Warning: AI Fatigue is Fueling a CX Backlash in Banking
By Nick Holland, Contributor at The Financial Brand
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Need to Know:
- Consumers are hitting a wall with digital banking experiences that feel automated, generic and increasingly tone-deaf.
- AI fatigue is real, and far fewer households are comfortable with machine-led service than the industry likes to admit.
- Community institutions are gaining momentum by delivering what big banks can’t: credible digital tools backed by real humans who actually care.
- “Personalization” at scale is falling flat — customers want authenticity, not algorithms pretending to know them.
- The winners ahead won’t pick between tech and people; they’ll weaponize both, using digital to surface opportunities and humans to close the trust gap.
Mark Cuban recently coined a phrase that captures the growing unease of digital inauthenticity: the “Milli Vanilli effect.” Just as the 1980s pop duo was exposed for lip-syncing, consumers are catching on when brands substitute authentic human interaction with digital fakery.
Digital fatigue is real, with AI being at the forefront of customer disenchantment. Only 17% of US households are “very comfortable” using AI-powered technology in banking, while 22% reject these services outright, according to RFI Global. After years of digital-first domination, customers may be seeking the very thing community financial institutions do best—genuine human connection at a local level.
Why consumers are experiencing digital banking fatigue: The pattern is familiar across industries: digital experiences that start strong, then steadily degrade as companies prioritize cost-cutting over satisfaction. In banking, this manifests in frustratingly specific ways: chatbots that loop through unhelpful responses, automated fraud alerts that lock accounts without a path to resolution, and phone trees that make reaching a human nearly impossible.
“I think consumers are flexible and open to more technology to help them facilitate transactions they control,” observes Myra Thomas, banking analyst at eMarketer. “But once the transaction becomes emotionally based, such as getting information on a mortgage or dealing with financial stress, people want to deal with people.”
Community Banking Digital Transformation: Human-Centered, Not Human-Optional
The path forward for community banks and credit unions isn’t choosing between digital efficiency and human service or retreating to nostalgia for branch-based banking. It’s investing strategically in both.
Richard Dedor, VP of Marketing at Premier America Credit Union, describes his institution’s journey toward a hybrid service model. At the core was the “eating your vegetables” requirement of true digital transformation: fixing foundational data infrastructure before adding new capabilities.
“We didn’t put fancy new toys in the hands of employees,” Dedor recalls. “We fixed the plumbing on the back end first.” The payoff came through sustained growth, not despite the back-end focus, but because of it.
“It’s not only leading digital transformation, but digital transformation with human capacity behind it,” Dedor explains. “For organizations that invest in the digital experience, it takes investment, strategy and human capital to make it work.”
This approach corrects a fundamental strategic error many institutions make: treating digital and human channels as separate experiences rather than complementary capabilities.
Dig deeper:
- The Urgent Leadership Playbook for AI Transformation
- Digital Made Banking Fast and Easy. AI Will Finally Deliver Intelligent Banking
- 10 Practical Prompts to Fight the Rise of AI ‘Workslop’ in Bank Marketing
Credit Union Member Experience: Continuity and Choice
Adam Westley, chief revenue officer at Digital Onboarding, draws a crucial distinction between what large banks call personalization and what customers actually experience: “For larger institutions, personalization involves using a person’s name and slotting them into a generic customer segment. That is consistency, not authenticity.”
DJ Seeterlin, chief innovation and strategy officer at Chesapeake Bank, recalls feedback that illustrates the continuity advantage smaller institutions can deliver: “I was chatting online, then called in—the same person answered the phone.” This seamless handoff is nearly impossible for large call centers to replicate.
Dedor is implementing this philosophy at Premier America through intelligent chatbot design. “We’re rebuilding our chatbot to make it easy for people to get the information they want. If you just want your balance or recent credit card transaction, you don’t need a human for that. But if you do want to talk to a human, we want to make it easy—and unlike some larger players, to get to that human quickly.”
The goal is continuity and choice: customers shouldn’t have to repeat themselves when moving between channels and they shouldn’t be forced through automated systems when they’ve already decided they need human help.
Why Empathy Is a Credit Union Competitive Advantage
Geographic proximity enables genuine empathy that algorithms can’t replicate. Rajesh Patil, CEO at Digital Agents Service Organization (CUSO), offers an example: “When there’s a disaster in a community, an AI chatbot doesn’t know what happened. But a local branch employee knows and can say, ‘I understand. Let me help you.'”
Jim Perry, senior strategist at Market Insights, Inc., experienced this firsthand. When his account was compromised, the banker didn’t immediately go into fix-it mode. “The first thing she said was, ‘Oh my God, I’m so sorry. How are you doing?’ Empathy will always trump what you can do technically.”
This represents what Perry calls “customer-in” rather than “bank-out” thinking. “As long as we’re product-focused, we’re going to keep missing what consumers are telling us.” When someone escalates to in-person service, something emotional is usually driving it, and it’s a problem they don’t want to sort through with technology.
Using Data to Strengthen Human-Centered Banking
The most sophisticated community bank strategy uses technology to identify opportunities while humans deliver the insight. Dedor describes Premier America’s approach: “Our goal is to use the data we have with technology on top of it to surface opportunities that are real, relevant in real time, and then put that in the hands of the human to make that offer, have that conversation. It’s using digital to make a better experience with the human driving the final results.”
Carey Ransom, Managing Director at BankTech Ventures, describes working with a data company that revealed one bank had $150 million in commercial card spend by customers on competing platforms, despite offering their own product. Armed with this insight, the bank upgraded its offering and approached existing customers with genuine value propositions rather than generic cross-sell pitches.
Aggie Tuxhorn, chief brand officer at Skyward Credit Union, sees the value of this cross-channel consistency. “I could spend all the money on advertising, but if they come to our website and fall short, or text and no one answers, none of the brand promises are kept.” Skyward now tracks member effort score as a tangible measure of whether the institution delivers on its promises.
Maintaining Strategic Focus Amid AI Disruption in Banking
Perhaps the most pressing challenge facing community institutions is maintaining strategic focus amid technological disruption. Dedor acknowledges the tension: “Shiny object syndrome is a major problem. Talking about stablecoins is really challenging because we don’t think it’s going away. As we grow younger in our membership, we can’t ignore this reality. But you still have to be aware without getting distracted.”
The average consumer now juggles multiple financial apps—traditional banks alongside Venmo, PayPal and cryptocurrency platforms. Community institutions must become customers’ primary financial relationship, not just another icon on the home screen.
“Leaders will work backward from what their communities value, then align technology, service model and KPIs to deliver on that promise,” predicts Westley. “When proximity is no longer why someone chooses a bank, differentiators must be obvious and compelling.”
This requires discipline. “The ones that fall behind will try to be everything to everyone, instead of doubling down on their strengths,” Westley warns.
Dedor concurs: “The next five to ten years will set the stage. The ones that invest, use technology to make it easier for members, but don’t forget money is stressful and needs humans behind it, will succeed.”
Community institutions also benefit from a collaborative culture that larger banks can’t replicate—openly sharing what works across competitors and vendor partners, helping resource-constrained institutions punch above their weight.
As Seeterlin puts it: “An invitation to everyone is an invitation to no one.”
The Future of Community Banking: Digital Infrastructure, Human Delivery
After decades of pursuing digital transformation, community banks and credit unions are discovering their competitive advantage was human all along. But the path forward isn’t nostalgia for branch-based banking, it’s strategic investment in both digital infrastructure and human capacity. Technology identifies opportunities and streamlines the routine; humans deliver judgment, empathy and local knowledge for everything that matters.
The institutions that thrive in the next decade will be those that stop treating this as a choice. In an era of AI-generated content and eroding digital trust, the combination of technological capability and authentic human connection is perhaps the “killer app”.
