A quarter of the way into the twenty-first century, financial markets are righting themselves after a period of high interest rates, high inflation and post-COVID whiplash. While risks such as the geopolitical landscape remain, the outlook for the financial system in 2025 looks less volatile. For now.
InFinance interviewed a range of experts to find out their predictions for the banking and finance sector for the year ahead.
- Digital transformation continues
Revolut Australia and New Zealand CEO Matt Baxby SF FIN says in 2025 there will be a greater focus among banks and financial institutions to use technology to deliver personalised services and remove friction in service delivery.
“We expect fintechs to lead the way blending traditional and non-traditional financial services, enhancing the customer experience and increasing relevance to consumers’ daily lives,” says Baxby.
“At the same time, real-time cross-border payments will continue to revolutionise global trade, making international transactions quicker, more affordable and more accessible for businesses and consumers alike,” he says.
Baxby says it is crucial for financial institutions and consumers to remain vigilant to fraud and scams, which are expected to increase in sophistication and volume.
- AI is widely operationalised
Next year is likely to be the year when banks and financial institutions reach an AI tipping point. While institutions have been trialling this technology, it’s now time to roll it out.
“Statistical-based AI is already being used by some of Australia’s biggest banks for personalisation, detection and decisioning, says Jonathan Tanner, senior director, industry principal financial services and insurance APAC for software business Pegasystems.
"Moving into 2025, this will be combined with generative AI for more automated customer service, risk management and financial crime management."
Tanner has previously delivered large-scale digital transformations using AI for NAB and ANZ.
Generative AI will also drive more efficiencies and operational agility from banking front office through to back-office operations. “We have already seen banks begin to harness AI to help with suggested responses to customer communications, drive contextual knowledge within processes and summarise information from notes and voice communications. These capabilities must be fully integrated into core banking platforms and not just bolted onto the side,” says Tanner.
Generative AI will also increasingly be used to develop new bank processes and systems.
“Currently banks face challenges when coding because it’s strenuous to manage, maintain and add enhancements to the code. In 2025, generative AI could emerge as a blueprint for banks using a different approach to processes,” he says.
Tanner believes open banking initiatives will encourage further innovation and competition, allowing consumers greater control over their financial data.
“While profits face pressure from low margins and competition, banks can use AI to cut costs and improve operational efficiency. Going into to 2025 banks need to adapt quickly to technological advancements and regulatory changes to maintain their competitiveness,” he says.
- Private credit continues to attract funds and ASIC’s eyes
Retail investor and regulatory focus on private credit is likely to be a key trend for 2025 as more people seek exposure to an asset class that has traditionally been the province of wholesale and sophisticated investors. The global private credit market is forecast to expand to $4.15 trillion by 2028, up from $2.23 trillion at the start of 2024.
“Investors are attracted to global private credit thanks to the potential for income and diversification, coupled with low loss rates and volatility,” says Nehemiah Richardson, CEO of Pengana Credit.
“Global private credit has a strong track record and continues to attract the attention of large, and small investors, with Australia’s Future Fund and several large superannuation funds increasing their allocations to this asset class,” says Richardson.
Even high-net-worth investors have historically not been able to get exposure to this asset class due to the extremely high barriers to entry such as large minimum investments. With elevated interest rates and more opportunities opening up, private credit has become a central theme in many investors’ portfolios.
“The asset class has morphed from something impenetrable for retail investors, to something that can be accessed via ASX or an online term account. Global private credit is a growing trend for investors including those looking for income, self-managed super funds, and retirees,” Richardson says.
Expect ASIC to keep a watching brief on this part of the market, which is only lightly regulated.
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