S3 | E11: Q1 Pulse Check: Kirsten Muetzel Shares 2025 Financial Services Vital Signs

As the year 2025 unfolds, the financial services industry is experiencing shifts that few could have fully anticipated at the beginning of the year. From regulatory changes to the rapid advancement of artificial intelligence (AI), and global economic instability, financial institutions face a dynamic environment filled with both opportunities and risks. Kirsten Muetzel, Founder of KLM Advisory LLC, joins host Ed Vincent to discuss a quick pulse check on how Q1 unfolded and her predictions for the remainder of the year.

Unforeseen Developments in 2025

One of the most unexpected developments in 2025 has been the sudden withdrawal of financial support for key regulatory initiatives. While changes in regulatory leadership often bring shifts in priorities, the abrupt nature of funding cuts has raised concerns about the long-term impact on the safety and stability of the financial system. This could result in challenges to ensuring fair and sound practices across the industry.

Another significant change is the accelerated adoption of AI within the financial sector. While AI has long driven operational efficiencies, 2025 marks its deeper integration into strategic decision-making. This trend offers benefits such as enhanced compliance monitoring and operational optimization, but it also brings risks, particularly in areas like credit scoring, fraud detection, and risk management. Without proper oversight, AI models may inadvertently lead to biased outcomes or systemic weaknesses.

“The integration of AI into decision-making processes in financial institutions has accelerated faster than expected. While this brings efficiencies, there are risks we must manage, particularly in areas like fraud detection and risk management." - Kirsten Muetzel, Founder, KLM Advisory LLC

In addition to technological changes, global macroeconomic factors are continuing to create uncertainty. Rising geopolitical tensions, particularly between the U.S. and China, are fueling trade restrictions, supply chain disruptions, and broader economic instability. These factors are influencing everything from foreign exchange markets to capital flows, affecting both large banks and FinTech companies that rely on stable global conditions.

Strategic Planning in an Unpredictable Landscape

Given the volatile environment, financial institutions must approach strategic planning with greater flexibility. A traditional long-term plan may be less effective in a landscape characterized by uncertainty and rapid change. Instead, an iterative approach—one that emphasizes adaptation and continuous learning—is increasingly necessary.

Rather than attempting to predict the future with certainty, banks and FinTechs should focus on setting clear directions while remaining prepared to adjust plans as new information emerges. Scenario planning should be a core element of strategy, allowing institutions to explore different potential outcomes and prepare for a variety of contingencies. This approach ensures that financial institutions remain agile and capable of responding quickly to unforeseen challenges.

Improving Collaboration Between Banks, FinTechs, and Regulators

Kirsten explains that effective collaboration between banks, FinTech companies, and regulators still remains one of the key challenges in the financial services sector. Banks and FinTechs are often driven by a desire for innovation, while regulators tend to prioritize risk management. This misalignment can create friction, slowing down the pace of innovation and impeding the sector's ability to evolve.

"Banks and FinTech companies must engage with regulators early on when developing new technologies, particularly in areas such as AI and data analytics. Clear communication can help bridge the gap between innovation and regulation." - Kirsten Muetzel

To improve collaboration, financial institutions must engage regulators early in the development of new technologies or products, particularly those driven by AI or advanced analytics. Regulators should provide clearer pathways for dialogue, allowing for experimentation within controlled environments. Regulatory sandboxes and industry working groups can be valuable tools for fostering collaboration, offering a safe space for innovation while ensuring appropriate oversight.

Are Regulators Focused on the Wrong Risks?

Recent discussions around regulatory priorities have raised concerns that agencies could be focusing too heavily on certain risks while neglecting broader threats to the financial system. While the rise of AI and new FinTech models is certainly important, the financial sector is also facing more immediate challenges, such as geopolitical instability, inflationary pressures, and liquidity concerns.

For regulatory bodies to be effective, they must evolve alongside the industry. Financial services have seen significant changes, such as the rise of embedded finance and Banking-as-a-Service (BaaS), which are not always well understood by traditional regulatory frameworks. Agencies need to focus on the real risks these innovations bring—like operational resilience and fraud prevention—rather than applying outdated regulations that may stifle progress.

Final Thoughts

With only three months in, the 2025 financial services industry has seen rapid change and unpredictability. Financial institutions must embrace a flexible approach to strategy that prioritizes risk management, regulatory compliance, and continuous adaptation. By fostering improved collaboration between banks, FinTechs, and regulators, the industry can drive innovation while maintaining stability. Ultimately, success will depend on the ability to evolve, learn, and respond quickly to new challenges. Institutions that can adapt will be better positioned to thrive in an increasingly complex and dynamic financial environment. 

Stay tuned as we plan to bring Kirsten back to the show to share more insights around strategic planning to better stay ahead of the curve during these unpredictable times. Watch the full epsiodes below or please contact us to learn how we can help.