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iSay

David Birch asks how retailers, banks, airlines and everyone else will deal with customers who are suddenly 1,000 times smarter, fully informed, show no loyalty and are laser-focused on getting the best possible deal

Call my agentic AI

British banks are very unhappy with open banking. What they hate is the asymmetry: regulation requires them to open up their customers’ data to Big Tech with no commensurate obligation on the other side. They are right to object and they are the canaries in the open data coal mine, with an AI spark already lit.

Opening up

Back in 2016, I wrote: “If this argument [about opening up access to customer data] applies to banks… because they have a special responsibility to society, then why shouldn’t this principle also apply to Facebook?”. My point was, I thought, rather obvious: if regulators think that banks’ hoarding of customers’ data gives them an unfair advantage in the marketplace and undermines competition, then why isn’t that true for Big Tech?

The real revolution in financial services is customers using AI and smart wallets capable of making decisions on behalf of consumers

My view, and I was far from alone, was that all companies should provide open application programming interfaces (APIs) that enable consumers to share their data with other service providers if they want to. This is along the lines of what is being implemented in Australia, where open banking is part of a wider consumer data right. There, organisations will not be allowed to take banking data without sharing their own data. While the consumer data right has had mixed results so far, adopting a similar approach for UK plc could bring substantial benefits.

Deloitte reckons that if the consumer data right is implemented correctly, then the Australian economy could be some $17bn larger by 2043. That is not enormous in the great scheme of things. Technology overall currently contributes around $167bn to the Australian economy annually: about 8.5% of GDP. However, more productivity is always better than less.

In the meantime, the UK is not the only jurisdiction where banks feel burned by open banking rules. US banks are just as unhappy with the Consumer Finance Protection Bureau (CFPB) ‘1033’ regime. They will undoubtedly make their position clear to the incoming administration.

Richard Crone, a respected commentator on the US scene, wrote recently that the “CFPB is now backpedalling”. It is realising that 1033 will make Big Tech even more powerful and make the bureau itself vulnerable to the incoming administration’s mandates for curbing its power.

Non-human customers

But there is arguably a fundamental issue that regulators are not considering – particularly as they look to go beyond open banking into open finance, open utilities and open everything. They and we need to start seriously thinking about how business is going to change as artificial intelligence and open data come together. Customers are about to become 1,000 times smarter almost overnight, because the customers will no longer be human. Banks have no strategy for this.

But then, neither does anyone else.

If this view seems alarmist, you’re not worried enough. The real revolution in financial services is customers using AI, not banks using AI, and a world of smart wallets capable of making decisions on behalf of consumers, as Kirsty Rutter of Lloyds and I argued in the Journal of Digital Banking. The former Chief Data Officer of Standard Chartered Group, Shameek Kundu, put the issue succinctly in the Citi report, ‘AI & Finance: Bot, bank and beyond’: “The biggest new thing will be the growth of non-human customers.”

Indeed. And the transition to serving these non-human customers presents a significant threat to bank profits. Look at the simple case of net interest margin. At a time of low interest rates, only one in 20 Americans refinanced their car loans, thus donating an average of $3,500 per car owner to bankers’ bonuses. Overall, US banks obtained a $1tn windfall from the Federal Reserve’s 2.5-year era of high interest rates, because many consumers kept funds in low- or no-interest accounts, according to an analysis of official data made by the Financial Times. Bots given the task of optimising a consumer’s finances will not leave money on the table like that.

That will lead to what Matt Harris of Bain Capital Ventures bluntly labels the “death of net interest margin”. If you think about the proportion of net interest income that depends on inertia, then you will tend to agree with this prediction of doom. US savers can get a high-yield savings account or buy treasuries and get paid more than 500 basis points while the average savings account pays 53 basis points. In other words, consumers are giving up some 5% because they cannot be bothered or are too busy to search around for new accounts and cannot face the hassle of opening new ones and transferring money to them. Or they simply have better things to do. Well, bots don’t have better things to do.

The name is bond, equities, ISAs…

We are rapidly shifting from a world of AI agents, which suggest things for you to do, to a world of agentic AIs, which act on your behalf. Imagine what commerce will look like when all consumer data is out in the open and we have agentic AIs to handle it for us.

Instead of wasting time trying to work out which ISA is best, my agentic AI will do it for me and make a better decision than I could

When I am online with British Airways trying to decide between using a card that will give me rewards, a card that will give me cashback and a card that will give me Avios, I feel that my time is being wasted and I’m not confident I will make the right decision. The sooner an agentic AI can take care of this, the better.

Similarly, when I needed some extra cables for sundry purposes of no relevance to this discussion, I wasted 20 or 30 minutes looking online, reading the reviews and trying to work out which ones were real or not. I was praying that I will soon be relieved of this burden by an agent with an intelligence far beyond my own.

Come March, when I will waste a weekend trying to work out which ISA is best, I will be on my knees begging an AI entrepreneur to take my money to do this for me on the grounds that even the most rudimentary agent will make a better decision than me.

This will take us into a new competitive landscape. How will a bank go about making its savings accounts attractive not to me but to my bot? With API responses? Better API uptime? How will a utility company keep my account when it can no longer rely on a baffling array of tariffs and my laziness? Richer data? Better analysis? First-rate customer service if I should actually need to speak to them?

Service providers of any kind operating in a new age of ‘agentic commerce’ will need new infrastructure. This is perhaps a bigger dislocation, a bigger revolution than the switch to e-commerce (now a quarter of the UK’s retailing) and mobile phones. And just as those transitions meant significant winners and losers, so will this one.

I just received an email offering a deal on wine for joining a loyalty scheme. I can’t wait to respond to such offers with a resounding “Call my agent”.

David G.W. Birch is an author, adviser and commentator on digital financial services. He is a recognised international thought leader on digital money and digital identity. His new book, Money in the Metaverse, written with Victoria Richardson, explores the evolution of financial services in the digital world