FE BFSI

Resilience Through Innovation: How BFSI Is Reinventing Itself for Future

The ability to adapt in a nimble manner and embrace innovation will determine which players lead in the future financial landscape.

By Akshay GuptaUpdated at: July 21, 2025 11:50 AM
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At the heart of personalising financial services lies the strategic use of data analytics combined with AI/ML. (Source: freepik)

The next five years are likely to witness continuous developments at a dizzying pace, creating both remarkable opportunities and formidable challenges in the BFSI (Banking, Financial Services, and Insurance) space. A confluence of technological advancements, regulatory shifts, and changing consumer expectations is poised to reshape the sector dramatically.

Some of the key trends that are expected to take center stage include: continuously evolving regulatory framework; digital transformation and use of AI/ML in decisions and activities; geo-politics – sanctions and Anti Money Laundering (AML); customer protection; ESG and green finance frameworks; crypto assets – debate and growth; cybersecurity and risk management; neo challenger banks and neo universal financial outfits; ease of transaction; and customisation using data analytics with layers of AI/ML.

Let’s delve deeper into some of these relatively new and critical trends that are likely to dominate the BFSI landscape in the coming years.

Digital Transformation and Use of AI/ML

Digital transformation is revolutionising the way financial services are delivered. The use of mobile interface apps for super-quick execution of transactions is becoming widespread. Storage is moving majorly to Cloud and data centres to enhance scalability and security. Generative AI is now performing a majority of human transactions, enabling faster service delivery. AI/ML is increasing efficiencies, democratising customer behaviour, boosting accuracy and transaction volumes.

Blockchain technology is making cross-border payments and smart contracts more secure and super fast. The use of chatbots and robots to create scale and overcome any manpower-related scarcity is also becoming a significant trend. This comprehensive digital transformation is not only enhancing operational efficiencies but also redefining customer engagement and product delivery

Also read: IBA Urges Banks to Begin ISO 20022 Migration by August to Avoid Payment Failures

Neo and Challenger Banks

Another significant trend is the rise of Neo and Challenger Banks. These digital-only banks, devoid of any physical branches, cater specifically to the tech-savvy, mobile-first generation of customers. They present ‘new generation customers’ with innovative, convenient and hassle-free transaction consummation.

They also focus on integrating seamlessly with payment solutions and other product providers like insurance, mutual funds and brokerages. These banks have lower direct and indirect transaction costs and charge fees based on usage rather than amounts. These banks are fundamentally redefining what modern banking means to a new generation of users.

Customisation Using Data Analytics Layered by AI/ML

At the heart of personalising financial services lies the strategic use of data analytics combined with AI/ML. This is the core principle in personalising offerings, products and services. Data Analytics makes activities like targeted acquisition of customers, focused marketing campaigns and customised offerings to potential and existing customers quite simple.

Not only it makes these activities less complex but also more efficient and more cost effective. By making these activities more efficient, less complex, and highly cost-effective, BFSI firms can deliver unparalleled value and customer satisfaction.

ESG and Green Finance

Amid global calls for sustainability, Environmental, Social, and Governance (ESG) considerations are becoming central to investment and operational decisions. Growing emphasis on sustainable and equitable business practices and targets set by the global governance community on carbon footprint have made ESG a central theme for most investors, stakeholders and business leaders.

Mandatory disclosures in annual reports, ESG scores, sin taxes etc, are leading businesses to create processes, products and supply-chains that are high on ESG compliance. Investors are moving away from taking large bets on traditional businesses to ESG-focused businesses. As ESG emerges as a non-negotiable metric, companies across the BFSI sector are reimagining their strategies to align with global sustainability goals.

Cybersecurity and Data Protection

With rapid digital adoption, cybersecurity threats are rising in tandem. With rising digital adoption and smarter ways to decipher consumer behaviour by using AI/ML, proportionate increase in cybercrime and cyber threats are par for the course. Institutions and individual customers are likely to be ‘scammed’ in equal measure.

Consequently, BFSI companies need to stress digital security and customer awareness like never before. Mandatory use of AI and ML to detect and prevent frauds/anomalies could be one of the ways forward. Data protection has to be layered in ways that it’s not easy for hackers to infiltrate institutional data. Cybercrime in BFSI sector could exceed USD 10 trillion, hence making it one of the top priorities of BFSI companies.

Crypto Assets as Currency, Trade, and Investment

Another seismic shift is the growing prominence of crypto assets as alternatives for currency, investment, and global trade. Crypto assets as an alternative currency, mode of trade and investments and settling global transactions is gaining prominence. One report suggests that the cryptocurrency market cap has already crossed USD 5 trillion, which is ~5% of global equities.

This number is going at a rapid pace, which will give a large spurt in new Cryptocurrency outfits including platforms and exchanges. This trend signifies a transformative shift in financial ecosystems and poses both opportunities and regulatory challenges.

Consumer Expectations Are Driving These Trends

At the heart of all these transformations are evolving consumer expectations and behaviours. Eventually, all key trends are a function of consumer expectations and behaviour, which drives innovation. Consumers of ‘present and future’ expect fast execution on fingertips. They are digitally wired across their lifestyle spectrum.

They are aligned to sustainability, climate and equality. They want a friendly user interface and information accessibility at their fingertips. They need their data to remain confidential and secure. Their spending patterns are different from previous generation with ‘leverage’ and ‘perpetual digital access’ being the core themes. These consumer demands are forcing BFSI companies to be agile, data-driven, and highly responsive in reshaping their strategies.

Strategic Roadmap for BFSI Companies

To stay ahead, BFSI companies must evolve rapidly, aligning their strategies to emerging trends. BFSI companies have to strive towards understanding in a nimble way the above changes and tailor-make strategies to structure their business, manpower and tools to gain a strategic advantage. The ability to adapt in a nimble manner and embrace innovation will determine which players lead in the future financial landscape.

Akshay Gupta is Director at Prime Securities Ltd.

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