Fewer than 1 in 4 banks ready for AI era
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This content has been selected, created and edited by the Finextra editorial team based upon its relevance and interest to our community.
A report from Boston Consulting Group (BCG) found that almost all banks have invested in AI technology, yet less than 1 in 4 have progressed from pilots and proof of concepts to fully implement the technology into their daily operations.
"The leap from predictive analytics to generative AI—and now to fully autonomous, agentic systems—is here," states the report. "AI is no longer a fringe experiment; it's the engine of next-generation banking. Customer interactions, loan approvals, fraud detection, even compliance monitoring: all are ripe for reinvention."
Yet a recent BCG survey finds that only 25% of institutions have "woven these capabilities into their strategic playbook" states the report. "The other 75% remain stuck in siloed pilots and proofs of concept, risking irrelevance as digital-first competitors accelerate ahead. Most banks are deploying AI toward basic activities—not those that lead to transformation."
According to BCG, banks must move beyond pilots to redefine strategy, technology and governance - or "risk losing control of the financial landscape to faster movers".
"Early movers will set the pace—and the terms—of AI competition," states the report. "Lagging banks will find themselves racing to catch up under conditions they didn't choose."
The publication of the report comes at an important time for AI in financial services on both sides of the Atlantic. The EU's AI Act came into force in August 2024.
Meanwhile, the US largest bank, JP Morgan Chase, recently suggested it intends to ramp up its use of AI to increase efficiency while also calling for a slowdown in hiring.
The bank's CFO, Jeremy Barnum, told investors at a meeting in New York that recruitment is set to slow following the appointment of 60,000 people over the last five years, equivalent to a 23% increase in head count.
'We're asking people to resist head count growth where possible and increase their focus on efficiency,' said Barnum, in comments reported by Business Insider.
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There have been arguments against government subsidies that inspire a free economy vs. mixed economy debate; defenders of the free market argue that the free economy cannot exist with government intervention, whereas those who are pro-subsidies state that protecting certain industries allows people to thrive and jobs to remain intact. 'Many governments still help to keep fossil fuels cheap for consumers. For example, explicit subsidies are used to cover part of the supply cost, or external health costs associated with the use of fossil fuels are not included in prices because of implicit subsidies,' stated Professor Sebastian Rausch, head of the ZEW Research Unit 'Environmental and Climate Economics'. How can reducing fossil fuel subsidies lead to achieving climate goals? US subsidies in fossil fuels amounted to $757 billion in 2022, $3 billion in explicit subsidies, and $754 billion in implicit subsidies. Subsidies exceeded the federal government's tax revenues from natural gas and petroleum by $2.1 billion in 2022. Under former President Joe Biden, the US pledged to phase out from fossil fuel investments abroad by 2040. However, since then, the new US administration has pulled out of the Paris Climate Agreement and instated anti-ESG laws, allowing climate-killing fossil fuels to continue to thrive. According to the IMF, reducing fossil fuel subsidies can promote economic growth by limiting uneven division of resources, reduce pollution and climate change, and encourage better social spending by reductions in taxes. The research from ZEW revealed that a third of all countries could meet their climate goals by reducing subsidies in coal, oil, and natural gas – which could lower carbon emissions enough to meet climate targets without additional policies. 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