Forrester: Banks Face Twin Challenges on Profits and CX

Investment in AI and real-time processing could help offset falling margins and customer experience scores, as traditional banks compete with digital challengers – according to the latest 2025 predictions on banking, payments and insurance from Forrester. 

Indeed, the banking sector continues to grapple with the aftermath of three bank failures in 2023, despite showing signs of stabilisation in 2024. While larger institutions have managed to bolster their positions through investment banking and wealth management fees, sector-wide profits remain below their 2022-23 peak.

Customer Experience and Innovation

A widespread decline in banking customer satisfaction has complicated the sector's recovery. Forrester reports that US banking customer experience metrics have fallen for the third consecutive year. 

The situation mirrors trends in Australia, where banks recorded their lowest satisfaction scores and the European Union, where metrics show a significant decline from 2023.

In response, financial institutions are turning to technological solutions. Banks are developing conversational banking systems, which use artificial intelligence to provide automated customer service through chat interfaces. 

Meanwhile, Klarna, the Swedish payments company valued at $6.7bn, is challenging traditional deposit models with its "save now, pay later" product. This offering, already established in India, allows customers to earn returns on savings held with merchants.

Insurance Sector Response

The transformation extends beyond retail banking. The insurance sector plans to increase technology spending by 8% in 2025, focusing on advanced analytics and artificial intelligence. 

Despite this investment, Forrester projects that fewer than 5% of insurers will generate significant revenue from AI-driven products next year.

The embedded insurance market shows more immediate promise, with 30% growth projected in personal lines. Forrester’s survey indicates that 32% of insurance firms plan to increase their embedded finance capabilities, integrating insurance products into other services.

"Insurers will continue to pass on higher costs of rising claims expenses to customers. This improving profitability will translate into increased tech spending as insurers prioritise innovation, data, AI, and automation," says Indranil Bandyopadhyay, Principal Analyst at Forrester.

The wealth management sector faces its own digital challenges as it prepares for a generational wealth transfer. An estimated US$84tn will move from Baby Boomers to their children in the United States over the next two decades. 

HSBC is responding to changing preferences by launching a digital "Gold Token" in Hong Kong, enabling smartphone-based gold trading through blockchain technology.

“The challenge for wealth management firms is that younger investors are more digitally savvy, conduct their own research, and make impact-oriented investing decisions,” says Vijay Raghavan, Senior Analyst at Forrester.

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