The financial services industry is undergoing a seismic shift, propelled by the rapid advancement of artificial intelligence (AI) technologies. As organizations race to harness the transformative potential of AI, the landscape is poised for unprecedented disruption in 2024. From democratizing access to AI tools to driving consolidation and reshaping talent strategies, these eight trends are set to redefine the banking and finance sector.
The Widening Chasm: AI Leaders vs. Laggards
While industry giants like JPMorgan Chase, Capital One, and Royal Bank of Canada have established a commanding lead in AI maturity, the majority of financial institutions are struggling to keep pace. This divergence is expected to intensify in 2024, as AI leaders continue to push boundaries, leaving laggards grappling with the foundational elements required to accelerate their AI adoption.
AI-Driven Consolidation: A Wave of Mergers and Acquisitions
The US banking market has enjoyed a first-mover advantage in AI maturity, thanks to its capital resources, proximity to Big Tech, and a supportive regulatory environment. However, this advantage is unevenly distributed, creating a stark contrast between top performers and the rest of the market. In this fierce war for talent, expertise, and intellectual property (IP), smaller banks with limited resources may face an existential threat, potentially triggering a wave of consolidation as they seek to acquire or rent their AI future.
Reskilling Initiatives: Retaining and Upskilling Existing Talent
The demand for AI talent within the banking sector is surging, with a 10% increase in AI talent across the world’s biggest banks from May to September 2023, despite a 2.5% reduction in overall headcount. As poaching becomes rife, banks will intensify their efforts to reskill existing employees and provide AI-focused training and career development opportunities across all levels of their organizations.
GenAI’s Limited Deployment: “No Regret” Applications
While generative AI (GenAI) has captured the imagination of the industry, its deployment in 2024 may be limited to “no regret” applications in back-office and middle-office functions. Banks will harness GenAI for document discovery, summarization, and code generation, where it can be safely overseen. However, more complex use cases, such as risk modeling of liquidity positions, remain a long way off.
GenAI as a Leveling Force: Catching Up with AI Leaders
For institutions lagging in AI adoption, GenAI presents an opportunity to regain ground. By democratizing access to AI tools, GenAI enables these organizations to drive bank-wide ideation, increase AI literacy, support cross-organization knowledge-sharing among AI talent, and ultimately accelerate their journey towards AI maturity.
Smaller institutions such as CommBank and DBS rank in the top 10 global banks for AI maturity, proving that resources alone do not determine success. These banks have established Centres of Excellence, built partnerships with Big Tech and academic institutions, and reorganized decision-making processes to expedite AI production. By fostering a culture of innovation and agility, these AI-first challenger banks have rapidly advanced their AI capabilities, outpacing many larger, resource-rich counterparts.
Their success underscores the importance of strategic focus and organizational agility over sheer size and resources. CommBank and DBS have effectively leveraged their partnerships and streamlined internal processes to implement AI solutions swiftly and efficiently. This approach allows them to remain competitive and innovative, providing a blueprint for other institutions aiming to enhance their AI maturity.
In contrast, larger banks struggling to keep pace with AI advancements in 2024 face a significant threat from these nimble competitors. The ability to quickly integrate and scale AI technologies is becoming a critical differentiator in the banking industry. As AI continues to transform the financial sector, the success of these smaller institutions serves as a reminder that agility, strategic partnerships, and focused execution are key to AI leadership.
The Rise of AI-First Challengers: Smaller Banks Surpassing Industry Leaders
Smaller institutions like CommBank and DBS have demonstrated that resources alone do not determine AI success. By establishing Centers of Excellence, building partnerships with Big Tech and academic institutions, and reorganizing decision-making processes to accelerate time-to-production, these AI-first challenger banks pose a legitimate threat to their larger rivals struggling to keep up with the pace of AI progress.
AI Representation at the Executive Level
As the importance of AI becomes increasingly evident, more banks are expected to acknowledge its significance at the executive level. This may involve existing team members driving the bank’s AI agenda or the appointment of new Operating Committee members with a dedicated AI/Data remit. Thus far, only a handful of banks, such as JPMorgan Chase, NAB, and CaixaBank, have formal AI/Data representation at the Operating and/or Executive Committee level, a trend that is likely to gain momentum in 2024.
The Shift from Experimentation to Monetization: Measuring AI’s ROI
Over the past year, several banks have seen a stock price bump based on their perceived affinity with AI. However, as markets gain a deeper understanding of AI use cases, more scrutiny will be brought to bear on persistent questions regarding return on investment (ROI). Banks will shift their focus from “What can AI do?” to “What ROI does AI create?”, attempting to standardize how business use cases are evaluated and measured.
As the financial services industry navigates this transformative era, the race for AI supremacy is intensifying. From democratizing access to AI tools to driving consolidation and reshaping talent strategies, these eight trends are poised to catalyze seismic shifts in the banking and finance landscape. Organizations that embrace these changes and harness the power of AI will emerge as leaders, redefining the future of financial services.
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