We could take you back 40 years. A bank’s branch was its primary distribution channel. That’s where they built trust, loyalty, and community relationships. They knew everyone in the community, understood their needs, and financed them accordingly. They helped people open businesses and managed various personal financial needs.
Then, as the internet emerged, everything shifted to digital. It became mobile-first and web-first, which led to the commoditization of banking services. Banks lost the ability to create that same depth of relationship and community. Banking products became standardized – open an account in five minutes, onboard in two. Every deposit product now has the same rate as the bank down the street.
Banks lost the ability to offer compelling propositions through digital distribution.
The next five years will completely reshape the financial services landscape. We’re seeing a convergence of forces – technology, regulation, consumer expectations – pushing banks to reinvent themselves. Fintechs and big tech companies aren’t only encroaching on banking’s turf; they’re redefining what consumers expect from their financial institutions. For traditional banks, the biggest challenge is figuring out how to compete in this new environment without losing sight of their core strengths.
The banking industry is facing unprecedented disruption, not in the distant future, but right now.
New technologies, regulatory changes, and shifting consumer behaviors are converging to reshape the financial industry. However, the most significant disruptor isn’t technology. It’s the changing expectations of consumers.
Today, customers demand more than transactional banking services; they want banks to be integral parts of their lives, offering seamless, personalized financial solutions embedded into their everyday activities. This is the future of banking, where the true disruption lies at the intersection of technology, consumer behavior, and ecosystem integration.
Looking ahead, here are the forces that will drive the most transformations in banking over the next five years:
- The hyper-personalization battle: AI at the core
Will it be the future without including artificial intelligence (AI)? Hardly. Banks sit at the intersection of products and customers, and this is where AI will make its mark in the battle for hyper-personalization.
How products are presented, communicated, and serviced will shift at the core. Banks are competing to create a seamless, intelligent engagement that understands each customer’s unique behaviors, transactions, spending patterns, and needs. AI will bridge the gap between what customers want and what banks can offer at a level of personalization that has never been possible before. AI-powered virtual assistants like Bank of America’s Erica are already delivering on this promise. Such tools provide new, efficient ways for banks to interact with customers and streamline services.
Banks won’t have to develop all AI solutions in-house. They can leverage partnerships with tech firms or AI-focused vendors, which democratizes access to advanced AI technologies even for banks that lack extensive tech resources.
However, moving into the next year, an important consideration will be “speed vs. responsibility in AI adoption.” The race to AI adoption cannot be about speed alone. Banks are highly regulated, and their AI models must be justified and explainable. Their AI employment has to be responsible and traceable. Customers and regulators need to understand why decisions are made. AI adoption cannot come at the cost of trust. Banks are held to a higher standard because of the sensitive nature of customer data they manage. Without this transparency, banks risk eroding the very trust that is core to their business. - The transition from isolated tech investments to collective ROI
We will see more banks leveraging an ecosystem of specialized technology providers, positioning banks to access best-in-class solutions without needing costly, isolated builds.
Banks have poured billions into technology, often with the goal of building and maintaining proprietary solutions that they hope will differentiate them from competitors. But here’s the problem: when every bank decides to build its product catalog, each spending tens of millions on similar systems, the collective cost can lead to diminishing returns. Each bank ends up investing heavily to “reinvent the wheel” without necessarily achieving the transformative results they seek.
In fact, according to McKinsey, banks have increased their technology spending by about 9% annually, far outpacing revenue growth, which hovers at 4%. Despite heavy spending, many banks struggle to demonstrate measurable returns. Instead of creating economies of scale, this insular approach traps banks in what McKinsey describes as a “negative loop” — a cycle of small-scale tech projects with unclear returns. Many banks, caught in this loop, end up automating outdated processes rather than modernizing the core. The persistence of outdated practices is evident in banks still advertising for COBOL programmers, a skill tied to a programming language from the 1950s.
As the industry faces increasing pressure to show value to customers and shareholders, banks are recognizing that not every technology solution needs to be built from scratch. Instead, they’re beginning to tap into economies of scale by leveraging an ecosystem of specialized technology providers. The result is access to best-in-class solutions without incurring the costs and complexities of isolated, in-house builds.
More banks will turn to partnerships to drive targeted innovation without overextending their resources. According to an EY report, 55% of banks expect partnerships to play a “very important” role in their strategies by 2025, up from just 32% today. An additional 36% anticipate that collaborating with fintech firms will become essential within the next three years. For example, DBS has made strides in digitizing trade process flows by partnering with blockchain-based ecosystems, while the collaboration between Stripe and Newline (Fifth Third Bank’s embedded payments arm) enables software platforms to offer embedded financial accounts to customers.
The competition to defend market share will get fiercer, and these strategic partnerships will play a key role. The banks that break away from these fragmented, isolated investments and leverage an ecosystem of specialized providers will tap into a shared innovation model that achieves economies of scale in R&D investments, creates richer feature sets, and accelerates their ability to bring innovations to market.
But these partnerships won’t be just for technology’s sake. After all, it’s consumer expectations, more than technology itself, that will steer the future of banking. Competitors may replicate products or services, but the real differentiator will be in delivering a superior, personalized experience at every touchpoint. Banks that leverage these partnerships will be better positioned to offer the seamless, intuitive financial experiences that customers now demand. - The rise of the “network of platforms”
A new pattern is emerging: banks will move towards an open ecosystem-based model.
The future of banking will transform into a network of platforms centered on five key client needs: mobility, housing, wealth and protection, advisory/consulting/legal services, and global corporate services.
When you think of this, it feels like a dramatic expansion into adjacent sectors. However, the banks that move from transactional, product-oriented entities to dynamic platforms offering comprehensive services across multiple industries are set to grow their market opportunities from $10 trillion today to a projected $30 trillion tomorrow.
Banks are transitioning from institutions that manage transactions to hubs that connect customers with a broader ecosystem of services. This shift represents a huge opportunity for growth but also requires an underlying change in how banks think about their role in people’s lives.
The industry’s future lies in creating ecosystem-driven experiences where banks offer products and also facilitate customers’ broader needs, from mobility to wealth protection. Banks that don’t evolve into these relationship-driven, horizontally aligned networks risk becoming obsolete.
Zafin has been helping banks build the infrastructure they need to transition into this new reality. We are externalizing key functions like product and pricing, which supports banks to create platforms that extend into mobility, housing, and wealth management. The banks that succeed will be the ones that can offer comprehensive services.
For this transformation to be successful, banks will need to undertake a ‘magnitude-level’ improvement in their IT stack.
What do you think is the most pressing issue stopping banks from achieving digital transformation? The next point addresses this. - Banks will scale their IT stack by a “magnitude of ten’ or more
The conversation around modernizing banks’ IT systems often centers on catching up. But catching up isn’t enough. Banks today need to think about leapfrogging the competition. To achieve this, banks will need to scale their IT stacks by a ‘magnitude of ten’ or more. This is frequently misinterpreted as increasing capacity, adding systems, or automating processes.
However, scaling smartly means designing systems that adapt and evolve without constantly needing to be overhauled.
The core modernization journey should be progressive, not throwing out existing systems but enhancing them with flexible, modular layers that can shift with market demands. This isn’t a 2x or 3x change. It’s building a foundation that anticipates the scale of growth and complexity banks will face.
The future isn’t going to wait, and the banks that succeed will be those who can build IT infrastructures that handle both today’s challenges and tomorrow’s opportunities. The emphasis on a “magnitude-level improvement” in IT infrastructure is accelerating the pace of change across key areas such as interoperability, distribution, and speed to market. Current and future core banking systems are unlikely to support this scale of change. It means moving outside of their traditional core systems. - The core modernization journey will move to the multi-thin core solution
Banks can’t achieve the future we’re talking about if they’re shackled to outdated technology.
The multi-thin core model represents a future-proof approach that supports banks in moving from legacy systems to thinner, more adaptable cores. Key components like product and pricing, customer information, billing, and analytics are moved outside the traditional core in modular, interoperable layers.
However, core modernization should go hand-in-hand with reinvention of the business model. There’s no reason to modernize just for the sake of modernization. It has to be part of a larger strategy to offer a more compelling customer proposition. If a bank isn’t leveraging this opportunity to reshape its customer relationship, it’s missing the point entirely.
For any bank considering major core transformations, avoid what we call the “rip and replace” approach, which is slow, expensive, and offers little benefit over that decade of effort.
That’s why at Zafin, we advocate for progressive modernization rather than ripping out and replacing everything at once. The future of banking modernization lies in the multi-thin core solution.
Here’s why: Traditional monolithic cores force banks to manage tons of interconnected systems within one heavy infrastructure. Even minor changes affect the entire core, making innovation painfully slow. A complete core overhaul risks downtime, operational disruption, and new vulnerabilities. - Regulatory Pressure and Compliance: CFPB and the Mandate to Modernize
The recent CFPB ruling on Section 1033 places immense pressure on banks to modernize their infrastructure for better data accessibility and compliance. Many banks are feeling the strain, citing both the time and financial burden of overhauling their systems to meet this mandate.
Well, regulatory bodies are not offering leeway. We’ve seen a strong pushback from banking associations. The resulting lawsuits indicate a significant tension within the industry. Banks are caught between the demand for immediate modernization and the realities of their legacy infrastructure. They need to upgrade systems to ensure compliance and contend with new security requirements as they open data to third parties.
And so, the most transformative shift will be the decoupling of core banking platforms. Banks won’t modernize by replacing their entire core but by deconstructing and decoupling it. We emphasized earlier why progressive modernization is the only smart transformation model). With this approach, banks can leverage best-in-class providers rather than attempting to replicate decades of development in-house. Rebuilding core systems from scratch would take too long, cost too much, and involve significant risk.
The CFPB’s mandate is a clear signal that legacy infrastructure can no longer support the agility required by today’s regulatory environment, and without modernization, banks may find themselves vulnerable to compliance risks and market irrelevance.
Today, as we meet with leaders from the world’s largest financial institutions, we see their eyes light up when we discuss the future. There’s palpable excitement, a recognition that change is happening now, and a shared commitment to navigating these new challenges.
As banks push forward – balancing technology, trust, and transformative change – Zafin will be right here as a trusted partner, guiding them in the reinvention of business models and helping them deliver the hyper-personalized experiences their customers now expect.
The banks that recognize and adapt to these disruptive forces early on will lead the charge into the future.