Backbase unveils six bold predictions to drive $1 trillion+ industry transformation in 2025
Traditional banks could lose up to 30% market share to digital challengers by 2025, unless they radically transform their technology infrastructure, according to the research released by Backbase, a Forrester Wave leader in digital banking engagement platforms. The company’s comprehensive “Top 6 predictions for banking in 2025” report reveals an unprecedented acceleration in banking transformation, with Artificial Intelligence (AI) and open finance driving over $1 trillion in industry impact.
Backbase’s six key market-moving predictions for the year ahead include:
AI to generate massive ROI
2025 will be the year where the banking industry witnesses widespread adoption of AI-driven recommendation engines for customers, either for personalisation or engagement. If properly executed, AI-powered recommendation engines will be incredibly impactful, helping financial institutions become their customers’ primary banking relationship in a period where many are struggling to generate sufficient revenue per customer.
According to Glassbox, banks implementing AI-powered recommendation engines are projected to capture up to $300 million in new revenue per $100 billion in assets through hyper-personalised services.
However, to utilise AI, banks will need to overhaul their legacy systems, preferably with a unified platform model. In fact, in order to properly utilise this cutting-edge tech, Forrester advises that banks will need to “develop robust data strategies, establish effective governance to mitigate misuse, flexibly manage data and computational intensity, and ensure information and recommendations are correct.
A platform model can be enormously helpful with accelerating AI adoption, so banks need to make sure they put in the foundational work well in advance before they plan to leverage this new-gen tech, as legacy systems will never be up to the task.
Indeed, Chris Shayan, Head of Artificial Intelligence at Backbase, said, “AI can be easily managed by existing technologies, but you need to have a platform for your customer experience orchestration, one that’s fully microservice-driven. Then, it’s a very natural move.”
The emergence of agentic AI
AI-powered customer-service assistants — especially AI agents — will become increasingly popular in 2025 as banks seek to realise productivity gains while providing white-glove user experiences. Conversational banking will likely be a highlight, as well as the simplest use case for AI adoption, freeing up banking employees while paving the way for more immersive customer experiences.
With minimal human intervention, these agents will be able to provide improved customer interactions, including proactive engagement, dynamic personalisation, and enhanced support, allowing banks to increase operational efficiency and freeing employees up to focus on more valuable activities. But determining a business case beforehand will be essential.
Thomas Fuss, Chief Technology Officer at Backbase, said, “Agentic AI is a game-changer for modern banking. It empowers us to offer hyper-personalised experiences, optimise complex workflows, and proactively manage risks — all while reducing costs. By integrating autonomous decision- making into our platform, we’re not just meeting customer expectations; we’re shaping the future of financial services.”
Open Finance Acceleration:
Open banking will give way to open finance in 2025 as these ecosystems continue to rapidly evolve, leading to the eventual end state of true embedded finance, though we may not realise this end-goal in the next year. With the advent of the platform model — as well as advances in API tech, cloud computing, and data analytics — open banking and open finance are not merely a possibility, they’re an inevitability.
The expansion of open finance will also be driven by a variety of factors, including regulatory mandates, consumer demand, and competitive pressure. Global open banking payments to surge from $57 billion to $330+ billion by 2027, as regulatory frameworks mature and consumer adoption rises (Juniper Research).
Mayur Vichare, Director of Strategy and Value Consulting at Backbase, said, “Open banking and embedded finance empower consumers and businesses by delivering seamless, personalised financial solutions, driving inclusion and growth in a digital-first world.”
The arrival of industry iPaaS
Backbase’s research indicates that banks dedicate nearly 70% of their yearly IT budgets to integrations alone, leaving little left for actual value creation. As a result, the adoption of vertical iPaaS solutions will skyrocket in 2025. Part of the value of vertical IPaaS lies in how they deliver unified APIs to power banks’ channel applications, as well as third-party developers.
At the same time, they seamlessly connect these applications to downstream connectors, including core banking platforms, customer relationship management systems, payment and fintech systems, and more.
Vertical IPaaS solutions are also the only viable path forward for integrations in banking, and that means we’ll see the rise of this tech in 2025. That will most likely happen sooner, rather than later, due in part to the momentum provided by the Banking Industry Architecture Network’s (BIAN) open architectural frameworks, developer tools, and reference models. With an industry-specific IPaaS, banks will be able to harness unified APIs, connect channel applications, and unify their data, making a modular, composable approach a reality.
The expanded differentiation of servicing models
2025 is the year when banks finally solve the puzzle of differentiated service models. Banks need to go beyond doing segmentation for simple marketing and actually apply it to every customer interaction. It’s about transforming raw data into actionable insights, enabling banks to tailor experiences, meet specific customer needs, and foster lasting relationships.
By using unified platforms, they’ll finally be able to get the most out of the data they’ve always possessed but never been able to act on before. That means they’ll have the power to segment not only by line of business and basic demographic details, but also by the customer’s stage in their life journey, as well as their financial needs at that moment in time. This will save them time and money while boosting customer loyalty and retention, not to mention engagement.
Neobank disruption intensifies
Neobanks, fintechs, and other tech titans will continue to gain momentum throughout 2025, further disrupting the traditional banking model and setting new standards for digital experiences, as well as operational efficiency. That means traditional banks need to get used to an increasingly competitive market, making digital transformation more urgent than ever. But by modernising their tech and hollowing out their core systems, banks will find themselves on equal footing with neobanks, leveling the playing field and deepening essential customer relationships.
“2025 represents an inflection point where AI, open finance, and modern tech architecture converge to fundamentally reshape banking,” commented Jouk Pleiter, Founder and CEO of Backbase. “We’re witnessing the biggest banking transformation since the introduction of ATMs. Banks have an 18-month window to adapt or risk becoming obsolete. The winners in 2025 will be those who act now.”
For access to the full report, visit here.
