Innovation is not a new concept but embracing it rapidly and adapting to the disruption it brings is going to be key in 2025. Those that fail to innovate, and in particular quickly embrace technological innovations to enhance their core offerings, risk being left behind in the race to triumph in the financial markets.
As we look back on 2024, the year was pretty much as Brickendon expected. High aspirations of innovation were hindered by resources being channeled into meeting regulations, as well as large investment decisions being delayed by the uncertainty surrounding the outcome of the elections when half the world’s population went to the polls including US, India and the UK. Digitalisation, data analytics and increased automation and AI dominated, but failed to reach their climax.
“While the financial markets managed to shake off the effect of the massive inflation and large amounts of regulatory change, the shift to increasing their investment that create value for clients and make a major difference in their businesses are still very much a work in progress,” says Brickendon co-CEO and Christopher Burke.
Christopher Burke, continues. “Organisations needs to increase not decrease their rate of change to adapt to the current global business environment. Brickendon has always been at the forefront of organisational change and looking forward the focus is on digitalisation and technological innovation rather than the structure of the business.
“At Brickendon we have been working hard to make a difference to our clients’ lives, using the latest technology and development processes to create innovative solutions to their complex business problems. Much of the delayed investment in 2024 will need to be made at a faster pace in the year ahead as new global competitors and DeFi (Decentralised Finance) and the march into a world with more AI becomes a reality.”
“Firms face changing political landscapes on both sides of the Atlantic and need to fend off fintech challengers who are starting to make inroads into our clients’ core business areas. As a result, firms will need to refine their global strategy and leverage the latest technologies if they are going to survive in the decade ahead.”
With a focus on innovation for business growth rather than just for cost cutting, Artificial Intelligence (AI) will continue to be one of the most important topics in 2025. Many firms have dipped their toes in the water but are yet to truly benefit from the technological advancement. Those who embrace these concepts are more likely to be successful in the transition from just surviving, to thriving in the business world of the future.
“AI will be a game changer in 2025,” says Burke, adding that as the quality of available data and language models improve, we will see significant impacts especially for repetitive tasks or to replace the activities of more junior staff. The impact of regulation on AI will start to take hold, especially within Europe, and could have a significant influence the effectiveness of AI. However, leveraged properly it will provide significant revenue and cost-cutting opportunities and a more personalised and superior service for customers. Effective usage of AI will also enable financial services companies to free up some of their resources and channel them into other higher value add areas.
Operationally, IT spending and cost optimisation is expected to remain a major focus to empower technology.
This should help firms move out of legacy platforms, which in many cases are hindering growth, and there is also a trend for businesses to address technical debt that has become too expensive to maintain and is negatively impacting businesses’ ability to deliver software faster and more securely.
Data will continue to play an important role in 2025, though like in other areas, the focus is expected to shift to innovation. The holy grail is no longer about predictive or prescriptive analytics. Businesses need to go one step further to decode the black box of algorithms and provide an explanation to the user and give context around predictions.
“Explainability will become a key feature in the data world,” explains Burke . “This is already happening at the smaller start-ups, where innovation really happens at a much faster pace than the large financial services firms.”
In addition, businesses that focus on developing data as a business unit will also find themselves ahead of the competition. Along with technology, algorithms and architecture, the key going forward will be for organisations to focus on actions and solutions that can be rolled out into production. In the areas of data science and big data there have been a lot of proof-of-concepts (POCs) and siloed implementations, which now need to be turned into scalable solutions in the production environment. As such, developing a mature software house capability for their data business will be paramount in delivering the business vision.
Financial regulation has in a sense become excessive over the past few decade, with the majority of it emerging as a reaction to unexpected financial issues, errors and misconduct. Having said that, there are still areas, products and players, where regulators are having an impact. Asset managers and Insurers who managed to escape the attention of the regulators for many years are now seeing the continued impact of regulation on their businesses as they also tackle AI’s impact on their operations.
On the one hand, we expect the impact of regulators on the financial services sector to decrease in 2025, with the regulatory agenda taking on a more business-as-usual form and focusing on conduct. On the other hand, regulators are also expected to take a more pro-active approach and apply their experiences to some of the as-of-yet relatively untouched areas of business.
“As the number of new regulations decreases, the agility to migrate and allocate resources to growth areas will be equivalent to first mover advantage,” Burke says. “It is the institutions that manage to adapt innovative technologies as part of their core offerings that will set themselves apart from their peers.”
The expected increase in automation will reduce the need for as many repetitive jobs, shifting the focus to the workforce’s ability to innovate or disrupt. We will see more automation through AI and robotics, changing the need in the workforce from repetitive and predictable tasks to more strategic and value-adding roles.
“This will not necessarily lead to a significant reduction in the workforce as the increased ability via AI and Robotic Process Automation (RPA) will also proportionally increase the expectations from customers, regulators and agents,” say Burke, The partnership between financial services and technology firms is expected to become closer, but also more complicated, with each side trying to capture market share from the other. This will lead to more interchange in the workforces between the two.
To conclude, the biggest unknown in 2025 is what will happen to the world economy with a new president in the white house and geopolitical uncertainty in the middle east and the Russian war in Ukraine. At this point the outcome of these unknowns is impossible to predict. Our view is that 2025 is likely to see a continuation of momentum in some of the areas that have come under the spotlight in 2024. Digitalisation, data analytics and AI will continue to be hot topics. The focus on regulation and compliance will continue to taper away and be replaced by the need to embrace technological innovation quickly and efficiently. How things will play out precisely remains to be seen. But there is no doubt that those who want to win need to embrace the innovations on offer if they are to succeed and gain first mover advantage in what is becoming an increasingly tight and competitive marketplace.