7 Biggest Challenges For The Financial Services Industry in

The financial services industry is changing fast. 

New technologies, stricter rules, and higher customer expectations are reshaping how businesses operate. 

To keep up, financial institutions need to tackle some tough challenges head-on. From keeping data secure to competing with FinTech startups, 2025 brings some significant issues you can’t ignore.

Let’s look at the seven top challenges the industry faces — and what you can do about it. We’ll also go over some tools and trends that can help you protect your organization and remain competitive.

Challenge 1: Cybersecurity threats are getting smarter

Cybersecurity is always a top priority in finance. But today’s threats are more advanced. Hackers use AI to target vulnerabilities, so attacks are faster and more dangerous. 

Since you handle sensitive data, strong cybersecurity isn’t optional — it’s essential. 

Consider using Sigma Rules to standardize threat detection across different systems to stay secure. They can help spot unusual activity before it becomes a bigger problem. (And starts affecting your customers.)

Another effective measure is regular employee training. 

Many attacks still start with simple phishing emails — so making sure your employees know how to recognize scams is a critical line of defense. More on this in a bit.

For example, a small bank might implement a monthly training program to update employees on the latest security threats. This helps create a culture where everyone (not just the IT department) is vigilant about security.

Challenge 2: Meeting regulatory requirements 

Financial regulations have become complicated. 

Staying compliant with laws ranging from anti-money laundering (AML) to data privacy rules is a constant challenge. That’s why you need a risk management framework that covers these evolving regulations. 

Otherwise, you risk hefty fines or even legal trouble.

Automating compliance checks is one way to stay on top of these demands. For example, many banks use software to monitor transactions and flag suspicious activity. This reduces the chance of human error and speeds up the compliance process. 

Beyond technology, regularly review and update your internal processes as a team. A quarterly compliance check can help catch issues early and ensure everything is running smoothly. Have a dedicated in-house auditor who can comb through your systems and processes. Ask them to provide you with a detailed report so you can correct any vulnerabilities they may have flagged as soon as possible.

Challenge 3: Email security is more important than ever

With hackers becoming more sophisticated, securing email communications needs to be a top priority. 

Phishing scams, for example, are a common way for attackers to access sensitive information. And if an employee doesn’t notice it, their system will be compromised in a matter of seconds. To stay proactive, consider using a DMARC checker to authenticate emails and block phishing attempts. This protects both your institution and your customers.

Employee awareness is key here, too. 

Regular training on email security best practices can help empower your team on how to recognize and respond to threats. Show them how your threat detection software works — and discuss the latest phishing trends so they’re not surprised if something looks off.

It’s also helpful to run simulated phishing attacks to test how well employees recognize threats. 

For example, a regional bank might simulate phishing emails once a month to reinforce good email habits and identify training needs.

Challenge 4: Staying competitive against FinTech

FinTech companies are disrupting the industry with convenient, customer-friendly solutions. (Think of apps that help students apply for a loan in just a few minutes.)

That means traditional banks are now under pressure to deliver similar digital experiences.

To stay competitive, consider using AI to offer personalized services. For example, SoFi uses AI to create a 360 view of the customer. This helps the company analyze customer spending habits and suggest products that fit their needs, like personal loans and student loans. These ultra-personalized and quick online services help SoFi continuously attract and retain customers.

Traditional financial institutions that fail to match these digital services risk losing customers to more agile competitors. 

To retain your customers who value convenience, always look to implement customer-focused strategies.

Challenge 5: Securing funding for innovation

Innovation is vital to keeping up with industry changes — but it often requires significant capital. 

Financial institutions, especially smaller ones, can benefit to find angel investors

who bring not just funds but also industry knowledge and connections. 

This support can be the difference between staying stagnant and driving meaningful change for your financial services company.

For example, an angel investor could have advice on the exact app you should build to widen your total addressable market. They might also have the connections you need to make it happen.

Consider a community bank that’s looking to develop a mobile app. Securing funding from angel investors could help the company invest in experienced app developers so the final product is competitive with FinTech alternatives. 

Challenge 6: Navigating market volatility with strong risk management

Market volatility is a constant challenge. Financial institutions need to stay on their toes, from stock market fluctuations to currency shifts. 

To protect your company from unexpected losses, you need a strong risk management strategy.  One way to do this is by using diversified risk assessments, which look at different types of risks, including credit risk, market risk, and liquidity risk. 

For example, you can use real-time data analysis to monitor changes in currency values and adjust your investment strategies accordingly. Proactive risk management helps you better protect your assets when times get tough.

And, if you can quickly react to market shifts, you’ll gain a competitive edge. With the right tools, you can turn market volatility into opportunities for your business.

Challenge 7: Managing AI adoption and security

AI offers enormous benefits, but it also brings new security risks. As more financial institutions adopt AI, they need to make sure these systems are secure. 

If they’re not properly managed, they could expose sensitive information. Thankfully, AI Security Posture Management (AI-SPM) tools are designed to help. They monitor AI systems for potential vulnerabilities and will alert you about risks before they become problems. 

For example, a credit union using AI to assess loan applications could use AI-SPM tools to protect customer data during processing.

Emerging trends and technologies that can help the financial services industry

We’ve covered seven challenges to look out for in 2025 and touched on some solutions — but there are more options that can help. 

Let’s review some new tools and trends that can help you mitigate operational risks and some of the other challenges we’ve discussed.

Blockchain technology is transforming the way you can record and verify transactions. 

Financial institutions can use it to enhance security and transparency in their operations. For example, decentralized ledgers help banks reduce fraud risk and increase cross-border transaction efficiency. 

Consider exploring blockchain-based solutions for your payment systems and customer verification processes.

Quantum computing

Quantum computing is on the verge of revolutionizing data processing in the financial sector. The way it can handle large data sets at unprecedented speeds means big opportunities for risk analysis and portfolio management. 

But it’s also important to prepare for the challenges quantum computing brings — especially in cybersecurity. 

As quantum systems evolve, traditional encryption methods may become less effective. In other words, you may need to invest in quantum-resistant security measures, too.

Open banking

Open banking is another trend reshaping the financial services landscape. It lets third-party developers build applications and services around banks’ data and infrastructure. 

This shift is driving greater competition and innovation in the industry. 

Consider partnering with fintech companies to create value-added services for your customers to improve their digital experiences.

AI and machine learning

Artificial intelligence (AI) and machine learning continue to grow in the financial sector. These technologies offer powerful tools for data analysis, customer service, and fraud detection. 

Consider using AI to analyze customer behavior, personalize services, and automate compliance processes. 

Sustainable finance

As environmental concerns grow, sustainable finance is becoming a priority for many financial institutions. Integrating environmental, social, and governance (ESG) factors into investment and lending decisions can enhance brand reputation and attract socially conscious investors. 

To capitalize on this trend, consider developing strategies to incorporate sustainability into your operations and product offerings.

Conclusion

The challenges the financial services industry is facing in 2025 are significant. But with the right strategies, they’re also manageable. 

You can stay ahead in an increasingly competitive market by focusing on cybersecurity, meeting regulatory requirements, embracing digital innovation, and securing funding to drive change.

It’s also essential to stay on top of trends and technologies that are reshaping the industry — and potentially, your business model!  

For example, blockchain technology is improving transaction security and transparency. And quantum computing holds the potential for faster data processing. 

Regulatory changes are also on the horizon, with governments worldwide increasing scrutiny of financial practices. Prepare for stricter regulations regarding data privacy and consumer protection to help mitigate risks and promote compliance.

The bottom line? 

Prioritizing adaptability, security, and resilience (while keeping an eye on emerging trends) is key to long-term success in the financial services industry.  

Author Bio:

Ioana Wilkinson

Ioana is a business strategist and content writer for B2B tech and SaaS brands. She also helps aspiring entrepreneurs build remote businesses. Born in Transylvania and raised in Texas, Ioana has been living the digital nomad life since 2016. When she’s not writing, you can catch her snorkeling, exploring, or enjoying a café con leche in Barcelona!