The banking industry is on the cusp of significant transformation. Driven by advancements in technology, shifting customer expectations, and evolving regulatory landscapes, financial institutions must adapt to stay competitive. Banking trends that will shape 2025 are set to redefine how banks and credit unions operate. How will these trends influence everything from customer experiences to revenue growth?
Uncertainty and Demand Patterns
Lending demand, particularly for mortgages as rates decrease, is expected to rise. However, growing financial pressures on consumers, regardless of political changes, may slow the growth of credit card and vehicle loan debt. Overall, credit quality should return to normal, though charge-offs and delinquencies may increase slightly compared to the previous year.
Consumers may delay major purchases due to ongoing uncertainty about interest rates, which could affect consumer loan volumes at banks and credit unions. As rates drop, the cost of funding loans may decrease in tandem, driven by demand for liquidity and the public’s reluctance to accept lower rates.
Generative AI Initiatives
Generative AI will increasingly be used in financial planning and advice, leveraging customer behavioral data and natural language processing (NLP) to offer personalized recommendations on savings, pensions, and investments. AI will rise to serve as a virtual financial advisor, providing tailored advice to meet individual needs.
Why is this helpful to customers/members?
- Personalized Advice: AI can analyze individual customer data to provide tailored financial recommendations. This provides greater assurance that the advice is specific to each individual’s unique financial goals and circumstances.
- Accessibility: AI-powered virtual financial advisors make professional financial advice more accessible to a broader audience. This includes those who may not have the resources to consult with a traditional financial advisor due to a banking desert or other factors.
- Scalability and Efficiency: AI can handle complex interactions at scale, providing financial advice to many customers simultaneously. This greatly reduce the need for human intervention, and offers quick, real-time solutions. Financial institutions struggling to find quality talent due to a low employment rate will benefit greatly.
- Smaller Physical Branch Momentum: The growth of AI will also open the door for a rebirth of smaller physical branches such as in-store, storefront, or in-line locations which are convenient and cost-effective to build out. While the younger generation embraces a touchless banking experience, they seek an in-person experience when account trouble arises or financial planning is desired. However, these branches will serve as advisor centers rising above the mundane transaction volume of yesterday to serve deeper needs of customers/members.
The New Community Bank
One of the banking trends shaping 2025 is the rise of the new community bank. In 2024, credit unions demonstrated their ability to successfully navigate the M&A market to acquire banks. This wave of acquisitions and consolidation will continue into 2025. Tech-enabled and community-centered credit unions will gain a competitive advantage by offering members increased convenience and scale. In essence, credit unions are stepping in to fill the void left by the disapperance of community banks.
Next-Gen Client Behavoir
The next generation of customers will pull away from traditional bank branch experiences for more customer-centric experiences. They will also utilize centralized apps and digital-first platforms for handling their banking matters.
Why is a customer-centric approach important?
- Opportunity for Innovation: As traditional financial institutions face growing competition from fintech and super apps, new banking models will emerge, offering opportunities for next-gen bankers to innovate and create more user-friendly, tech-driven services.
- Integration with Technology: The shift towards digital-first platforms enables the next generation of bankers to work with cutting-edge technologies, such as AI, mobile payments, and data analytics, to provide more personalized and efficient services to customers.
- Expanded Roles and Skills: Bankers will need to adapt to new roles that involve not just traditional banking functions, but also collaborating with tech, managing cross-functional teams, and integrating lifestyle and financial services into seamless digital platforms.
- Increased Customer Focus: With fintech startups and super apps focusing on user experience and convenience, the next generation of bankers will prioritize customer-centric solutions, enhancing customer satisfaction and loyalty.
- Global Reach: The rise of super apps, which operate across various industries like e-commerce and ride-sharing, allows bankers to reach a broader, more diverse customer base, potentially working on a global scale.
AI in Banking Regulation and Oversight
Financial services adopting AI throughout their delivery channels will face growing regulatory oversight. Watch for the introduction of new laws aimed to ensure trust and transparency. The goal is to eliminate AI bias and unethical practices.
Navigating these changing regulations will be a key challenge for banks, credit unions, and fintech startups. For the customer, the transition may cause some temporary adjusting. However, the long-term effect will likely help gain greater confidence in how their data is used and in the value of financial advice they receive.
Faster Response to Market Demand
Banks and Credit Unions alike will continue to expand with smaller branches. This practice allows them to quickly meet demand in underserved or emerging markets. Smaller branches (i.e., in-store placements or in-line, retail adjacent, locations) cut the time and expense of developing larger full-service branches. Smaller branches also resolve staffing challenges experienced due to the U.S.’s current low unemployment rate.
A smaller branch, between 300 and 1,500 square feet, also offers:
- Increased Convenience: Strategically located in neighborhoods, retail centers, or other high-traffic areas, provides more convenient access for customers without the need to visit larger, centralized locations.
- Digital Integration: Designed to complement digital banking services, smaller branches often provide more self-service options (i.e., ITMs, digital kiosks, video banking, etc.) reducing the need for extensive human capital while still offering a human touch for complex transactions or consultations.
- Personalized Service: A more personalized experience for customers builds stronger relationships which increases customer loyalty while maintaining the benefits of a physical presence.
In conclusion, the banking trends that will shape 2025 are poised to redefine how banks and credit unions operate and influence everything from customer experiences to revenue growth. Embracing these trends ensures the future success of financial institutions in an increasingly dynamic landscape. Smart and savvy financial institutions drafting their strategic plan to embrace the trends offer winning solutions that matter most to customers/members. They also see trends as a channel for driving revenue growth and longevity.
If you desire to establish your financial institution as a leader in the 2025 market and beyond, contact us to learn how FSI can assist you with your strategic goal planning.
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