How Artificial Intelligence Is Transforming The Financial Ecosystem. The New Physics Of Financial Services

As artificial intelligence (AI) significantly changes the traditional operating models of financial institutions—shifting strategic priorities and upending the competitive dynamics of the financial ecosystem—how can financial institutions better embrace AI and prepare themselves for the future?

World Economic Forum (Forum) and Deloitte Global’s latest report studies the strategic, operational, regulatory, and societal implications of AI on the financial services industry to elucidate previously sensationalized debates and help the industry look forward.

The report finds that artificial intelligence is changing the physics of financial services, weakening the bonds that have held together the component parts of incumbent financial institutions and opening the door to entirely new operating models.

The report highlights nine key findings that describe the impact.

• From cost center to profit center: Institutions will turn AI-enabled back-office operations into external services, both accelerating the rate at which these capabilities improve and necessitating others to become consumers of those capabilities to avoid falling behind

• A new battlefield for customer loyalty: As past methods of differentiation erode, AI presents an opportunity for institutions to escape a "race to the bottom" in price competition by introducing new ways to distinguish themselves to customers

• Self-driving finance: Future customer experiences will be centered around AI, which automates much of customers’ financial lives and improves their financial outcomes

• Collective solutions for shared problems: Collaborative solutions built on shared datasets will radically increase the accuracy, timeliness, and performance of non-competitive functions, creating mutual efficiencies in operations and improving the safety of the financial system

• Bifurcation of market structure: As AI reduces search and comparison costs for customers, firm structures will be pushed to market extremes, amplifying the returns for large-scale players and creating new opportunities for niche and agile innovators

• Uneasy data alliances: In an ecosystem where every institution is vying for diversity of data, managing partnerships with competitors and potential competitors will be critical but fraught with strategic and operational risks

• The power of data regulators: Regulations governing the privacy and portability of data will shape the relative ability of financial and non-financial institutions to deploy AI, thus becoming as important as traditional regulations to the competitive positioning of firms 

• Finding a balanced approach to talent: Talent transformation will be the most challenging speed limit on institutions’ implementations of AI, putting at risk the competitive positioning of firms and geographies that fail to effectively transition talent alongside technology

• New ethical dilemmas: AI will necessitate a collaborative re-examination of principles and supervisory techniques to address the ethical gray areas and regulatory uncertainties that reduce institutions’ willingness to adopt more transformative AI capabilities

The report describes key AI-enabled strategies that are substantiated with real world examples, as well as identifies core institutional and broader ecosystem challenges and uncertainties that need to be addressed.