Finextra reviewed recent financial institution surveys and expert industry commentaries to zero in on the current and near-future realities of AI in banking and fintech circles. Is generative AI technology proving its promoters’ promises or fulfilling its
heavily hyped potential in the financial services world?
We also wanted to explore experts’ and financial institution executives’ views about the prospects for increased investments or other drivers of growth in the industry. Specifically, we were curious whether they believe funding and IPO activity will ‘come
back’ in 2025 to reach or exceed pre-pandemic levels?
Many things are changing or being contemplated by financial leaders, but we decided to focus on these questions:
- Will bank and fintech mergers and acquisitions return in a sign of new interest or consolidation in the financial sector?
- Do banks and credit unions view their own internally controlled deposit gathering or product development efforts as the key drivers of growth this year?
- How do financial institution leaders view the growth prospects of partnerships with financial technology (fintech) companies they also consider competitive ‘threats’ to their businesses?
In our
first story on this topic, we looked to complement Finextra’s own expert insights into banking and fintech trends. The goal was to find common ground, a clearer, industry-wide picture, from among these and other industry viewpoints.
FI and fintech leaders share general, specific positives and negative outlooks
As discussed in my previous article, I referred to the
“What’s Going On in Banking 2025” report authored by Ron Shevlin, chief research officer at Cornerstone Advisors, and a Plaid panel discussion featuring CEO Zach Perret, President Jen Taylor and John Pitts, head of industry relations, moderated
by Rex Salisbury, venture capitalist and founder of Cambrian Ventures.
The Cornerstone report found 83% of respondents the company surveyed in late 2024 to be “somewhat optimistic/very optimistic” about the coming year in financial services.
Meanwhile, there was also some projected positivity for fintechs among the
Plaid panel. While this group’s views were slightly mixed on immediate expectations for increased industry venture funding and IPO plans this year, they agreed that investment activity was increasing and would
likely continue around mergers and acquisitions in the fintech space.
In another optimistic view of most members of this group, Stablecoins were also projected to see "massive” growth in 2025 and beyond given positive political and regulatory shifts concerning cryptocurrencies in general. The Plaid panel noted rapidly increasing
interest by investors and individuals across the globe in less volatile major fiat currency and reserve asset-backed digital payment offerings.
On the negative side of predictions and planning, fraud and cybersecurity continue to be a huge priority for many of the 300+ banks and credit unions Cornerstone surveyed. Even so, available technology and team talent and knowledge - to combat the fast-adapting
criminals targeting financial services firms and their customers – continues to evolve as well.
AI is making headway, but it’s a slow process with much development still to come
The Plaid executives didn’t pull any punches when they got to the topic of AI’s present relevance and usage in the near future by financial services firms and fintechs.
“AI is mostly just hype in 2025,” they agreed, noting that while investment in its technology and systems will grow, most AI applications will continue, at least for now, to exist in the back office, or be used to improve internal processes. They do not
believe much of the expected growth in externally focused AI solutions is likely to happen in 2025.
“From a customer facing product standpoint, I think there’s gonna be relatively little impact,” asserted Perret, at least for the coming year. However, he and Salisbury agreed that there are some potential candidates among major bank/AI firm partnerships
that could encourage and accelerate GenAI use case development and implementation within the industry.
Taylor was not so certain. In her view, “structural challenges,” especially around data and its usage and integration into models used by fintechs and financial services providers, will make it tough to do much more to target AI to consumers – beyond increasing
use of client service chatbots perhaps - until these obstacles are removed.
“Data is like herding cats,” she said, “hiding in these silos, spread across the organisation,” and to integrate it into organisational processes in a meaningful way (for external purposes) is going to take time.
From a risk and regulatory point of view, Pitts says outward-facing AI has some tall hurdles to overcome before it becomes mainstream in financial services. “Until you get [AI] enterprise ready, and then enterprise ready for financial services - you are
not going to see wide adoption in a way that significantly moves the needle.”
Salisbury did point out that all the attention given to AI over the past couple of years has at least encouraged many executives in the banking sector to get their data ‘houses’ in order.
Banks and credit unions must grasp AI’s diversity to continue effective deployment
From the banking side, as Shevlin points out, it’s important to be specific surrounding AI issues, because so much is going on in various areas of this increasingly diverse, disparate field. Assumptions can lead to further
uncertainty and reticence by institutional decisionmakers to act, he insisted.
“When someone talks about 'AI,' stop him or her and ask, 'What kind of AI technology are you talking about?’” Robotic Process Automation (RPA), for example (which per Cornerstone’s 2025 survey has already seen investments or deployment by 35% of bank and
44% of credit union respondents) is clearly a growing industry success. But it’s the other applications beyond RPA and machine learning that still need to be further developed.
Machine learning usage among banks continues to increase, primarily in back-office applications, according to Cornerstone’s responses. What started as about 2% industry penetration in 2019 has now reached about one out of five banks, or 20% of those answering
this question.
Credit unions – perhaps because of their smaller size and technological flexibility than legacy system-hobbled banks – reported significantly higher usage of machine learning (33%) in their organisations, though they started at about the same place as the
banks in 2019 (3%).
Chatbots started in the same tiny percentage of deployment position in 2019’s survey and now are used by more than one-quarter of all reporting banks in the 2025 report. The same was true of chatbot deployment within credit unions – 45% of respondents in
this year’s survey said they have enlisted them as part of their service offerings.
Generative AI has only existed in the marketplace for a few years, and the survey findings reflected this, with an increase among credit unions reporting its usage this year to 36% from 32% in 2024. Banks? They’ve hiked their Gen AI usage from 6% to 16%
over the past two years.
Is the rollout of agentic AI, or advanced, autonomous externally facing enhancements to standard AI applications, coming to FIs soon? Probably not this year - at least for most financial institutions - per both the survey and industry prognosticators.
Will fintech funding increase, and are bank mergers back on the table?
The outlook for substantial new market investments into fintech and crypto initiatives is mixed, even though Perret said he believes funding appetites may "rebound” toward pre-pandemic levels. “The fintech winter is over,” he opined. “It’s fintech spring,
maybe not summer yet, but I feel pretty good.”
Salisbury listed several new deals done in the industry in 2024, and he remains optimistic that momentum will continue. Taylor disagreed, believing there is too much still to be done within many firms in the sector before IPO opportunities will emerge for
most. She does, however, predict more consolidation in the fintech sector, especially due to funding shortfalls and lean times experienced by some firms over the past couple of years.
Plaid does not plan to proceed with its own initial public offering (IPO) in 2025, and probably not in 2026 either, its founder Perret said. “Maybe 2027,” though he did state that the company was on a longer term “arc” toward going public one day.
Perret and Salisbury agreed that there will be more investment deals done this year, even if only marginally higher in volume than in 2024. Mergers and acquisitions (M&A) – much easier to execute than a complex IPO process, said Salisbury - will likely lead
the way among new funding activities in 2025 as companies get healthier, focus more on the future, and begin marketing more heavily to customers than in the recent past.
For banks and credit unions, deposit and relationship growth are at the top of the list
Cornerstone’s survey found that deposit gathering was a top concern for bankers - right up there with cybersecurity, cost of funds, and improving efficiency.
Credit union executives had similar responses, though for them, “New member growth” was the top priority of 62% of leaders surveyed, while bank respondents placed “New customer growth” almost 20 points lower at 43% of respondents - still in the top tier
of priorities - on their lists of key concerns for the upcoming year.
The main commonality in growth efforts between the two FI types is that when banks and credit unions look to expand their business (via new or more profitable customer/member relationships)- at least according to the questions posed in the survey - they
plan to target existing and new customers or members competitively with new products and/or better service - as well as by not losing them to major tech companies, megabanks, large fintechs, or challenger/neobanks.
Fintechs: friend or foe? The answer varies from banks to credit unions
All these competitors continue to be listed as “Significant Threats” - just like in 2024 - by at least 40-60% of bank and credit union executives surveyed. Interestingly, while large tech firms and money center banks were near the top of this ‘threat list’
for 2025, the top concern remains big fintech providers like PayPal, Square, and other rapidly rising companies in this category.
On the opposite side of the spectrum, in the category of opportunities to grow, fintechs continue to appear in the survey as potential partners for both banks and credit unions. Shevlin, noting a trend in such relationships that has evolved since they emerged
in the marketplace about ten years ago, said such companies are often responsible for “deposit displacement” or capturing profitable revenue from community banks and credit unions. Yet, he also pointed to another key survey category, and the question the consulting
firm posed to bank and credit union leaders about the extent that their organisation sees “fintech partnerships as a driver of growth” for the near future.
In this case, 83% of credit union leaders, according to the survey report, continue to see fintech ties or arrangements to do some sort of business together as a “strong” or “moderate” driver of institutional growth, with 32% answering the former and 51% the
latter. On the bank front, however, survey respondents answered with lower percentages than last year in both the separate and combined categories. For 2025, only 16% of bank executives surveyed see fintech partnerships as strong growth drivers, and 44% view
them as moderately important in helping their banks grow their bottom lines. That’s a total of only 60% this year vs. 70% of responses last year.
How might timing affect industry responses, opinions, and projections?
Shevlin voiced an important question about Cornerstone’s December 2024 survey timing: What if the same questions were posed to these leaders now - after the rapid actions on so many financial and other fronts - by the incoming Trump administration and amid
Elon Musk and DOGE’s aggressive attacks on federal agencies, policies, and their operating and staffing expenses? Would response percentages or topics change?
The consensus of most leaders and pundits in the financial services industry appears to be that the issues and opportunities impacting the growth and competitive outlooks for community banks, credit unions, and fintechs will remain mostly in place regardless
of any federal administration’s immediate actions. However, most also agree that only time will tell if major regulatory upheaval, or a significant shift in financial institution or fintech attitudes or priorities – will force a rethinking of current industry
health or expansion predictions for 2025, and beyond.