Banks’ AI cost-cutting benefits won’t last, will ‘erode’ profits
Julien Eichinger – stock.adobe.c
Banks are making significant cost savings through initial artificial intelligence implementations, but the technology will eventually hit their profits
Banks could save huge amounts in operating costs through artificial intelligence (AI), but the technology will eventually erode their profits, as AI agents make recommendations to customers.
According to McKinsey’s latest report, while AI savings could be up to 20%, taking account of the cost of the technology, banking industry profits could fall 9% as customers move money based on AI agent recommendations.
“The impact of savings, while welcome, won’t last,” McKinsey said. “As with earlier innovations, competition will likely erode the gains for banks and most of the benefits will accrue to customers over time.”
The report said $23tn of the global total of $70tn in consumer deposits sits in current accounts with zero interest rates, with much of the remainder in low-interest accounts.
“If just 5% to 10% of [current account] balances migrated to top-of-market rates, an action that might be prompted by AI agents, that could reduce the banking industry’s total deposit profits by 20% or more,” McKinsey said.
It added that banks could lose $170bn in global annual profit over the next decade should they fail to adapt. “But the effects won’t be felt equally,” it added. “AI pioneers could see return on tangible equity increase by up to 4%, using their lead to reinvent models and capture value.”
McKinsey said slow movers are likely to see lower profits in the long term.
Act like Big Tech
According to research from Evident, UK banks must act like Big Tech companies and less like startups if they want to avoid being slow movers and emulate the success US banks have had with AI.
The firm, which tracks financial services AI adoption, said US banks lead the way. In its latest banking AI adoption index, six of the top 10 banks are US-based.
Evident said these leading banks for AI maturity have pulled away from their peers in 2025, consolidating earlier gains and increasingly realising a return on investment for their spending on AI.
It found that the top 10 banks are accelerating on AI adoption more than twice as fast as the rest of the field, as early AI investments translate into business value.
Evident CEO Alexandra Mousavizadeh warned that talent is key to success with AI for banks.
“Your talent is your destiny,” she added. “That’s always been true, but I think for now it’s even more true because we’re in this pivot moment, where there’s been a couple of years of experimentation and testing with use cases being implemented, but it’s very surface-level.”
Evident’s index revealed that no UK bank places in the top 10 for AI talent.
According to recent Lloyds Banking Group research, 59% of surveyed firms reported AI-driven productivity gains in the past 12 months, compared with 32% in the 2024 survey.
In its Financial institutions sentiment survey, Banks also reported rising returns from AI in other areas. The survey found that 21% of respondents believe AI is directly driving business growth, compared with 8% in the survey a year ago.
Meanwhile, a third (33%) of respondents said AI is enhancing customer experiences, up from 14%. The same number said they have deeper customer insights through AI, compared with 18% last year.
As a result of the improvements, half of the finance companies surveyed said they planned to increase spending on AI over the next 12 months.
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