The Top 5 Financial Services Industry Challenges in 2025

The financial services industry (FSI) can be hard to pin down. Sectors span retail, commercial, and investment banking, insurance, real estate, tax and accounting businesses, investments firms, and fintech. While each of these businesses have their own specialty and focus, all of them face similar challenges.  

As we head into the second half of 2025, regulatory shifts, economic volatility, and the relentless march of new technology are redefining what it means for financial institutions (FIs) to compete and serve customers. 

Surviving this level of epic change requires FIs to have a handle on the most significant industry challenges. This is the best way to prepare, adapt, and build resilience in a market that refuses to stand still.

What Are the Biggest Financial Services Industry Challenges in 2025?

High drama is impacting the financial sector thanks to persistent inflation, fluctuating interest rates, an uncertain employment landscape, and—more recently—the sweeping tariffs imposed by the Trump administration. 

The following five trends highlight the uncertainty facing financial institutions and explore the additional forces shaping the industry’s future.

🧑‍⚖️1. Regulatory Complexity and Compliance Pressure

Financial institutions are managing a regulatory environment that’s more demanding—and fragmented—than ever. The pressure comes from multiple directions, including: 

• ESG (Environmental, Social, and Governance) Disclosures: FSI firms are navigating a patchwork of evolving requirements around sustainability, climate risk, and social responsibility. FIs must report on carbon emissions and environmental impact, while addressing issues like biodiversity, nature-related risks, and the growing tension between pro- and anti-ESG sentiment. 
• Anti-Money Laundering (AML) Rules: Regulators are imposing substantial penalties for flaws in AML systems and controls. Financial Institutions are under scrutiny for their role in facilitating international payments, with a particular focus on preventing money laundering, terrorist financing, and sanctions breaches. The EU is currently establishing a new authority to monitor AML compliance at the largest institutions.
• Data Privacy and Security: According to recent data from PwC’s 2025 financial services survey, data privacy and security changes will have the highest regulatory impact over the next 5 years, as will areas like digital identity authentication, new technology (we’re looking at you AI and machine learning apps), and local regulations . Data privacy laws are tightening worldwide as institutions must comply with a growing list of compliance requirements. 
• Cross-Border Operations: Operating across multiple jurisdictions means dealing with conflicting regulations, reporting standards, and enforcement practices. This complexity increases the risk of inadvertent non-compliance and demands robust internal systems to keep up with constant regulatory change.

📈2. Accelerating Digital Transformation

Many FIs remain tied to legacy systems that limit innovation and scalability.  According to Deloitte, modernization efforts, particularly in banking and capital markets, are increasingly focused on integrating AI and automation. Successful integration of this technology requires a shift to cloud-native platforms for greater agility and cost efficiency, a transition that creates the foundation for adding new technology more quickly and with less friction.

Accessing and acting on real-time data is now a competitive differentiator. Real-time insights allow FI leaders to anticipate trends and manage risk more effectively. It also helps you build more resilient strategies in response to market volatility. APIs are part of this story because they make it possible for FIs to connect with fintech partners and deliver integrated services 

Digital-first banks are setting new standards for speed, convenience, and personalization—and raising consumer expectations in the process. US consumers now prefer digital banking over traditional in-person services. Fintechs deliver streamlined interfaces, low fees, and instant support—features that especially appeal to younger consumers.  More on that, below.

AI-powered chatbots and co-pilot technologies are often baked into fintech platforms, making instant, accurate responses the new norm as digital-first relationships become dominant.

🔐3. Cybersecurity and Fraud Prevention

Staying ahead of cybercriminals and preventing fraud is a key trend this year. It requires investing in advanced technology, prioritizing employee training, collaborating across the industry, and focusing on protecting sensitive data.

Cyberattacks, which are getting increasingly more sophisticated, dominate the 

financial sector. Financial institutions face an average of 433 cyberattacks per month. Last year alone, FIs saw a 27% year-over-year increase in attacks. 

Data breaches and operational disruptions now carry a higher price tag, and both regulators and customers expect stronger safeguards.

As digital channels multiply, fraudsters are becoming more innovative, finding new ways to exploit vulnerabilities. To counter these threats, many organizations deploy AI-powered systems that spot suspicious activity in real time and adapt quickly to new attack patterns. 

💰4. Fintech Disruption and Competition

Fintechs are technology-driven startups that deliver financial services through digital platforms. They’re digital-first FIs that don’t have physical branches and legacy systems, so they can operate with lower overhead costs. 

Challenger banks, payment startups, and embedded finance solutions are capturing significant market share. Fintech revenues grew 21% year-over-year in 2024 versus  just 6% for traditional financial services.

Decentralized finance (DeFi) platforms are also gaining traction. Built on blockchain technology, DeFi’s offer consumers new ways to borrow, invest, and transact outside traditional channels. They use blockchain-based smart contracts, that allow users to bypass intermediaries because the contract is part of the blockchain network. They are literally coded into the blockchain and executed as contracts when two parties agree to the terms.  

As fintech innovation (and market share) accelerates, established FIs are finding they must compete head-on or form partnerships, using coopetition to stay relevant. 

💲5. Economic Uncertainty and Inflationary Pressures

Economic volatility is, perhaps, one of the biggest challenges FIs face this year. There’s elevated market uncertainty thanks to several factors including:

• The constant threat of new tariffs and shifting trade policies, which create supply chain disruptions and currency volatility. This directly impacts lending portfolios and international operations.
• Interest rate unpredictability, with expectations for Fed rate cuts significantly reduced from earlier projections. All of this is challenging for institutions that must navigate funding costs and asset valuations in real-time. 
• Higher liquidity risk—traditional metrics aren’t up to the task of managing 2025’s volatile funding markets. FI’s face the dual challenge of maintaining adequate liquidity buffers while optimizing capital efficiency.
• Strategic planning has become increasingly complex since firms must prepare for multiple scenarios simultaneously.