Continued economic uncertainty
It has been a difficult few years for citizens around the world, with the crisis of the global pandemic giving way to geopolitical instability and high interest rates. As the Financial Conduct Authority in the UK said in a recent open letter to retail banks:
“Through 2022-23 we saw market stresses including geopolitical tensions, volatile asset prices, weak global growth, inflationary pressures, and rising interest rates. The cost of living rose significantly, putting pressure on the finances of households and small and medium enterprises (SMEs)” (FCA).
While interest rates are falling, much of the other factors remain the same, with a fractured geopolitical landscape that threatens escalation at all times (Macrotrends). To further complicate matters, there has been an almost unprecedented global shift in political rulers as the historic year for global elections leaves feelings of trepidation regarding how new entrants will act upon their mandate. Deloitte highlights this as one of the key messages for retail banks in 2025, advising them to “keep on their toes” as we enter a brave, somewhat unfamiliar, world (Deloitte).
The outlook is not entirely pessimistic for traditional banking institutions, however. A PwC report highlights how increased regulation on Big Tech and other non-traditional players could “push technology players out of the industry and increase barriers to entry” – resulting in an opportunity for banks to rebuild trust among the customer base (PwC).
Other cautious opportunities appear to be rearing their head in the coming year, including a boost in noninterest income (impacting topline growth), hope for credit quality normalization, and higher deposit costs to control interest rates (Deloitte).
2. Digital transformation progress
The years of impetus appear to be taking effect and digital transformation in the financial services industry is reaching a stage of maturity. Financial institutions are primarily using their initiatives to increase revenue (77%), but there is also strong emphasis placed on customer experience improvements, cost reduction, increasing operational resilience, and strengthening regulatory compliance. In total over 53% of surveyed decision-makers at banks say their organization is working on improving their digital transformation efforts with advanced financial technology, up 20% since 2021.
Despite growing investments, even as we approach 2025, approximately 60% of financial institutions are still in the early stages of their digital transformation journeys, relying on legacy systems that are incapable of providing a competitive edge. This is because many have decided to follow a piecemeal rather than a holistic approach. This delay poses significant risks of falling behind digitally native competitors (Digital Banking Report).
This is further complicated by the fact that AI and data analytics is now high on the agenda, with 42% of bankers identifying digital banking solutions as their top investment priority for 2024 (Digital Banking Report). The institutions that don’t already have a baseline digital transformation initiative in place will find it difficult to compete.
3. Mobile banking apps continue to thrive
Mobile banking apps are so ingrained in the fabric of modern banking behaviors that any bank that does not offer this service is living the proverbial dark ages. According to one report, “Customers’ account holders log in, on average, 20-22 times a month, and digital touchpoints have become the most important engagement channel that account holders have with their financial institutions” (Digital Banking Report).
And yet Forrester claims that a decrease in customer experience quality is threatening retail banks profitability (Forrester). This suggests that, while mobile banking is ubiquitous, it is no longer enough in itself to guarantee customer satisfaction.
The emphasis should shift to heightening the experience on mobile, rather than providing a mobile option on its own.
This could mean providing greater access to preapproved loans on mobile or equipping agents with Co-Apping – a native in-app collaboration experience that allows the agent and customer to carry out research, browse the app together, or look at documents in real time.
The neobank effect
This is due to the neobank effect, which has offered banking customers a new vision of what service means in a strictly digital environment. As ever, “Neo-banks are leading the way with mobile-first strategies, offering web- and mobile-only solutions that prioritize user convenience and accessibility” (NTT Data Trends).
For incumbent banks, it’s getting to the point where if you can’t beat them, join them. As NTT reports, banks are “increasingly collaborating with fintechs to deliver embedded finance solutions via API ecosystems. These partnerships are critical for competing with digital-only banks and neo-banks that offer streamlined, innovative customer experiences” (NTT Data Trends).
4. Rethinking branch banking
The world has gone digital – there’s no doubt about it. But bank branches still serve a valuable purpose in our communities. We reported a few years ago on the Silicon Valley Bank issue, where customers lost trust in the bank after it needed a funding raise and withdrew 42 billion dollars in deposits, sparking a global crisis. According to a study by the World Bank, the institutions that weathered the storm the best were those that had strong branch networks (World Bank).
It isn’t just during a crisis that branches are proving to have a place in society. Despite the shift in digital capabilities, over 60% of institutions still plan to expand their branch networks. That said, unlike the traditional bank branch approach, the focus is more towards creating specialized experience centers. These centers emphasize advisory services, incorporating innovations like self-service kiosks, virtual consultations, and tailored financial guidance hubs (Digital Banking Report).
This aligns with Capgenini’s findings on customer expectations, claiming that “With 37% of customers favoring digital channels and 24% fully shifting online, banks are redesigning branches to provide differentiated value for complex financial needs” (Capgemini).
This addition reflects how branches are adapting to a digital-first world, aligning physical infrastructure with the evolving expectations of modern banking customers.
5. A continued upward trend of ESG
Despite economic uncertainties and financial concerns among consumers, the demand for sustainable practices and products continues. In fact, the emphasis on green consumerism and consciousness remains a significant priority for customers.
Last year, we reported that 66% of global consumers identify sustainability as a primary factor influencing their purchasing decisions, with 32% of consumers anticipating paying a premium for sustainable products, ranging between 22% and 44%.
However, a majority of consumers, totaling 68%, express unwillingness to pay a premium for ESG-related products (Simon Kucher & Partners).
This year, a new report by KPMG found that 48% of customers prefer brands that align with their values, which is having an influence on banking strategies. While cost is still an issue, banks are emphasizing sustainability to a greater extent by integrating environmental and social impact measures into their core operations (KPMG).
6. New opportunities with Generative AI
Generative AI has passed from being an exciting modern technology to maturing into a must-have part of the financial services fabric. It is expected to have a significant impact on a number of areas in the coming years.
Productivity and cost efficiency
With Gen AI, productivity in the retail banking sector is expected to improve by 22-30%, while increasing revenues by 6% (Accenture).
AI banking use cases
The use cases that are expected to dominate retail banking industry operations include automating loan underwriting for up to $250,000 and reducing credit card delinquency rates by 32% (Deloitte).
The impact of AI
AI has been shown to improve industry adoption rates. For example, there is a reported 5x increase in click-through rates for personalized financial products driven by AI (Deloitte). These metrics give us a glimpse of how AI effectiveness will enhance customer engagement moving forward.
That said, the impact of these new AI-generated abilities are expected to result in more emphasis on uniquely human capabilities, particularly in key areas.
As Deloitte says, “Generative AI shifts the role of human workers towards oversight, design, and customer engagement, while scaling processing capacity at a fraction of the cost” (Deloitte).
One example of this is with the Italian bank BPER, which has adopted a hybrid approach that balances technological advancements with human intelligence with promising results. The bank reports that cross-sell opportunities experience a 65% increase in the conversion rate when an agent is present, moving from just 10% with a fully tech experience to 75% when a human is involved.
Remain focused – while embracing opportunities
Compared to last year, there is more to be optimistic about in 2025. Interest is down, Generative AI has matured considerably, and customers are open to more community initiatives, to name a few.
However, there is still a substantial amount of work to be done and challenges overcome. Ever-increasing competitive landscapes, geopolitical shifts, slow response to change, and new customer service attitudes and customer behaviors mean that banks need to remain focused.
In the end, it all comes down to providing digital experiences in harmony with human support. Retail banking leaders that are able to provide personalized experiences, whether these are digital banking experiences or in physical branches, will be able to weather storms and ensure revenue growth.
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