On the eve of 2025, the UK banking sector faces extreme pressure to modernise. With technological advancements accelerating and customer expectations evolving rapidly, banks must act decisively to remain competitive.
Cognizant's 2025 banking outlook examines six trends that will reshape the sector: the transformative impact of AI on M&A, significant policy shifts under a new government, the imperative for digital operating models, redefined approaches to identity and security, the evolution of AI-driven customer experiences, and the challenge of bridging generational divides.
For each trend, we detail the fundamental dynamics at play and actions banks must take to thrive amid this challenging landscape.
1. M&A in the age of AI—reshaping the banking landscape
The UK banking sector is experiencing unprecedented consolidation, exemplified by Nationwide Building Society's acquisition of Virgin Money, agreed in March 2024.
M&A activities will affect approximately 67 million UK banking relationships in 2025 (though with customers holding an average of 2.8 accounts each, according to 2020 data, the actual number of individuals impacted is lower but still substantial).
Far from viewing M&A as a resource-draining integration challenge, forward-thinking banks are seizing these moments as catalysts for modernisation. HSBC's acquisition of Silicon Valley Bank UK in March 2023 demonstrates this approach: rather than simply absorbing customers and systems, HSBC leveraged the acquisition to accelerate its digital transformation, incorporating valuable fintech expertise and innovative capabilities.
AI combined with modern technology platforms will revolutionise how banks approach M&A. Advanced algorithms streamline due diligence, enabling rapid analysis of synergies and risks. More importantly, they create opportunities to redesign digital operating models from the ground up.
Maintaining customer trust during transitions remains crucial. AI-driven communications will provide personalised explanations of merger impacts, addressing concerns proactively. However, the UBS-Credit Suisse merger in June 2023 serves as a cautionary tale, highlighting the perils of prioritising speed over strategic transformation. Banks that use M&A as a springboard for modernisation, rather than viewing it as a distraction from innovation, will emerge stronger and more competitive.
Key actions for banks:
• Use M&A as a catalyst for digital transformation
• Deploy AI for strategic due diligence
• Prioritise customer communication during transitions
2. Policy shifts and product innovation—banking under a new government
Following Sir Keir Starmer's election victory in July, significant policy shifts will occur in 2025, particularly in housing and financial inclusion. Banks must demonstrate agility in product development and deployment.
The Labour government's ambitious plan to build 1.5 million new homes over the next parliament will drive demand for innovative mortgage products. Nationwide's "Helping Hand" mortgage, allowing first-time buyers to borrow more based on income, foreshadows the flexible products one can expect in 2025.
Innovation in small business financing will accelerate, with platforms like Funding Circle's AI-driven loan assessment providing a model for future SME lending. Financial inclusion will be a crucial priority, and banks can leverage technology to promote economic well-being.
Key actions for banks:
• Build agile teams for rapid product innovation
• Implement AI-powered risk assessment
• Develop inclusive financial products
3. The rise of digital operating models and observability
Entirely digitised, observable banking operations will be imperative by 2025. This shift promises to revolutionise efficiency, risk management, and customer service.
Advanced platforms will provide real-time insights across banking operations. Barclays' use of Splunk for real-time data analytics offers a glimpse of future capabilities. These systems will evolve into comprehensive digital nervous systems, enabling proactive problem-solving and strategic decision-making.
Service management platforms like ServiceNow will transcend their traditional IT role. HSBC's use of ServiceNow to streamline global operations prefigures the fully integrated systems of 2025, which will break down silos and integrate workflows across departments.
AI will be crucial for operational resilience, continuously monitoring systems to predict and prevent issues. The Bank of England's adoption of AI for risk detection in the financial system underscores this technology's growing importance. As AI systems mature, they will detect potential problems and initiate automated responses, minimising service disruptions.
The implementation of the Digital Operational Resilience Act (DORA) in the EU, with implications for UK banks operating in Europe, will accelerate this trend. Banks with comprehensive digital operating models will be better positioned to comply with DORA's requirements for robust ICT risk management and reporting.
Regulatory compliance will be further transformed through "compliance by design" approaches. The Financial Conduct Authority's "Digital Sandbox" initiative, encouraging regtech development, paves the way for AI and machine learning systems that automatically adjust operations to remain compliant with evolving regulations. This approach will be particularly valuable in addressing the complex requirements of DORA and other emerging regulatory frameworks.
The transition to these digital operating models will require significant investment in both technology and skills.
Banks that successfully navigate this transition will be able to respond more quickly to market changes, launch products faster, and provide a more seamless, secure customer experience.
Key actions for banks:
• Invest in real-time analytics platforms
• Automate regulatory compliance
• Upskill workforce for digital operations
4. Redefining identity and security in the digital banking ecosystem
As digital banking becomes ubiquitous, robust yet user-friendly security measures will be vital. The banking sector is poised for a significant shift in identity management and security approaches.
Biometric authentication will evolve beyond fingerprints and facial recognition to include behavioural biometrics. By 2025, multi-factor biometric authentication combining physical and behavioural markers will be standard.
Identity is increasingly becoming core to the banking digital experience, with every notification, login, payment and product application relying on a seamless-yet-secure authentication method. Apps with legacy, pin, password or SMS-based approaches risk pushing users towards more modern, frictionless experiences.
Blockchain-based decentralised identity solutions will give customers greater control over personal data. The UK's digital identity pilot signals this shift towards user-controlled identity, promising to reduce fraud while enhancing customer experience.
AI-powered fraud detection will revolutionise security. Danske Bank's use of ML to reduce false positives in fraud detection by 50% is just the beginning. By 2025, AI systems capable of real-time transaction pattern analysis will be the industry standard.
Balancing data sharing with robust security will be crucial as open banking matures. The UK's Open Banking Implementation Entity's work on new collaboration standards lays the groundwork for a more interconnected banking ecosystem in 2025.
Meanwhile, the role of big tech in this ecosystem will be significant. Apple's introduction of Apple Intelligence signals tech giants' growing influence in identity verification and secure transactions. Banks must decide whether to partner with these firms or develop competing solutions.
Key actions for banks:
• Implement advanced biometric authentication
• Develop real-time fraud detection systems
• Create seamless identity management solutions
5. Beyond personalisation—AI-driven customer experiences
In 2025, banking personalisation will undergo a dramatic evolution. Banks will move beyond basic segmentation to create truly individualised experiences that anticipate customer needs in real time.
AI will orchestrate services from various providers, creating seamless, personalised experiences. For example, Lloyds Banking Group's partnership with Google Cloud to develop AI-driven financial insights points towards increasingly sophisticated systems that offer personalised recommendations based on a customer's entire financial picture, life goals, and external economic factors.
As AI becomes more prevalent, ethical practices and transparency will be crucial for maintaining trust. NatWest's establishment of an AI ethics board signals this growing focus. By 2025, robust frameworks ensuring fair, transparent, and accountable AI systems will be the industry standard.
Key actions for banks:
• Deploy AI for predictive customer insights
• Build flexible product creation systems
• Establish ethical AI governance
6. Bridging generational divides—AI agents and financial inclusion
Banks in 2025 face a critical challenge: serving an ageing population while meeting the expectations of tech-savvy customers. AI offers a solution to this generational divide.
Advanced AI agents will serve as personalised assistants for older customers, while natural language processing enables intuitive voice banking. These technologies will prove particularly valuable for facilitating intergenerational wealth transfer and financial planning.
Banks must balance digital innovation with human touch. While AI-powered education tools will adapt to individual learning styles and knowledge levels, physical branches will evolve into community hubs combining digital services with face-to-face support. This hybrid model ensures inclusivity across all age groups and technological comfort levels.
Key actions for banks:
• Create AI-powered financial assistants
• Implement voice-first banking services
• Design hybrid branch experiences
