As we step into 2025, the global economic environment presents a complex mix of challenges and opportunities. After years of volatility marked by rising inflation, interest rate hikes, and geopolitical tensions, the world is now seeking stability and renewed growth. Central banks are recalibrating their monetary policies, households are adjusting to evolving financial realities, and banks are navigating shifting risk landscapes while exploring new growth opportunities.
In this opening blog post, we’ll discuss the key global trends shaping the economy the year ahead and their implications for banks and credit management, and households alike.
We’ll also explore how robust credit management business solutions can empower banks to navigate these challenges successfully while seizing the opportunities ahead. With tools designed to enhance efficiency, mitigate risks, and adapt to changing market demands, Loxon stands ready to help financial institutions to thrive during this time of transformation. Let’s now take a look at the trends and solutions that will shape 2025.
Trend 1: Geopolitical and Economic Tensions
In 2025, geopolitical and economic tensions are expected to remain at the forefront of global challenges. One key factor will be the inauguration of the new U.S. president: Donald J. Trump, which is likely to bring shifts in international relations, trade policies, and economic strategies. Depending on the administration’s approach, there could be changes in tariffs, sanctions, and multilateral agreements. This transition will likely influence global markets, potentially increasing short-term volatility as investors and businesses adjust to new policies.
- Impact on Banks: Geopolitical and economic tensions create uncertainty for banks, making effective risk management crucial. Quick adaptation is key to mitigating financial and operational risks.
- Impact on Households: Trade policy shifts may raise import prices, increasing living costs for households and limiting discretionary spending.
Trend 2: Technological Innovations and AI
Technological advancements, particularly in artificial intelligence (both LLM and ML), continue to revolutionise industries by enhancing efficiency and creating new opportunities. These innovations are reshaping the financial landscape, bringing both challenges and opportunities for banks and households alike.
- Impact on Banks: Banks are leveraging digitalisation and AI to streamline their operations and enhance services, such as risk management and personalized customer experiences. However, the rise of fintech companies, like neobanks, is intensifying competition and pressuring traditional banks to accelerate their digital transformations. To stay ahead, embracing AI, understanding its use cases, and adopting it swiftly is essential.
- Impact on Households: Digitalisation is expanding financial service access through various automated solutions, from the already known mobile banking to the widespread usage of AI tools, such as automatised loan approval systems and chatbots. AI significantly enhances the user experience by enabling more personalised, intuitive, and seamless interactions. However, balancing accessibility with financial literacy and data security remains crucial.
Trend 3: Labour Market Changes
Hybrid work models have become the standard in many industries, and with the continued advancement of AI, the demand for highly skilled technology professionals is on the rise. At the same time, workplace diversity and inclusivity remain a focal point, as organisations increasingly recognise their strategic business value.
- Impact on Banks: Automated systems are gradually replacing traditional customer-facing bank roles, boosting efficiency. Meanwhile, banks face increased competition for technology experts crucial for AI and big data initiatives.
- Impact on Households: Low-skilled workers are more vulnerable to automation, potentially lowering household incomes, while hybrid work and digital platforms help balance work and family life.
Trend 4: Transformation of Consumer Habits
Younger generations, particularly Gen Z and Gen Alpha, are becoming increasingly conscious consumers, placing a high value on sustainability and technological innovation from the brands they engage with. Furthermore, there is a notable rise in the demand for personalised and experience-driven services, as consumers seek tailored offerings that align with their individual preferences and lifestyles.
- Impact on Banks: To meet the expectations of younger, conscious consumers, banks must embrace sustainability, ESG principles and innovation, using AI and machine learning to offer personalised, seamless experiences. Tailored services and user-friendly platforms will attract tech-savvy, socially responsible clients while retaining current ones.
- Impact on Households: Younger generations’ focus on sustainability and personalisation will lead to financial products that align with their values. Technological innovations will offer seamless, intuitive banking through digital platforms and AI, simplifying financial management and empowering consumers to make informed and conscious financial decisions.
Now, let’s take a closer look at how modern credit management business solutions help banks address these trends effectively and turn the challenges they present into opportunities.
The role of a Rating/Scoring System and Decision Engine
A solid Rating/Scoring System and Decision Engine solution enable automated, fast, and accurate decision-making, which is critical in today’s dynamic and rapidly changing environment.
How does it align with current trends?
- Geopolitical and Economic Tensions: The system enables proactive risk management: with its decision engine, financial institutions can swiftly adjust risk policies and lending strategies, ensuring stability and resilience in uncertain times.
- Technological Innovation and AI: Rating/scoring system facilitates the swift and accurate analysis of new customer risks and automates online credit assessments. This not only enhances customer experience but also reduces operational costs for financial institutions.
- Labour Market Transformations: By automating manual credit assessment processes, these systems reduce the need for human intervention while increasing the speed and accuracy of decision-making.
- Shifting Consumer Behaviour: A state-of-the art decision engine delivers fast, digital responses to evolving customer needs, meeting the demand for seamless and efficient processes.
Key benefits for Banks
- Faster Decision-Making: Loan assessments can be completed within minutes, significantly improving the customer experience.
- Reduced Risk Costs: More accurate predictions lead to a lower ratio of non-performing loans (NPLs).
The role of Early Warning System (EWS)
An advanced Early Warning System empowers banks to take proactive measures against problematic loans before they become non-performing (NPL).
How does it align with current trends?
- Geopolitical and Economic Tensions: Macroeconomic events or geopolitical instability can rapidly impact customers’ financial health. The EWS detects early signals of such challenges, helping banks mitigate losses effectively.
- Technological Innovation and AI: The EWS leverages real-time data such as account movements, delayed payments, or even external market data, so it provides instant alerts on potential risks, enabling swift interventions.
- Labour Market Changes: The EWS also considers changes in customers’ employment situations, such as layoffs or industry-specific downturns, which could affect their ability to meet financial obligations.
- Shifts in Consumer Behaviour: Customers appreciate when their bank takes immediate action to address potential issues. By proactively reaching out and collaborating on solutions, such as restructuring payment plans, the EWS helps foster trust and prevent more significant problems from arising.
Key benefits for Banks:
- Early Problem Management: The EWS enables banks to reach out to customers proactively and offer flexible solutions (e.g., loan restructuring) before issues escalate.
- Reduced NPL Ratios: Early identification and management of potentially problematic customers prevent defaults and protect the bank’s portfolio.
- Real-Time Monitoring: Automated alerts from the EWS support customer service teams by providing timely insights, ensuring faster and more targeted interventions.
The role of Collection Business Solution
A cutting-edge and resilient collection systems provide efficient and customer-friendly management of debt recovery processes, which are essential for banks in today’s uncertain economic climate.
How They Align with Current Trends
- Geopolitical and Economic Tensions: Amid economic challenges, banks must adopt a more empathetic approach, such as offering flexible repayment plans. High-performance collection system supports this while maintaining collection efficiency.
- Technological Innovation and AI: The system automates collection processes, managing communications through digital channels, while offering personalised strategies. AI analyses which approach resonates best with each customer, optimising the process.
- Labour Market Changes: Given the uncertainties in the labour market, customers’ financial situations can change rapidly. A resilient system handles such changes with tailored collection strategies.
- Shifts in Consumer Behaviour: Digital solutions, such as self-service portals and mobile applications, enable customers to manage their debts in a less stressful, more convenient way.
Key benefits for Banks
- Automated and Efficient Processes: AI minimises the need for manual intervention while maximising recovery rates.
- Customer-Friendly Solutions: Flexible options, like instalment plans, improve the overall customer experience.
- Data-Driven Collection Strategies: Data-driven insights help banks identify which customers to approach with mediation or with legal action, optimising resource allocation.
Conclusion
State-of-the-art and reliable Credit Management Business Solutions equip banks with the tools to adapt to global trends, enabling faster, more accurate decision-making through rating, scoring, and decision engines, proactive risk management with early warning systems to reduce NPL ratios, and efficient, empathetic collection processes that improve the customer experience as well as lowering collection costs.
Stay tuned and follow our journey this year! And feel free to book an appointment with our expert anytime.