Banking industry profit margins are potentially facing a significant $170 billion hit from the rise of AI, according a report from McKinsey. And failure to adapt to consumers’ growing usage of artificial intelligence may lead to banks losing billions of dollars in earnings, the report from McKinsey claims. The management consulting firm stated that an increasingly number of bank customers are turning to AI in order to optimise their financial management.
According to the research report, this includes the use of agentic AI tools as well as various autonomous bots. As stated by McKinsey, this may impact the amount that banking institutions make from their customers with low interest accounts.
Pradip Patiath, a senior partner at McKinsey, has recently shared that if you have an AI agent that states: ‘Hey, you could save $2,000-a-year by moving your money,’ and then it proceeds to “automate a lot of the inertia that is in the system today.”
The McKinsey report also mentioned that $23 trillion of the $70 trillion in the consumer banking industry is maintained in zero interest accounts. And unless banking institutions update their product offerings, this may result in a loss of nearly 10% to their bottom line. This, in turn, may lead to average returns for banks below the actual cost of capital.
Although the usage of AI may lead to initial savings of anywhere between 15% and 20% of operating costs, these potential benefits could dwindle over time because of rising competition.
Indeed, AI is playing an increasingly important role not just in the financial sector but also in a wide range of other industries as well. These transformative changes are not just being attributed to advanced AI and machine learning algorithms. They are also being driven by a wider range of disruptive technologies including the anticipated rise of quantum computing.
Once these technologies are sufficiently mature and advanced, the financial landscape will most likely become unrecognizable from its current state. For better or for worse, industry participants need to continue innovating, especially when it comes to combatting systemic threats due to financial crime or the ability of AI to cause harm if used by malicious entities.