Building the AI Bank of the Future
Renny Thomas, Senior Partner, McKinsey, Mumbai What are the new technology disruptions in the banking sector? Banking is at a pivotal moment. Technology disruption and consumer shifts are laying the basis for a new S-curve for banking business models, and the COVID-19 pandemic has accelerated these trends. Building upon this momentum, the advancement of artificial-intelligence (AI) technologies within financial services offers banks the potential to increase revenue at lower cost by engaging and serving customers in radically new ways, using a new business model we call “the AI bank of the future.” The articles collected here outline key milestones on a path we believe can lead banks to deeper customer relationships, expanded market share, and stronger financial performance. What are the current challenges banking sector is facing? The opportunity for a new business model comes as banks face daunting challenges on multiple fronts. In capital markets, many banks trade at a 50 percent discount to book, and approximately three-quarters of banks globally earn returns on equity that do not cover their cost of equity. Traditional banks also face diverse competitive threats from neobanks and nonbank challengers. Leading financial institutions are already leveraging AI for split-second loan approvals, biometric authentication, and virtual assistants, to name just a few examples. Fintech and other digital-commerce innovators are steadily disintermediating banks from crucial aspects of customer relationships, and large tech companies are incorporating payments and, in some cases, lending capabilities to attract more users with an ever-broader range of services. Further, as customers conduct a growing share of their daily transactions through digital channels, they are becoming accustomed to the ease, speed, and personalized service offered by digital natives, and their expectations of banks are rising. What are the opportunities AI presents for Fintech? To compete and thrive in this challenging environment, traditional banks will need to build a new value proposition founded upon leading-edge AI-and-analytics capabilities. They must become “AI first” in their strategy and operations. Many bank leaders recognize that the economies of scale afforded to organizations that efficiently deploy AI technologies will compel incumbents to strengthen customer engagement each day with distinctive experiences and superior value propositions. This value begins with intelligent, highly personalized offers and extends to smart services, streamlined omnichannel journeys, and seamless embedding of trusted bank functionality within partner ecosystems. From the customer’s point of view, these are key features of an AI bank.
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