Retail Bankers Are Adopting AI for All the Wrong Reasons
By Steve Cocheo, Senior Executive Editor at The Financial Brand
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Retail banking is at a confusing crossroads — and leaders may not be asking the right questions as they decide which way to go.
Key insight: On the one hand, consumers have taken up GenAI tools on their own, to better research and manage their financial planning, product search and decision making.
Alyson Clarke, principal analyst at Forrester, argues that as such AI techniques become mainstream — and they are — institutions risk the loss of banking relationships to the AI, with their products and services becoming commodities,. This could quickly erode relationship banking, and encourage further fragmentation, from the banks’ perspective, and put AI companies and other providers — even the likes of Apple — in the focal position of consumers’ financial decision making, Clarke continues.
On the other hand, many traditional financial institutions have been investing heavily in retail banking AI, but according to Clarke they aren’t doing it in a way that will ensure customer retention nor enhance growth.
Need to Know:
- Earlier this year Forrester predicted that over half of consumers under 50 will use GenAI tools for some aspects of financial decision making.
- Paradoxically, says Clarke, the firm’s research finds that many trust the AI less the more they use it, due to hallucinations and errors. Yet they appear to have ongoing faith that the problems will work out and that they’ll eventually get the advice they crave. They want it to work.
- Delivering the banks’ own response to this may require using AI in roles where banks have traditionally relied on humans — but have been constrained because human-based service has been too costly. This kind of AI would be used to build relationships with more mass retail consumers.
- The greatest mistake banks can make is to treat retail banking AI as an efficiency engine alone. Says Forrester: “Efficiency is not a relationship strategy.”
The AI Misalignment
Many banks still measure results in very traditional ways, including products sold, faster problem solving and more use of self-service channels. She believes that this puts the bank’s attention on the wrong efforts — and can again erode the building of bank-customer relationships.
Key insight: Clarke says it’s critical for traditional institutions to consider why a growing portion of consumers is willing to at least experiment with AI assistants with their finances. And doing so means forgetting what she considers well-meaning but unrealistic concepts of customer service.
“People want help and banks aren’t giving it to them,” says Clarke. “People want to do better, particularly now. But they haven’t been able to get that help, at least not in a low-cost way.”
She adds that most haven’t been able to afford the kind of advice they need or lack sufficient assets to draw the attention of banks’ advisors.
“So, they just get generic stuff,” if that, says Clarke.
AI, on the other hand, has the potential of providing the one-on-one personalization that banks paid much lip service to over the years, but frequently haven’t delivered, according to Clarke.
Clarke sees a mutual solution to both consumers’ and institutions’ challenges in GenAI, if institutions can begin building greater trust with customers and at the same time delivering answers to more individuals.
Read more: Digital Bank Employees Used to be the Stuff of Science Fiction. Not Anymore
AI Is Becoming the Advisor Most Never Had
“Many people haven’t been able to talk to anyone about finances, except maybe friends and family, because they don’t have an advisor or don’t trust their bank and in any event aren’t going to walk into their bank for advice,” says Clarke.
Yet they have been willing to use GenAI to seek guidance. Banks have already begun to recognize that as the number of users increases, their products and services only succeed to the degree that they are recommended by the AI.
Beyond trying to make their products more discoverable by AI, Clarke says banks have been upgrading from basic chatbots to more advanced AI assistants that give the kind of guidance people have been trying to obtain through GenAI.
By itself, this puts the banks in the position of a later entrant in a race that GenAI has already started. She points out that consumers have been using the AI tools for some time, learning how to better prompt the technology while the tech learns more about them.
Key insight: Banks have to examine what they are bringing to this new game and ask how it compares to what GenAI tools have already been providing.
The sticking point: Impartiality. From the consumer’s perspective, GenAI’s role of shopping across the spectrum of providers serves a “best of breed” role.
A bank may put out its own version of what people have been using independently, Clarke says, but “Is it going to look at other providers’ products out in the market and recommend them? I doubt that.” This perception automatically puts banks’ own AI guides in a lesser position compared to GenAI driven by third parties.
Key insight: Hovering out there is the new, improved Siri that Apple is expected to finally drop any day now. Before long people will be using it in the same way they’ve been tapping third-party GenAI, Clarke predicts.
Clarke says that when a tool becomes part of the Apple ecosystem, adoption frequently rockets — and across generations.
“People who may have never used a third-party AI tool will suddenly have smarter Siri on their iPhone becoming their personal financial assistant, ruling over their Apple Wallet,” says Clarke. “It will have all of their bank accounts and cards and be able to see all of their transactions. We’re not there yet, but you can see the future.”
Read more: How to Compete When AI Controls Your Customers’ Financial Decisions
How Can Banks Compete with Ubiquitous GenAI Tools?
Offering AI tools that approach products and services in an ecumenical way would be a hard swallow for most banks, but Clarke says some may find a way to go in that direction. They will be an exception.
But for most, institutions will have to create bank-owned AI advisors that build on the relationships they already had with their customers. In some cases the bank-offered tools may be used on their own, but they may also be interfacing in some way with the GenAI that many consumers are already tapping.
The big reveal: “You’re not going to be the sole institution, the sole AI that most of your customers go to for advice and guidance,” says Clarke. “So, what will you be better at than third-party tools?”
Banks have been talking for years about the gold mines of data they are sitting on, and how they can use it to better serve customers. Now is the moment that that can really happen, via AI, Clarke believes. That is the one part of this race where they have a head start, she says.
That data, and the relationship they already have with those customers.
Key point: “Your bank should know more about me than that third-party AI tool,” says Clarke.
Read more: How Citizens Bank Will Amp Branch Performance with Human-AI Teamwork
Changing Your Bank’s Retail Banking Mindset
Banks will have a complicated shift to navigate, according to Clarke. To hang onto the mass retail consumer base, they will need to find ways to turn their AI entries into a non-human equivalent of the ideal personal banker. People who don’t already have one won’t gain one, but the idea is that the technology will become what they wanted.
But banks will have to make it clear to customers that the technology will be more than simply an engine for generating more sales and product enrollments. A genuine advisory role must be plain to see or it won’t fly.
Key insight: Clarke doesn’t think banks have to become price-cutters to survive in an AI-driven market.
“Price really is important in consumer financial services,” she says, “but as long as you’re in the ballpark, you don’t always have to be the cheapest or be offering the highest deposit rate or the lowest loan rate.”
Where the AI entry is based on pre-existing relationships, she continues, customers “will want to do business with your institution because they know the bank and trust the bank versus somebody else who is offering them a cheap price.”
Read more: How BECU’s AI Financial Advisor is Moving Beyond Product Answers to Customer Handholding
Adopting Smarter Metrics Will Mean Everything for Banks’ AI Success
Clarke says the most important first step for banks in this context is to change their thinking while they are changing their technology.
“Our data is telling us that most organizations adopting AI are focusing on productivity metrics, like cost reduction, usage levels, adoption trends, and so forth,” says Clarke. “Banks have to shift from productivity and efficiency metrics toward also using relationship health indicators.”
Examples of such indicators: customer engagement, wallet share, long-term loyalty trends.
Changing the perspective on what institutions expect out of AI tools will automatically change how they design the tools, Clarke says.
AI assistants built this way will look different, she insists. “The AI agent won’t just be doing ‘stuff’ — it will build and learn and become a trusted advisor for the customer.”
Clarke adds that adopting this mindset demands patience. Building from a relationship viewpoint won’t produce immediate sales that can be touted in company and analyst meetings.
But she believes trust will pay off.
“Customers are more likely to trust you with information they would not tell other firms, which means you will get more, and perhaps better first-party data to help understand the customers,” says Clarke. “And they will more likely pay a premium for your products and services.”
Read next: How Amex is Using GenAI to Augment Human Service for the Platinum Card Customers
