As we approach 2025, the financial services landscape stands at a critical juncture. With the Federal Reserve signaling a shift in monetary policy and projections indicating the federal funds rate could decrease to 3.9% by year-end 2025, small- and medium-sized businesses (SMBs) face both challenges and opportunities. Understanding the key priorities for the year ahead will be essential for organizations looking to adapt and thrive in this evolving environment.
Six strategic priorities for 2025
1. Capitalize on shifting rate dynamics
After years of aggressive rate hikes that saw borrowing costs reach historic levels, the financial services sector is entering a transitional phase. With recent rates of 8 to 12 percent constraining deal flow and capital deployment, the anticipated rate decreases in 2025 present new opportunities for strategic positioning. The improved financing conditions, with credit spreads tightening and base rates lowering, are already stimulating dealmaking activity — IPO capital raised reached $67.9 billion through October 2024, compared to $27.8 billion for all of 2023, according to PitchBook Data, Inc.
Companies should focus on developing flexible investment strategies that can adapt to these improving conditions while maintaining robust risk management frameworks. This includes reassessing lending criteria, adjusting portfolio allocations, and positioning to capitalize on the expected surge in capital markets activity.
2. Leverage private credit opportunities
The private credit landscape is transforming, with total assets under management approaching $1.7 trillion and direct lending strategies accounting for approximately $800 million of AUM, a nearly fourfold increase from the start of 2018. As banks face regulatory pressures and increased competition from nonbank players, alternative lenders have opportunities to fill the gap. Success will depend on robust infrastructure and risk management capabilities, including AI-driven analytics for credit assessment and portfolio monitoring.
For smaller firms, partnership opportunities with larger institutions and investment in technology infrastructure will be crucial to scale efficiently while maintaining strong credit quality standards.
3. Optimize strategic position in M&A landscape
Financial services M&A activity has surged, with announced deal volume up over 20 percent in the first three quarters of 2024. This rebound follows the sector-wide downturns of 2022 and 2023, with improving credit conditions and lower base rates driving renewed dealmaking momentum. While community banks focus on internal restructuring and organic growth, larger institutions are pursuing capability-building and scale efforts through acquisitions of technology platforms, specialized talent and robust product portfolios. The environment appears increasingly conducive to both M&A and IPO activity, with IPO capital raised reaching $67.9 billion through October 2024 — nearly triple 2023’s total of $27.8 billion, according to PitchBook Data.
Companies should evaluate whether they are better positioned as potential acquirers or acquisition targets, focusing on strengthening core operations and maintaining strong capital positions to capitalize on this dealmaking momentum.
4. Accelerate digital banking transformation
The fintech landscape is maturing from “growth at any cost” to sustainable business models. Digital banking platforms are driving increased user engagement, particularly in the SMB market. Blockchain technology is emerging as a transformative force, with the World Economic Forum projecting that 10 percent of global GDP could be tokenized by 2027.
Success requires a strategic focus on digital transformation and selective technology adoption, including partnerships with established providers to enhance service offerings without overextending resources.
5. Adapt to new payment paradigms
Payment systems are transforming amid changing consumer preferences and technological advancement. Traditional methods now intersect with emerging technologies like decentralized finance and Central Bank Digital Currencies. Transaction margins face pressure as merchants push back against interchange fees and seek lower-cost alternatives.
Thriving in this environment requires enabling seamless, secure transaction flows while developing value-added services that enhance the customer experience. Companies must stay agile through updated infrastructure or strategic partnerships to access new payment capabilities cost-effectively.
6. Strengthen cybersecurity defenses
Cyber threats continue growing more sophisticated and coordinated, with attackers employing AI-driven tools and polymorphic malware that can adapt and evade traditional security measures. Financial institutions must respond with advanced defensive systems, including biometric authentication and blockchain technology.
Success requires balancing technology investments with human factors, as employee error remains a significant vulnerability. Organizations must implement comprehensive security protocols, including regular audits, staff education and incident response planning.
Looking ahead
While 2025 presents complex challenges for the financial services sector, it also offers significant opportunities for those prepared to adapt. Organizations that effectively balance innovation with risk management while staying attuned to changing market conditions and customer needs will be best positioned to thrive in the year ahead.
Maximize your financial services strategy with BPM
BPM’s Financial Services Industry Group offers comprehensive Assurance, Advisory and Tax Services. Our team brings deep industry experience — including professionals who have managed financial institutions and investment portfolios — enabling us to provide insights beyond traditional services. Whether you’re operating a community bank, investment firm, fintech company or other financial services business, we can help you navigate regulatory compliance, risk management, digital transformation and financial reporting while bringing peace of mind to your operations.
To discuss how we can support your financial services priorities and help position your business for success in 2025 and beyond, contact us.
