By Siobhan Byron, Executive Vice President, Universal Banking, Finastra
The banking industry today is very different from what it was just a few years ago. Fintechs (financial-technology firms), neobanks and technological innovations have flourished worldwide; the masses are adopting technologies at a pace we haven’t seen before; and open finance is a reality.
Additionally, we live in an age in which everything is “on demand”. Whether finding a film to watch, ordering food to our doorsteps, connecting with others via social media or ordering transportation, we have access to a range of different services and content at our fingertips. We also have much lower levels of patience when it comes to the time required to access them. Indeed, our very perception of time is changing because of the way we use technology. We are so used to being able to do everything quickly on our phones while multitasking. The effect of this, when combined with the blurring of the lines between work and leisure, means that people feel extremely pressured for time.
All of this has permeated banking and led to heightened demands for instant, digital, seamless and personalized financial services. We are quickly moving towards a world in which banking is deeply embedded within our lives—with services tailored to our needs and delivered where, when and how we need them. In 2025, institutions must reimagine banking to compete in this environment and deliver the services their customers expect. Adopting the right technologies, implemented in ways that maximize innovation while minimizing risk, and embracing ecosystems will be key.
Transforming a bank’s core
When it comes to agility and keeping pace with change, it ultimately starts with a bank’s core. Costly, complex, unwieldy and fragile systems can hinder rather than propel progress. These systems often prevent banks from being able to adapt quickly to new demands—whether from their customers, the industry or regulators—or because of a turbulent macroeconomic environment.
Historically, retail banks have deployed what is known as the “rip and replace” strategy—a high-profile, high-stakes digital-transformation approach. This involves replacing existing core-banking systems with new, cutting-edge solutions. On paper, it seems like a logical path to embracing the promises of technology, and if you can achieve it successfully, it’s like magic. However, the reality often falls short, and the risks associated with these massive overhauls are often underestimated.
This strategy is known for its high costs, prolonged timelines and the potential to disrupt critical banking operations. It’s an all-or-nothing gamble that can leave established banks with extensive downtimes, heightened vulnerability and, ironically, inhibitions rather than enhancements in their technological landscapes. It has its place—it can and does work, especially when executed by experts—but it is risky.
As a result, we expect to see more banks choosing to transform via a flexible and modular strategy. For example, banks will increasingly adopt a symbiosis approach, whereby a next-generation core-banking system is deployed alongside existing infrastructure, enabling rapid innovation while minimizing costs and disruptions. Additionally, through microservices architecture and application programming interfaces (APIs), specific functionality, such as lending or Islamic-banking services, can be seamlessly implemented at speed. This is where the power of composable banking can really be seen. Not all composable-banking systems are equal, however. Architectural expertise is important in creating the right solution; but to design a system for maximum utility, you also need deep banking experience. Put simply, to do composable banking the right way, you need to be an expert in both banking and technology.
Implementing the right technology
While we know that advanced technologies are crucial for banks to retain and attract customers and future-proof their businesses, they must assess the pros and cons of adoption on a case-by-case basis.
For example, the appetite for cloud computing worldwide is generally increasing. In many regions, such as the United States, the United Kingdom, Germany, France and Singapore, we expect cloud and SaaS (software as a service) adoption to remain strong. Institutions recognize the benefits they bring in increasing agility and innovation while reducing risk, time to market and total cost of ownership. However, in regions where cloud adoption is growing slowly due to factors such as regulatory constraints, it may not be the best option. For these banks to remain competitive, they must invest in on-premises solutions that provide robust security, scalability and data analytics—ideally, solutions that can easily migrate to the cloud as and when the regulatory concerns are addressed. Indeed, we anticipate that many banks will take a stepping-stone approach—from on-premise or private cloud to public cloud. Choice is crucial here.
Another technological trend is the need for greater access to data and the ability to use this in a meaningful way. This is where artificial intelligence (AI) shines. For example, through AI-driven analytics and dashboards, banks gain rapid insights into their customers’ needs, what’s working well and where they should transform to grow. Generative AI (GenAI) will gain more momentum next year and beyond, with use cases such as GenAI-powered assistants being deployed inside and outside of banks. These tools enable enhanced productivity, instant access to information and more informed decision-making for banks as well as their customers, who can gain greater insights into how to optimize their financial situations.
However, institutions must be careful not to adopt AI simply for AI’s sake. It is important to map out the use cases that make the most sense for their businesses and implement AI tools in ways that genuinely add value.
Eternal reinvention
The rapid rise of GenAI has, once again, proven both the power of data and the increasing sophistication of software. This trend doesn’t look like it will stop any time soon, and we anticipate the arrival of machine-to-machine interaction on a vast scale. AI-powered assistants on smartphones, operating with agency on behalf of consumers, will interact with AI-powered assistants working on behalf of banks. They won’t sleep; they’ll run 24 hours a day, 7 days a week; and they’ll generate trillions of demands for instant service.
Against this background, the consequences of service interruptions or even slow responses will be extremely damaging. Security will also increase in importance, as more access cannot come at the expense of more opportunities for successful attacks. The concept of customer loyalty will be interesting when the main interaction between the customer and financial institution is actually machine-to-machine rather than human-to-human.
To prepare for and thrive in this dynamic environment, institutions must prioritize augmentation in 2025. Being able to swiftly and securely integrate and/or interact with data inside and outside of the institution will be crucial to leveraging the power of AI. Institutions must also be able to deliver the demanded performance and reliability cost-effectively. Self-diagnosing, self-healing and self-curing systems will become critical. Imagine a system that is aware enough not only to determine that a problem has happened but also intelligent enough to diagnose and fix it. As technology continues to evolve, it will become ever more important for institutions to be able to replace components rapidly without needing to replace everything in their information-technology (IT) landscape. The days when total replacement was the only game in town are over.
The power of ecosystems and collaboration
As risks of fraud grow and regulations become more stringent, banks are increasingly relying on ecosystems alongside robust core-banking solutions to strengthen their processes and enhance customer experiences. By seamlessly integrating third-party services through application programming interfaces, banks can quickly protect themselves against risks while curating the personalized digital journeys that their customers expect—for example, solutions that focus on streamlining know-your-customer (KYC) and anti-money-laundering (AML) checks, digital onboarding or utilizing AI-powered chatbots to elevate customer experiences.
Ecosystems also take many different forms. For example, a bank can bring together the services that a homeowner needs to fit solar panels on his or her house—from advice on selecting the right ones, choosing the installer, applying for grants, complying with the rules and so on. This is an exciting example of how open finance is driving forward ESG (environmental, social and governance) initiatives and delivering holistic services that are customer-first.
Full steam ahead for 2025 and beyond
2024 has been a year of rapid change within the technology and banking industries. Technologies such as GenAI have evolved quickly and been adopted widely, and banks have recognized the importance of modernization for agility, operational efficiency, customer satisfaction and staying ahead of the competition. The growing importance of open finance and ecosystems has also been a key feature, enabling banks to offer more personalized and seamless services to their customers while strengthening security.
Moving forward in 2025, banks must continue to innovate and adapt to stay ahead. For many institutions, a key priority should be core-banking transformation and how they can implement robust solutions that maximize innovation while mitigating risk. Implementing the right technology to support business goals while ensuring effective security and compliance measures are in place will also be key. Embracing new or expanding ecosystems and leveraging third-party services will ensure that banks can continue to deliver comprehensive, customer-centric solutions.
In pursuit of transformation and innovation, banks shouldn’t forget people—both their customers and their staff. As Peter Drucker said, “Culture eats strategy for breakfast.” Getting people’s buy-in and bringing them along with you on the journey is tremendously important. Finding the right partners that can deliver sophisticated banking functionality, advanced technology and robust ecosystems will be crucial for banks to succeed in 2025 and beyond.