The call for Gen AI and why banks are slow to answer it

The room for automation in the financial services industry is huge and research by Citi finds that 54% of jobs in the banking industry could be impacted by Gen AI. 

Within financial services, consultative services like wealth management and mortgage brokering may be the most vulnerable to disruption by Gen AI, says Matt Britton, CEO and founder of Suzy, a market research firm. 

“When you talk about the financial services – particularly the services aspect – anything that’s consultative, that’s the first place AI is going to go. Mortgage brokers, wealth managers, accountants, those are areas AI is just built to be able to disrupt,” he said on a recent Tearsheet podcast

One major reason for this is the expense that comes with hiring human expertise in these areas, according to Britton. 

“[Employees are] so expensive, especially for SMBs, and 99% of the things that they do are highly templatized. Sure, there are going to be that 1% of cases where, if someone’s selling their company, they wouldn’t want an AI lawyer. But 99% of SMB-owners are going to seek AI-driven services because it’s just cheaper, faster, and more efficient.” 

Gen AI’s entry into these services is already well underway: 

  1. Tax Management: Intuit’s Gen AI financial assistant integrates across its product line, including QuickBooks and TurboTax to help customers file their taxes easily and comprehensively.
  2. Accountancy: Fintech Lili recently deployed a Gen AI tool called Accountant AI that will help its SMB customers with finding out answers to common accounting-related questions, as well as other tasks like budgeting.
  3. Insurance: Lemonade has created bots that create custom policies and help with claims processing.
  4. Investing: Public’s Gen AI powered assistant Alpha provides market trends, answers questions, and assists its users to do investment research. It’s set to become a major part of the firm’s strategy for the future, according to its CEO, Leif Abraham: “Currently Alpha, our AI assistant, is solely used to provide insights into the markets, public companies, and other assets. In the future, Alpha will expand to help people manage their portfolio. Moving Alpha from an assistant that gives context and information, to an assistant that can take action. This next phase is about integrating Alpha into that experience.” 

Traditional FIs, on the other hand, have yet to take on a Gen AI strategy that centers around customer-facing products. And while most banks are steering clear of using AI assistants powered by Gen AI, they are more open to using it in the back office to help make their current employees and teams more productive.

Banks are using Gen AI to boost productivity

In July, JPMC introduced a new Gen AI powered tool to its Asset & Wealth Management team which the bank said could perform the tasks of a typical research analyst. The bank is gradually exposing more and more of its workforce to the tool, and an internal memo shows it’s encouraging its employees to use the tool for tasks like “writing, generating ideas, solving problems using Excel, [and] summarizing documents.”

Morgan Stanley has also launched its AI tool called Morgan Stanley Debrief, which helps financial advisors with creating notes on a meeting with a client. 

Using Gen AI to increase productivity rather than build new products is a quintessential bank move. But apart from the obvious reasons like regulations and uncertainty, there may be another reason why banks are not moving faster with deploying Gen AI in client facing interactions.

Older folks aren’t keen on Gen AI 

Suzy’s research shows that younger consumers are a lot more comfortable with using AI for financial planning and optimization than older consumers. 

The trend repeats when consumers are asked which financial tasks like tax management, mortgage brokering, and wealth management do AI perform better than humans. Close to 60% of older consumers report feeling that AI is not better than humans at any of these tasks, according to Suzy’s research.

The fact that a majority of older consumers don’t feel comfortable with AI nor trust the ability of Gen AI-powered tools to perform well in the areas mentioned is a problem for banks. In the US, 50% of the local banking revenue is generated by people who are fifty years or older, according to data

The challenge for banks is clear: they must navigate a delicate balancing act between meeting the needs of their current, older customer base while preparing for a future shaped by younger, tech-savvy consumers who are far more open to AI-driven solutions. To stay competitive, traditional financial institutions will need to move Gen AI to the front of the office, and find a way to collaborate with fintechs and co-create what Gen AI powered products will look like. 

If you want to read more about how AI is changing the role of banks, download this guide

Banks are maturing in their AI journey, but is ROI still a distant goal?

    Who will win the AI showdown in banking?


    What started as a growing trend last year has now become a full-blown competition, as banks — from the biggest players to smaller institutions — dive headfirst into AI investments.

    However, the stakes are high. As the industry pushes for clearer standards on AI risks and controls, it concurrently faces a new challenge: turning theoretical plans and investments into measurable successes. Investors are increasingly expecting banks to translate their AI-driven strategies into real-world results and tangible returns, whether through cost savings, risk mitigation, or new revenue streams.

    AI is still in its nascent phase, especially within the banking sector, and whether it’s too soon to seek returns on these foundational investments is a different conversation altogether.

    Today, we delve into:

    • The progress banks have made on their journey toward AI maturity
    • Are we jumping the gun by seeking ROI from banks’ foundational AI investments at this point?
    • The frontrunner and the runner-up in the AI race and the factors propelling their advancements


    Brief rundown


    J.P. Morgan Chase (JPMC) has secured the top position in this year’s AI Index, marking its third consecutive appearance in the top 10 across all AI advancement metrics detailed in a new Evident Banking AI Index. The report focuses on four essential AI evaluation metrics: Innovation, Leadership, Transparency, and Talent.

    Given Jamie Dimon’s consistent advocacy for AI and JPMC’s recent strong advancements in the space, it’s not surprising to see the firm leading the charge in the AI race. However, what stands out is that it is closely followed by Capital One, the Royal Bank of Canada, and Wells Fargo, indicating that North American banks are leading the way for the most part in exploring AI’s potential.

    One of the strongest pillars contributing to North American banks’ progress is talent acquisition, particularly in AI Development and Data Engineering. US banks are increasingly solidifying their positions in this area. The three US incumbent banks — Wells Fargo, JPMC, and Capital One — account for 17.5% of the current AI talent pool, reflecting a significant 19.4% increase from last year, according to the report.


    The frontrunner


    I’ve been closely following JPMC’s work in AI and its initiatives from Q4 2022 onward. Building on that research, the factors that likely contributed to the bank achieving a leading position in AI advancement across multiple pillars include:


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    It’s that time again: Q3 earnings insights from the banking sector

      As digital banking takes off, which institution will wear the crown?


      The much-anticipated Q3 earnings season has officially kicked off, with major banks taking the spotlight this week and setting the tone for what’s to come.

      The headline-grabber was the resurgence of trading and investment banking among Wall Street’s banks — a clear bright spot in an otherwise challenging landscape

      While the timing of the Fed’s rate cuts didn’t allow them to negatively affect banks’ third-quarter net interest incomes, optimism is also building around their future effects. The rate cuts from the Federal Reserve and other central banks along with expectations of further cuts in the coming months could pave the way for more deals as reduced borrowing costs make capital more accessible.

      Snapshot: Q3 investment banking earnings of major banks

      A quick overview of investment banking earnings from the six major banks shows growth trends:

      • Wells Fargo‘s non-interest income grew by 12%, partially driven by higher investment banking fees and strong trading revenue.
      • Bank of America experienced an 18% YoY increase in investment banking fees, totaling $1.4 billion, as renewed client confidence encouraged more debt and equity issuance.
      • Goldman Sachs saw the fees of investment banking, its signature business line, rise by 20% YoY, reaching $1.87 billion, thanks to leveraged finance, investment-grade activity, and equity underwriting. The pipeline for investment banking fees also showed improvement compared to the end of the second quarter of 2024.
      • J.P. Morgan recorded a 31% increase in investment banking fees.
      • Citigroup also shined this quarter, with a 31% rise in investment banking revenue, largely fueled by investment-grade debt issuance.
      • Morgan Stanley‘s investment banking revenue surged by 56% compared to the previous year, amounting to $1.46 billion. This reflects the firm’s investment banking balance with its wealth management division, a major contributor to its overall earnings. The firm’s investment management division also reported a 9% revenue increase, reaching $1.46 billion. 

      The 2 recurring themes: Technology and digital banking


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      How J.P. Morgan is responding to the call of underrepresented founders and consumers of color

        Can innovation be equitable?


        The financial services industry has historically been male-dominated, and the entrepreneurial and startup landscapes tell a similar story — not because there are fewer women founders, but because they face fewer opportunities than men.

        This doesn’t diminish the talent and capability of women entrepreneurs, whose presence in the business world continues to rise. From 2019 to 2023, the number of women-owned businesses grew at almost twice the rate of those owned by men. As of 2024, women own 39.1% of all businesses—more than 14 million—employing 12.2 million individuals and generating $2.7 trillion in revenue. Despite this progress, significant challenges persist: men still hold a larger share of business ownership, and only 7% of unicorn founders are women, according to a recent J.P. Morgan study. These figures are even starker when it comes to minority founders.

        Creating a level playing field isn’t just a matter of fairness; it can be a stepping stone for sparking innovation and unlocking economic growth. Ethnically or racially diverse founders can tap into new markets and address the unmet needs that drive sustainable progress. Closing the revenue gap for diverse entrepreneurs could bring in an additional $667 billion, while bridging the gap between women and men-owned businesses could generate an additional $7.9 trillion for the economy, according to a recent research by Wells Fargo.

        So, what’s holding back this change?

        We know that investor confidence tends to increase when a founder fits a particular mold — whether that means the founder’s gender, ethnicity, or simply having a white male co-founder on the team. But beyond these age-old biases, how are established banks working to narrow this divide and create a more equitable environment for all entrepreneurs in today’s day and age?

        “It starts with the investment in a broad national startup banking business,” Ashraf Hebela, J.P. Morgan’s Head of Startup Banking told me in our recent Tearsheet Podcast episode.

        “Most of the underrepresented minorities as entrepreneurs are sitting at the early stage, and that means having to invest in an early-stage business.”

        Ashraf highlighted the tangible measures financial institutions could implement to tackle this gap and something JPM has been mindful of:


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        Is Chase UK fighting off challengers, or is it the other way around?

          Taking a page from the challenger bank handbook, JPM is diving into the UK market with a modern twist


          In the US, large incumbents like JPMorgan, Morgan Stanley, and Citi have long maintained a stronghold, making it difficult for new entrants to break through and compete with these well-established, resource-rich institutions. The status quo has not changed much to date.

          By comparison, the UK’s banking landscape is gradually opening up with more room for new players to challenge their incumbents. In fact, the last couple of years have seen UK challenger banks pulling out all the stops to make a powerful push in the banking industry.

          The US has a more fragmented regulatory environment, involving both federal and state-level oversight. This complexity, combined with a larger number of dominant traditional banks, has made it more challenging for neobanks to establish the same presence they have in the UK. Moreover, British consumers have been more receptive to digital and mobile banking solutions with improved UI/UX, embracing these services early on. 

          The pulse of UK challenger banks

          UK challengers like Revolut, Monzo, and Starling are among the leading names making notable progress. Although their valuations may have dwindled, they continue to achieve strong revenue growth. Starling continues to hold its ground as one of the UK’s leading neobanks in terms of profitability. Revolut achieved a record profit of $545 million in 2023, while Monzo reported its first annual profit for the year ending February 2023.

          While deposit volumes of these digital banks may not match those of traditional banks, they have benefited from three significant factors contributing to their revenue growth in recent times:

          • Growing customer base
          • Rise in interest rates
          • Expansion to new markets

          The case of Revolut: Take Revolut, for example; although individual deposits may average only a smaller amount from millions of customers, the size of its growing user base means these amounts collectively make an impact. Expanding into new markets and regions has enabled the neobank to reach 45 million global customers, over 9 million of whom are based in the UK. This growth directly leads to an increase in payment volumes and foreign exchange transactions, resulting in higher revenue from fees and commissions. This coupled with interest income on deposits and loans has been a crucial catalyst for accelerating Revolut’s revenue growth.

          In 2023, Revolut reported a total revenue of $2.2 billion, a significant jump of 95% from 2022, when the neobank recorded its lowest revenue growth. 

          This July, Revolut achieved a major triumph by securing a UK banking license, albeit with some restrictions, after a three-year wait for the approval. Although this development could be concerning for established UK banks such as Barclays, Lloyds, HSBC, and NatWest, it creates a clearer pathway for Revolut to directly compete with these major institutions. This advancement also brings the prospect of an IPO closer to reality for the neobank, which is already on its radar.

          Nearly outdoing legacy banks in app downloads?


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          How old banks are infusing new ideas in embedded finance

            We spotlight how J.P. Morgan Payments, Fifth Third, and Wells Fargo are targeting embedded finance


            Tearsheet recently hosted its The Big Bank Theory Awards, shining a spotlight on the game-changers in banking and embedded finance. This year’s awards brought together a dynamic mix of established industry incumbents, innovative startups, and key players shaping the future of financial services.

            In no specific order, the winners feature:

            • J.P. Morgan Payments takes home Best Overall Embedded Finance Platform
            • Wells Fargo is recognized for Best New Embedded Finance Product (for platforms)
            • SoFi is awarded Best New Product
            • DailyPay is crowned Best Payments as a Service Platform
            • April is honored for Best Customer Implementation of Embedded Finance
            • nCino wins Best SaaS Banking Platform
            • Alkami receives Best Banking App
            • Signature Bank of Arkansas is celebrated for the Serving the Underserved Award
            • Newline by Fifth Third is recognized as the Best New Embedded Finance Platform
            • CorServ clinches Best Card Issuing Platform
            • Zeta’s Sparrow secures the Best Banking Card Product
            • Themis is named Best Banking Service Partner

            We offer a front-row glimpse into the exciting developments unfolding in the industry. While some winners are household names attracting media attention, others are quietly making their mark and leaving a lasting impact behind the scenes.

            We explore how this year’s Tearsheet TBBT award-winning incumbent banks are navigating the embedded finance landscape with APIs, partnerships, and proprietary solutions to strengthen their position and adapt to market changes.


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            Apple-Goldman fallout: How to prevent cracks in collaborations

              Industry players share their strategies for building stronger partnerships


              Common threads run through partnerships in dating, dance, and bank-nonbank collaborations alike. While luck may factor in, thorough research, diligence, clear role definitions, and established boundaries can be crucial to taking effective, tangible steps forward and making these relationships successful.

              Although the financial services industry has its share of bank-fintech partnerships that have faltered, there are also success stories where rivals have evolved into collaborative partners, working together for mutual benefit.

              Over time, every bank or fintech discovers what makes or breaks a partnership for them. This experience of being on both ends of the spectrum leads them to adopt a more cautious and deliberate approach to partnerships. That said, what benefits one organization might not apply to another, as effectiveness varies with the type, nature, and scale of the partnership.

              We look at how to manage key aspects and avoid pitfalls to keep partnerships strong, based on perspectives from different players in the financial services industry.

              We’ll also delve into the recent twists in one of the most hotly discussed partnerships of late.


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              From early glory to present challenges: The story of Bank of Hope

                Bank of Hope is building a unified network of banks through mergers — but is it enough?


                Last week, we delved into the story of East West Bank in Southern California, founded by Chinese Americans in 1973, and how it evolved into SoCal’s largest publicly traded bank. Not all SoCal-based minority-owned regional banks, however, share this success story. While some began with strong foundations, they now face challenging conditions, particularly those that have been heavily invested in commercial real estate loans. Bank of Hope, a Korean-owned regional bank based in LA and a subsidiary of Hope Bancorp, finds itself in a similar predicament.

                Genesis and the challenges encountered since

                Originally founded as Wilshire Bank by Korean immigrants in 1980, the institution merged with BBCN Bank in July 2016 and was rebranded as Bank of Hope, with Hope Bancorp as its parent company. Initially centered on the Korean American community, the bank gradually expanded its lending to include other immigrant groups, a shift that signaled its growth. This evolution transitioned the institution from a traditional community bank into a regional bank that now serves consumers, small businesses, and commercial and corporate clients.

                Mergers and acquisitions played a key role in the creation of Bank of Hope and remain central to its growth strategy. But its focus on commercial real estate loans has fueled much of its growth and expansion. Little did the bank know that the pandemic would have a major impact on its growth. The pandemic brought a sharp blow to small and mid-sized lenders, leaving the Bank of Hope burdened with a large number of problematic commercial real estate loans.


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                From Chinatown roots to SoCal’s focus: How East West Bank became SoCal’s largest publicly traded bank

                  The tale of how a group of Asian Americans chose to defy the norms in 1973


                  When mainstream banks fall short of serving minority communities or immigrants, these groups often face prolonged struggles, waiting for more inclusive solutions or settling for the bare minimum. But in 1973, a group of Asian Americans decided to challenge the status quo. They sought to address these unmet financial needs and took a decisive stand to change this reality.

                  Some of the founding figures of the East West Bank management; Image via EWB LinkedIn

                  Building a bank from the ground up was a formidable challenge for this minority group. To overcome obstacles, they sought support from friends and allies within the Italian American community to become part of the founding organization, as the government policies at the time did not acknowledge Asian Americans as bank founders.

                  This is the story of how East West Bank came to be, evolving into the largest publicly traded bank headquartered in Southern California, the 36th largest bank in the US by assets, and the biggest minority depository institution in the country today.


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                  ‘Banks use about 35% of their available technology, and we didn’t want to be that bank’: Craft Bank CEO, Ross Mynatt, on evolving tech preferences among community banks

                  Hey all, I’m Sara Khairi, your host for this episode and a reporter at Tearsheet. If you’ve been tuning into the Tearsheet Podcast, you’ve likely been enjoying the insights brought to you by Zack Miller, our editor-in-chief and the original voice of the show. While Zack remains the heartbeat of the Tearsheet Podcast, I’m excited to jump into the podcasting mix and bring you some episodes of my own. Expect to hear a bit more from me alongside Zack. I hope you find my chats here just as engaging as the stories I write including the weekly 10Q Newsletter for our pro-subscribers. Catch you on the other side!

                  For my very first episode, I decided to step outside the frenetic pace of the Big Apple and dive into the lesser-known banking scene in other states. Community banks have weathered a storm of challenges in recent years, including macroeconomic pressures and the uncertainty following three regional bank failures in 2023. In particular, young community banks launched during the peak of Covid-19 have had to contend with additional complexities due to their timing.

                  These community banks may operate on a smaller scale, but their ambitions rival those of Wall Street giants. As the digital wave sweeps across the globe, these banks are not just staying in the game — they’re hustling to keep pace and stay relevant by adopting emerging technologies.

                  One example is Atlanta’s Craft Bank, which opened its doors in 2020, right when the world was facing a pandemic. Primarily a commercial bank with a business-centric focus, Craft Bank currently operates with a team of 19 employees and manages total assets of $250 million.

                  Ross Mynatt, CEO of Craft Bank, joins us to discuss his journey as a first-time CEO, the choice of Jack Henry as their core tech partner, and the strategies behind Craft Bank’s $250 million asset growth at a time when most smaller institutions were struggling just to stay afloat.

                  Throughout our talk, it becomes evident that although 92% of banks aim to maintain or elevate their technology spending in 2024, community banks and large financial institutions take markedly different approaches when it comes to investing, forming partnerships, and selecting technology providers. Ross also discusses whether community banks could potentially leverage technology more effectively than their larger peers.

                  This first episode kicks off a three-part series exploring the tech and partnership strategies of three emerging community banks. First up: Craft Bank – its origin and its tech evolution. Let’s dive in!

                  The key takeaways

                  • Growth drivers for Craft Bank: Ross credits the bank’s growth to a mix of good fortune, a seasoned team with strong connections, and favorable market conditions in Atlanta, where no new bank had opened in 15 years, and the number of community banks had significantly declined. He notes that they raised capital at the pandemic’s peak, which seemed like a daunting endeavor back then but turned out to be well-timed as interest rates were at historic lows.

                  “We’re right at 250 million in total assets or as our Chief Lending Officer likes to call it, a quarter of a billion dollars, we are 90% a commercial bank,” shares Ross.

                  • What starting a de novo bank is like, and why not just acquire one? Ross discusses the decision to start a de novo bank rather than acquire an existing one, highlighting the importance of cultural fit and avoiding legacy issues. He also highlights the significance behind the name ‘Craft’ and how it led to the determination to start from the ground up.

                  “We knew that we could build it from scratch and it would be ours, as opposed to going out and buying an existing bank or an existing charter where there are some legacy issues, perhaps there may be some loans that you might not have booked otherwise, or maybe it’s not a cultural fit – and culture is very important to us,” according to Ross.

                  • Deciding on tech providers: Craft Bank has invested in technology, choosing Jack Henry as its core software provider. The bank intentionally selected tech solutions it knew would be used well, avoiding the pitfall of investing in tools that go underutilized.

                  Ross explains that his bank’s approach to investing in software involved everyone agreeing with confidence: “Yes, we will use this”. This consensus was driven by a caution sparked by a data point Ross came across while they were organizing. “On average, banks use about 35% of their available technology, and we didn’t want to be that bank,” notes Ross.

                  He underscores the value of cultural synergy in tech collaborations, too, sharing lessons learned from both successful and challenging encounters with partners.

                  • Key qualities of good tech partners: Ross advocates for building personal relationships and a test-run approach to ensure compatibility with tech partners.

                  “I guess what I would encourage folks to think about is that before you sign up with a dance partner, I may try to do a test run. Let’s do a project together on a very limited, finite basis. Let’s see how it feels, what works, and what doesn’t work.”

                  • Comparing tech partnerships – community banks and larger FIs: Ross contrasts Craft Bank’s approach with that of larger financial institutions, emphasizing the advantage of personal relationships in smaller banks. He acknowledges that while a community bank may not have the same resources as larger institutions, it can leverage personal relationships more effectively.

                  “Now I’m not going to tell you I’ve got an advantage over Jamie Dimon, but I will say that we can leverage [personal] relationships probably a lot more effectively than JPMorgan,” says Ross.

                  Catch the full episode

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                  Peruse the transcript (for TS Pro subscribers)


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