Generative AI Is Coming for Your Bank. Maybe.

Big banks are scrambling to work out what to do with generative artificial intelligence: how to use it to make some of their people smarter or free up others to do only higher-value tasks, and how to ingest and process data more rapidly, speed up decision making and cut costs. Every bank fears their competitors getting good at AI before they do.

Bay Area venture capitalists have a different warning, though: Lenders are missing the threat from everywhere else. "For banks, when I talk about AI, I tell them: What you should be worried about is what if it works?" Angela Strange, a general partner at Andreessen Horowitz, told me recently.

What if AI in the hands of bank customers automates the dull work of shopping for the best rates on simple financial products at irresistible speeds? It probably won’t be long before generative AI bots can look after our money with utmost efficiency. Great for customers, but not so much for banks. But just because it’s possible doesn’t mean it will be done. There are some heavy caveats to this vision. For instance, it could have deeply detrimental effects on financial stability. I’ll return to these. But the direction of travel is real and tells us a lot about the challenges banks face, especially smaller ones.

Matt Harris, partner at Bain Capital Ventures, foresees an existential threat to banks’ core money-spinner: net interest margin — essentially the difference between what a lender pays on deposits and earns on loans. This margin will come under siege from both sides as soon as people and companies have AI agents that are authorized to move their money for the best deposit or savings rates and refinance their debts, perhaps even multiple times daily.