Key trends for wholesale banking in 2025
Each year Oliver Wyman and Morgan Stanley release a blue paper on the outlook for wholesale banking in the coming 12 months.
Attendees at our Innovation Day event in November were given a special preview of the findings by Oliver Wyman partner, Christopher Rigby.
The previous 12-month outlook, published in 2023, had predicted banks would struggle with restrained growth and elevated costs, while new regulations over capital requirements would further complicate the picture.
But the outlook for 2025 is much brighter, with solid revenue expectations and return on equity forecast to grow.
Firms have the opportunity to make big changes in 2025 that will deliver value for years to come. More than that, they are expected to. Here’s what you need to know about the year ahead.
Strong foundations for 2025
The industry ended on a high last year, despite the headwinds predicted at the end of 2023. Revenues for wholesale banking (defined by OW and MS as investment banking, markets, transaction banking, security servicing and large lending) hit $584bn.
This was the best year for wholesale banking revenues ever and significantly above the long-run average of $520bn.
Overall, revenues grew 7% in 2024, driven primarily by the uptick in interest rates, volatility in financial markets over the uncertain macroeconomic outlook, and underlying corporate demand for lending, products and financing. The positive effects have been felt by all types of institutions, regardless of geographic location.
Oliver Wyman and Morgan Stanley predict that these elevated revenues are here to stay. Return on equity (ROE) is forecast to grow, reaching 14% by 2027, compared to 12% in 2023. That’s materially above the cost of capital, and the first time in a long time that the industry has achieved this.
All this means that firms are in a solid position as the new year begins. But that doesn’t mean they can rest on their laurels.
The need – and expectation – for efficiency
Firms have an opportunity to invest in efficiency as 2025 gets underway. But it’s more than just an opportunity: the market is betting on improved efficiency. A 5% improvement in cost-income ratio is already priced into bank equities for the next 2-3 years.
Christopher explained that “efficiency” projects used to focus largely on short term, tactical initiatives that would deliver value within the current year. These included addressing costs from suppliers, headcount and third-parties.
But this is all changing. The positive outlook means firms have the space to invest in solving some of their long-term structural issues, such as data quality and legacy technology.
The “winners” are already doing this: leveraging their returns to invest in tackling the underlying drivers of complexity within their businesses. These include data architecture, fragmented databases and having multiple platforms for the same task. There’s a big focus on data quality and changing the behaviours around data. Also in question is how firms can leverage their data effectively once quality issues are resolved.
These are big challenges that many firms believe can’t be addressed using the traditional legacy approach of siloed lines of business. The Chief Operating Officers (COOs) Oliver Wyman spoke to are rethinking their operating models.
They want to create muliti-disciplinary teams, bringing together the “Change the Bank” and “Run the Bank” functions. It’s still early days, however: the jury is out on the ideal operating model.
Leveraging technology to deliver efficiency
Technology, alongside rethinking the operating model, will be key for firms looking to deliver on the efficiencies expected of them. Oliver Wyman sister firm Celent forecasts a 6% per annum increase in technology spend over the next five years.
The focus, Christopher explained, is twofold. Firstly, firms are shifting towards enabling productivity through increased use of technology such as data platforms, robotic process automation (RPA) and, of course, AI.
Leaders are thinking about how to scale AI use cases, taking successful sandbox pilots and deploying them enterprise wide. Most firms have dozens of use cases – some have 100 or more – and everyone is trying to work out how to scale.
It’s very early days, because the benefits of automating those use cases haven’t flowed through yet. Firms are still seeing potential everywhere. They haven’t quite worked out how to identify where AI can deliver value.
The second area of focus for firms is tackling outdated technology and the structural issues this creates. COOs are looking to replace their legacy architecture and build scalable platforms across products and businesses. They’re investing in technology like cloud computing to modernise their tech stack, creating something futureproof and resilient.
Initiatives such as standardising APIs, middleware and processes will help them remove a lot of cost and friction from the system.
Conclusion
2025 looks to be a promising year for the wholesale banking industry. Strong revenues will open up space to think about issues that have hampered firms for decades.
Leaders now have the chance to reassess their operational foundations. They can invest in modern and resilient technology and create new operating models based on collaboration.
Download Oliver Wyman and Morgan Stanley’s 2025 outlook, or read more of our Innovation Day insights here.