Show me you know me

Gavin Allen: The questions you’ve said every bank executive must answer are, “What business knowledge do we own that no AI model can replicate, and what’s our engineering plan to put our unique knowledge inside our model?” Why is that?

Jim Marous
Co-publisher, The Financial Brand
Host, Banking Transformed podcast

Jim Marous: Soon, it will be AI competing with AI. In other words, people won't search for the best bank themselves. Their AI agents will. Increasingly will compete for the attention of those agents, using AI of their own to understand customers and respond with the right products at the right time.

As agents make switching from one bank to another “frictionless,” banks will have to think much more carefully about which customers are genuinely loyal, which are open to better offers, and which see a bank simply as a place to park their money. Most financial institutions still focus mainly on enhance back-office efficiency. But in the AI era, success will depend on using AI to strengthen relationships – before a customer’s AI decides it has found a better offer somewhere else.

Gavin: Do bank execs understand this challenge?

Jim: Our research suggests banking executives are aware of what will happen and how to solve it. The gap is execution. Banking is comfortable improving efficiency because that's low risk. Using AI to build new relationships or generate new revenue is much harder. But that's where the opportunity is.

Gavin: So, AI isn’t really an efficiency story?

Jim: Exactly. Most banks are asking how AI can reduce costs, when they should be asking how it can strengthen customer relationships and create new revenue Financial leadership will be determined by which banks ask better strategic questions about their business and their customers. The power of those questions is enormous.

Gavin: Who is best placed to adapt to this new environment?

Jim: The most progressive institutions are the smallest, which adapt quickly to market shifts, and the massive ones with money to make the necessary changes. Middle-market banks are the most vulnerable because their execs have been successful for a long time and pat each other on the back: they’re making money and it’s all going well. Until it isn’t. The reality is that the consumer is now steering the ship. Bankers are just passengers.

Gavin: So, are those middle-sized banks unwittingly steering towards icebergs?

Jim: Yes. And you just don't know how big and deep that iceberg is. For the first time, automated interactions on the internet now outnumber human ones, and they're growing faster. Increasingly, AI agents are interacting with online services more than people do. What are banks doing to protect themselves from simply becoming commodities?

Gavin: Will we see more banks disappear?

Jim: Yes, more than at any time since the Great Depression. Last year, we saw the highest level of US bank consolidation in decades, and I wouldn't be surprised if that increased dramatically over the next four years. Many mid-sized institutions will merge simply to achieve the scale and resilience they'll need in an AI-driven market. Resilience, in this case, means being agile enough to react quickly to market changes; sitting on the sideline to see who jumps first is old school. When I ask bank execs what keeps them up at night, they say, “That a handful of people in a garage could be building what I have now, and be on every street in another one or two quarters. The most agile, progressive digital banks spend more time using their data to expand and deepen customer relationships.

Gavin: Are banks doing enough with that data?

Jim: Not really. Banks have plenty of customer information, but they rarely act on it. Data is trapped in silos. Instead, everyone serving the customer should have access to the same insights. My local takeaway restaurant recognizes my phone number and asks if I’d like my usual order. An airline thanks me for my loyalty with a handwritten note. But when I visit my bank every quarter, they just ask, “How’s your business?” They have to do better.

Right now, banks may use data internally. But customers want you to do something for them. AI could help banks understand my business, my industry, and even my competitors. They could suggest ideas I hadn’t considered. But they’re so afraid of getting it wrong, they end up doing nothing. They don't want to manage risk; they want to avoid it.

If you're a bank, you need to show you know me. Otherwise, you become a secondary account of little value – one that lacks direct deposit or investment services and is easily turned off.

Gavin: Nearly every bank seems to have AI pilot projects underway. Why are so few seeing real results?

Jim: Our research suggests 90% of financial institutions are doing something with AI, but only 7% say they’re getting any measurable impact. In reality, the figure is probably closer to 20%, as most banks don’t measure impact correctly. If you don't have a clear North Star, you won't know if you've reached it.

Slower-moving institutions tend to focus on internal goals: reducing risk, cutting costs, modernizing the back office. Leaders focus on the customer. They ask, What does your day look like? How do you prefer to bank? Customer expectations change all the time, and banks have more than enough information to keep up. The question is, do they use it? Companies such as Huawei prioritize the customer because they know that everything else will follow from that.

Gavin: What about speed – the expectation of instant and reliable delivery?

Jim: That's where banking resilience will be defined. If oil prices skyrocket, do you know which customers will be affected, and how to help them?

AI also lets us serve customers who were once considered unprofitable. Right now, banks look at credit scores. But that’s old-fashioned. I’ve been with you for five years, always paying you first – and banks know the order in which customers pay. But you’re not giving me the time of day? Well, someone else will.

Customers expect banks to move at their speed, not the other way around. And banks have to act. If a customer starts moving automatic payments to a digital bank, that’s not a data point, it’s a call to action. There is a silent attrition happening to banks every day. They say, “The customer’s account is still open, so we’re doing okay. “ But they’re really not.

Gavin: Will tech companies ultimately shape the future of banking more than today’s banks?

Jim: In many ways, they already are, because they understand customer relationships so well. Companies like Google and Amazon have enough data to know my habits better than I do. I use their services and I trust them. If they offered me a bank account, I’d probably take it.

Successful leaders embrace change, take risks, and look for opportunities. They re-invent themselves. They have to if they want to attract the best employees, because who wants to work for a dying industry? That’s one reason smaller institutions often compete so effectively. They aren’t constrained by “the way we’ve always done things,” so they’re free to innovate.