The Great Banking Divide: Why Only 10% of Banks May Survive AI

Renowned futurist Brett King and CornerstoneAdvisors' Chief Research Officer Ron Shevlin explore how artificial intelligence and evolving consumer preferences are reshaping banking — with estimates that only 10% of banks are prepared for the AI-driven future.

By Justin Estes

Published on December 19th, 2024 in Artificial Intelligence

As technology reshapes financial services, traditional banks face mounting challenges from fintech disruptors, evolving consumer behaviors and the transformative potential of artificial intelligence.

On a recent episode of the Banking Transformed podcast, host Jim Marous spoke with renowned futurist Brett King and Cornerstone Advisors Chief Financial Officer Ron Shevlin about how financial institutions must adapt to survive in an increasingly AI-driven future.

Q: Why is artificial intelligence making senior banking executives nervous?

Brett King: What’s making them very nervous is artificial intelligence. Just the scope of it potentially, and the fact that most bankers, at least in senior executive positions, don’t really understand the implications of that from a technology or culture perspective. I know that’s keeping bankers up at night for sure.

In terms of what’s exciting, I do think that reframing banking and reframing the way it exists in the future state of our economies, particularly with autonomous systems and so forth, is the biggest opportunity in banking in the last 50 years. But again, in terms of the number of bankers who are prepared for this and the number of banks that are prepared for this, there’s only a handful.

On the flip side, meaning on the fintech side of this, then that’s a very different scenario. Fintechs see this as their opportunity to shine, come in, and develop next-generation AI resilient infrastructure. And they have a tech stack advantage at this point: they’ve got all-new tech.

Q: How many banks are truly prepared for AI implementation?

King: If I counted the number of banks who have innovated and kept pace with just the user experience of the best fintechs, there might be 10 in the world. And that concerns me because when you start talking about AI and the tech stack requirements for running AI, I think it’ll be generous to say 10% of banks are going to make it through this phase.

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The Shifting Nature of Banking Relationships

Q: How have younger consumers redefined their banking relationships?

Ron Shevlin: You can’t even ask them anymore, ‘Who’s your primary bank,’ it’s a meaningless concept. They have a primary payment provider, they have a primary this, a primary that, and it’s very, very granular. There’s a primary credit score provider; there’s a primary this.

The message that I’m trying to get across to banks is that, yeah, look, we were digital-first 5, 6, 7 years ago, but now, the younger consumers are not just digital-first, they’re fintech-first — and you’re second.

Q: What does the dramatic growth of fintech providers tell us about changing consumer preferences?

King: If you look at the top 20 fintechs in retail, they now account for 4 billion customers. The top 20 retail banks account for about 2.7 billion customers. If you look at growth over the last five years, compound annual growth rate in customer numbers, the fintech players have grown 200%. A lot of that’s come out of China, of course, with players like WeBank and NEWBANK, they’ve dominated. But you’ve seen about 45% revenue growth across the fintech space compared with 15% for banks and just 3% customer growth for traditional banks.

Q: Are these growth numbers telling the whole story about fintech success?

Shevlin: Look, if you look at the history of business and technology over the last 50 years, we have one Microsoft, we have one Google. And yes, we have, in the U.S., one Chime, and we’ve got a Revolut and a NEWBANK in Brazil. I think there are too many folks who look at the success of a NEW BANK, the success of a Revolut, even the success of a Chime in the U.S., and go, yes, that’s the fintech revolution.

No, it isn’t the fintech revolution. It’s the success of that individual organization that’s managed to create the moats that they needed to compete, to get the traction and the customer growth.

Dig deeper:

The Chase Effect

Q: How does Chase’s success impact the competitive landscape?

Shevlin: I’m a big Chase fan; my boss accuses me of being a Jamie Dimon groupie. But listen, I think you’re right about the branch-struck approach. And I have written that just because Chase is investing a lot in branches doesn’t mean the rest of the banks should follow. They would love for that because there’s no bigger waste of money for a lot of the other institutions to throw that kind of money at branches.

But listen, they’ve also done a great job of somewhat quietly moving into the embedded finance space as well. With several other large banks like Synovus and Fifth Thir, Fifth Third acquired an embedded banking platform and has been moving into that space.

Q: Why are digital banking platforms, rather than core providers, the main barrier to innovation?

Shevlin: Banks have complained about their core providers for years, but it’s a nice scapegoat. What really hampers a lot of financial institutions is not their core provider but their digital banking platform. If you consider what the digital banking platform does, it creates a digital instantiation of an analog product, the checking account. And it does not allow for a lot of product innovation for banks.

I do think that there are a lot of folks working on that issue and challenge, but honestly, I still think even the sidecar stuff is not the long-term solution to this. I think we need a new digital banking platform altogether, and that’s easily five years away, at least from a U.S. perspective.

The Future of Autonomous Banking

Q: How close are we to AI-powered financial management?

King: When you’re talking about what you would have someone in a call center handle for you, we’re most likely very close to that. In fact, we can see evidence of that fairly quickly. As long as you can hook into an API and have some element of controls over the rails that execute a payment, for example, or transferring money or whatever it might be, then we’ll probably see some of those things emerge over the next couple of years.

But when it comes to more complex instances, for example, the AI actually handling the payments rails and choosing the optimal payments rails and so forth – no, we’re quite away from that because the technologies like Chat GPT, Claude, and so forth that we’re using to underpin this, they have not been trained on financial services data.

Q: What regulatory and infrastructure changes are needed for autonomous banking?

King: You’re going to need machine-readable finance; you need machine-readable banking. So, this is what we’d call smart contracts. And if you’re doing cross-border trade, that’s most likely going to have to be central bank digital currencies or wholesale CBDCs because they require them to mirror trading agreements and mirror trading blocks.

The simple truth is you’re not going to be able to run smart contracts on a banking core system, and you’re not going to be using fiat currency. So, none of the historical competencies you have built for traditional trading systems are necessarily going to carry you into that new era.

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Trust and Transformation

Q: How is consumer trust in banking institutions evolving globally?

King: In places like Brazil, China, India, and so forth, as well as ASEAN and even Europe, trust has changed. Trust is now built around utility. This is how people are describing the way they transfer money with Revolut or Wise. This is how people describe their trust in the Alipay mobile payment system or WeChat Pay in China, in NEWBANK in Brazil, or PIX and UPI rails in India and Brazil, for example.

And if you’re looking at AI automated payments, you’re going to need real-time rails. So, this is not an infrastructure yet embraced in the United States. So, you don’t have that same shift or transference of trust that you have in these other economies as yet based around utility. But it has to happen at some point.

Q: Do community banks still have a role in this evolving landscape?

Shevlin: I don’t think there’s an easy yes or no answer to that because I lean to actually, no, they’re not at risk because of this. The reason is that, in the U.S., at least, most financial institutions are community-based.

Now, I argue a lot that the notion of community is changing from a geographic construct to an affinity construct. But the reality is, if you’re a small business owner, where are you going to get money? Generally, it’s that local bank, you know, that local banker.

The Technology Investment Challenge

Q: What’s the real challenge in implementing new technology?

Shevlin: We made a big investment in buying Adobe’s personalization platform, but we didn’t make a big investment in deploying Adobe’s personalization platform. And that could have been any vendor, not just Adobe. It wasn’t Adobe’s fault there; it was the organization’s fault to recognize that you invest to acquire, but you have to invest to implement and deploy.

Q: How should banks think about AI’s impact on their operations?

Shevlin: This is now building on top of that infrastructure and capability. We could not be doing the things that we do today with AI had we not gone through PCs, local area networks, the internet, mobile phones, and the cloud, and now, we can build this on top of it.

The banking institutions, and really across every industry, the companies that will be the ones that will hurt the most are those that have not deployed cloud, have not gone mobile, and have not done a good job of leveraging the internet and the connectivity.

So, there’s a whole bunch of stuff, and what I try to tell these institutions is it’s not just automating lending. It’s not just AI and lending, and it’s not just AI and customer service — it’s AI across everybody’s job. It’s going to change the way we schedule meetings. It’s going to be the way we write things; it’s going to be the way we do marketing.

Q: What’s the biggest opportunity for traditional banks moving forward?

King: Having said that, there is also an argument for decentralization, which would allow community banks and so forth to participate if they have that sort of technical agility to do that. The more automation we put into the system, the less we’ll probably rely on traditional institutions.

And that’s difficult because we want the utility and the convenience that all of this technology brings us, but at the same time, how do we preserve cultural elements of society that aren’t technologically framed? That’s something that we see the tension right now, but like in the populous movement in the U.S. and other countries where we’re trying to reinforce traditional values.

For a longer version of this conversation, listen to "Banking 2025: Industry Experts Map the Path Forward", a podcast with Jim Marous, available here. This Q&A has been edited and condensed for clarity.

About the Author

Justin Estes is an award-winning writer, strategist, and financial marketing expert with expertise in banking, investments, and fintech. His clients include the NYSE, Franklin Templeton, Credit Karma, Citi and, UBS, and his work has appeared in Forbes, Barrons and ThinkAdvisor as well as The Financial Brand.

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