From technical debt to digital dominance: Banking’s roadmap for transformation

With economic growth expected to be modest going into 2026, banks must find opportunities to grow profitability and market share through process optimization, enhanced customer experiences, and automation. Artificial intelligence (AI) is a key driver in all these areas, but the industry has much to do to lay the foundation technology needed to realize AI’s potential. Institutions that establish a foundation of high-quality data and modern cloud infrastructure will have an advantage.

The entire sector is focused on the new breed of young customers whose priorities include real-time payments, robust mobile capabilities, and AI-driven financial advice. These digital natives are less loyal than the generations that preceded them. Success in reaching them will require continuous innovation and personalization. Here are seven trends that we believe will dominate the industry through the remainder of 2025 and 2026.

Macroeconomic uncertainty drags on profits

The good news is that inflationary pressures have subsided. However, the geopolitical environment has created uncertainties that complicate long-term planning. Most experts are calling for GDP growth of between 1.5% and 2% in the U.S., but forecasting is complicated by the unpredictability of tariffs and tensions between the Trump administration, regulators, and the Federal Reserve.

Net interest income for U.S. banks is expected to decline due to higher deposit costs stemming from increased competition and consumer reluctance to take on more credit in an uncertain environment. Non-interest income derived primarily from fees is an area of opportunity. Banks are experimenting with innovative pricing and expanding value-added services in retail banking, payments, and wealth management.

These initiatives come with a cost in the form of elevated expenses for technology and talent. Deloitte expects the industry’s average efficiency ratio to hover around 60%, up from a low of 56% in 2018. Commercial real estate (CRE) is a particular concern for regional banks. The net charge-off rate for those loans has been trending upward for the last three years, although it is well below its 2010 high.

Large, diversified banks have an edge in an uncertain environment thanks to their multiple revenue streams, brand presence, and liquidity. Mid-size and regional banks may face tougher competition for deposits and higher CRE exposure.

AI is a game-changer across the board

AI will transform all aspects of banking from the back office to the local branch. Citigroup has estimated that AI could boost global banking profits 9% to $2 trillion by 2028 by enabling efficiencies such as increased approval rates, faster processing, and personalized customer experiences.

Banks are already integrating AI into core functions, such as fraud detection, risk management, regulatory compliance, and loan processing. Technology can all but eliminate manual tasks such as data entry and document verification by extracting structured information from raw text. AI minimizes human error, leading to more reliable outcomes in underwriting and risk assessment. Its ability to analyze vast amounts of data from a wide range of sources yields more accurate credit assessments and better lending decisions.

Generative AI is also driving a new era of hyper personalized banking. The robotic customer interactions that online banking fostered 30 years ago can be replaced by empathetic, conversational services tailored to individual needs. Data analytics, AI-powered agents, and embedded finance platforms can deliver proactive recommendations, while customer-facing employees can be freed from paperwork to engage with customers.

While Artificial Intelligence (AI) is poised to be a game-changer—potentially boosting global banking profits by 9% by 2028 via efficiencies and hyper-personalized customer services—its potential is severely constrained by aging legacy infrastructure and technical debt. Nearly six in ten banking leaders see legacy infrastructure as the top challenge impeding growth, with the majority of tech budgets spent on maintenance rather than innovation.

To achieve dominance, banks must accelerate AI adoption (moving beyond pilots) to streamline core functions like fraud detection, risk management, and loan processing. Operational efficiency is now a necessity, driving the use of intelligent automation and AI agents to digitize manual processes and improve productivity.

Institutions must also prioritize robust data strategies and open banking to deliver the seamless, mobile-first experiences demanded by digital natives and millennial business owners, who are less loyal than previous generations.

Finally, addressing a complex regulatory environment (including Basel III and AI ethics) and mitigating risks associated with embedded finance and rising cyber threats are essential for sustainable growth. Iron Mountain helps institutions modernize infrastructure, eliminate costly paper-based retention burdens, and enable agile, data-driven decision-making.