As we approach 2025, financial institutions are gearing up for new challenges and opportunities. It’s time to align budgets with business objectives—strategic planning in action.
Not surprisingly, there are competing voices over top priorities for the upcoming year:
- Continued AI evolution.
- Enhanced data security.
- Evolving regulatory requirements and guidelines.
- Expanding yield margins.
- Assessing and managing collateral risk.
Managing risk is an ongoing challenge. (Think cyber hacks, fraud losses, declining consumer credit, and uninsured collateral.) Becoming resilient to risk is like building a muscle—it needs consistent conditioning.
So, what is risk resilience? While risk management evaluates, categorizes, and responds to risks, risk resilience takes a forward-looking approach. It’s a paradigm shift from merely cutting losses to survive to a steady, proactive stance amidst external challenges. Risk management is essential for minimizing losses. However, if you stop at simply managing risk, you may miss opportunities to strengthen and grow your business.
We anticipate that 2025 will bring some lingering challenges as well as new ones. Nonetheless, we remain optimistic that our clients and the financial industry as a whole will thrive under pressure and demonstrate resilience—together.
4 Risks to Consider (And How to Build Resilience)
- Collateral Risk
The current economy is causing vehicle affordability issues for borrowers. Insurance premiums have increased 30% compared to two years ago, and there are now 28 million uninsured drivers on the road. Additionally, claims are surging in both coastal and non-coastal states in the aftermath of Hurricanes Helene and Milton. Uninsured and heavily-damaged collateral brings significant risk exposure. Do you know your institution’s portfolio percentage of uninsured collateral? If not, now is the time to assess your exposure. Real-time insurance tracking can help pinpoint the risk from uninsured collateral. - Loss Risk
Today’s account holders often choose account diversity over loyalty to a single financial institution. As they move their money around more frequently, financial institutions face the risk of deposit decline.
Is your credit union or bank utilizing AI to maximize liquidity through omnichannel deposit acquisition? Artificial intelligence isn’t just for generating insights; it’s also driving deposits for credit unions and banks at a remarkable rate. This is no time to be tight on liquidity. If deposits are an area of weakness, it may be time to explore alternative growth strategies. - Compliance Risk
State-level legislation (such as California’s Assembly Bill, which tightens regulations on GAP waiver sales) and stricter parameters from the CFPB put lenders at higher risk for compliance breaches. When it comes to compliance, a proactive approach is proving more cost-effective. Enormous fines can wipe out profits, and allegations or class-action suits can damage reputation and brand.
Stay current with evolving regulatory guidelines and compliance updates. Monitor what other states are legislating around ancillary products, insurance, recovery measures, and cybersecurity, and proactively implement controls to stay in compliance ahead of mandates. - Cybersecurity Risk
Cybersecurity risks are manifesting in two main ways: large-scale, malicious data breaches and slow leaks from payment rail or credential security failures (e.g., ACH fraud, magnetic stripe fallback fraud).
No financial institution wants to face either scenario. The most proactive defense against data breaches is adopting enterprise ZTA protocols. While defenses against slow leaks should include strong controls, the best protection against incremental losses involves educating cardholders and account holders on safeguarding their credentials.
The Cybersecurity and Infrastructure Security Agency (CISA) envisions a “secure and resilient infrastructure for the American people” in its two-year strategic guidelines. Now more than ever, the protocols and controls your financial institution employs impact the broader security of our nation.
Building Strategic Resilience
Risk management, paired with a forward-thinking resilience approach, is a critical component of strategic planning—and a true competitive advantage. As you fine-tune your risk management infrastructure for 2025 and beyond, adopt a risk resilience mindset. How resilient will your bottom line be against the unknown challenges of 2025?