AI in Finance a $170bn Profit Machine?
CitiGPS thinks so, but I wouldn't bet on these numbers!
Kudos to Citi, whose “gold standard” report on AI’s impact on finance foretells a near future in which AI may contribute a hefty $170 billion, or 9%, to global banks in a mere five years.
Do you believe it? I don’t; the timing is too short, given how AI still lies and exhibits bias.
To make matters worse the $170 billion figure isn’t from research but from survey participants. Do they really know how much their bank will profit from AI?
This report is a hefty 115 pages, and while I don’t believe the headline number, it has something for everyone, and I can’t recommend reading it highly enough. Save it for the weekend if you must!
👉TAKEAWAYS
My comments with the siren 🚨 as they show alternative points of view which may be slightly less optimistic! (No “Talking Points” on this post.)
🔹 Will AI Increase Finance Profits?
According to a recent Citi TTS Client, there is a very clear consensus: an overwhelming 93% of financial institution respondents said adoption of AI could improve profitability in the next 5 years.
🔹 What Magnitude of Profits?
AI could boost the total banking industry’s 2028E profits by 9%, or $170 billion, from just over $1.8 trillion to close to $2 trillion. This excludes non-bank financial sector profits.
🚨Doesn’t that seem a bit optimistic given that AI still has major issues with telling the truth and bias? I’m skeptical about the timing, sure we’ll hit these numbers but five years seems soon, particularly with digital laggard banks slow adoption.
🔹 Why More Profits?
AI could drive productivity gains for banks by automating routine tasks, streamlining operations, and freeing up employees to focus on higher value activities.
🔹 Innovation versus Industrialization:
“We are cautious about implementation timelines, talent costs, risk of increased competition, rising client expectations, and the costs associated with increased AI-generated activity.”
🚨Implementation timelines are based on hopium, considering how GenAI has real issues to solve before being let lose on customers. I’m glad Citi is “cautious.”
🔹 Will AI Reduce or Grow Finance Jobs?
Historical technology adoption has not led to reduction of finance workforce but has changed the workforce mix over time. New jobs are constantly created. For example, the US economy has 3x more compliance officers from 2000 to 2023.
🚨 Bunk: 66% of Banking jobs have a high potential for automation (chart pg 7), so if you think these productivity gains and profits are coming with job losses, you’re deluded.
🔹 Will AI Drive Better Value for Clients?
Integration of AI-powered bots into retail and corporate banking represents a significant potential transformation, offering clients benefits such as automated decision making and the search for best offers, and banks enhanced operational efficiency.
🚨 Really? Do all our current analytics-based systems do such a poor job of showing best offers and decision making?
🔹 Challenges from AI-powered Bots:
A shift to a bot-powered world also poses concerns on data security, regulatory/compliance, and ethical considerations. AI-powered clients could increase price competition in the finance sector, especially in retail financial services. The balance of power may shift. Profit margins may fall.
🚨 I’m glad Citi sees that AI will only homogenize offerings and make profits fall. When everyone has it, what role will it play?
🔹 The Race to Adapt:
AI is likely to be adopted faster by digitally native, cloud- based firms, such as FinTechs and BigTechs, with agile incumbent banks as fast followers. Many incumbents, weighed down by tech and culture debt, may lag in AI adoption and lose market share.
🚨 This will be a battle between the AI-haves, and the AI- have-nots and those without will perish.
🔹 Trough of Disillusionment Ahead?
As financial firms grapple with the transition from ‘Wow’ to ‘How’, the gap between hype and mass production currently remains wide.
🚨 We are at peak AI hype and It is time to acknowledge that AI may not be the fast track to profits predicted in this report. $170bn in 5 years? Really?
🔹 Digital Leviathans:
Many of the largest technology companies are in an arms race to become the AI provider of choice to banks and companies. Similar to the concentration in cloud computing, AI may reinforce single points of control and, thus, also single points of failure.
🚨 Too late. The die is cast, and big tech will use AI to solidify its robotic grip on society. Yes, big tech is a single point of failure, but what did anyone do about it with the cloud? Nothing.
No “Straight Talk” in today’s post! My snarky comments above were pretty straight already!
This chart does a great job of showing the coming battle between the AI-haves, and the AI- have-nots. Those labeled laggards in the chart will have a hard job keeping up. This doesn’t mean that advanced AI banks will be “rolling in money” as margin compression with the search for the best deal will become a major issue.
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