AI's Next Big Test: Banking on Efficiency

Bloomberg

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Transcript

00:00Okay, good morning, everyone.

00:08Artificial intelligence is reshaping the financial industry

00:11faster than any technology in a generation.

00:18Sorry.

00:20Apologies, we're inside the wrong place.

00:24So the financial sector's total AI spend

00:26is predicted to triple to over 120 billion U.S. dollars by 2028.

00:32That's almost threefold the level of last year.

00:35And yet attempting to assess the overall impact

00:37that AI will have on global financials remains highly subjective.

00:43So my name is Phil Richards,

00:44and I head the financials team across EMEA for Bloomberg Intelligence.

00:49My agenda today is threefold.

00:51First, I'll give a very quick overview of what Bloomberg Intelligence is.

00:55Second, I'll address the question before me today.

00:59And then third, I'll leave you hopefully with one or two thoughts to ponder over.

01:04So who are BI?

01:06Well, we're a fully-fledged research house

01:08with over 500 analysts covering more than 2,000 companies.

01:12We have plans to expand that to beyond 3,000 next year.

01:16We, of course, being Bloomberg,

01:18we are global across the Americas, EMEA, and Asia,

01:20as well as sector research on equity and credit.

01:24We also cover markets and themes,

01:27such as ABS, rates, volatility, FX, ESG, and many more.

01:34And when BI was set up about 17 years ago,

01:37one of the key goals was to bring the vast amounts of data

01:41on the Bloomberg terminal to life.

01:43And that very much remains the case today.

01:45And our research remains very much data-driven,

01:48with links taking you directly to that data.

01:51But we do much more than that.

01:52We host themes, such as today, with clients.

01:55We undertake a number of webinars, podcasts,

01:57moderate chat rooms, etc.

02:00We have also expanded much more into thematic

02:02and more deep-dive reports,

02:04and also do a number of surveys.

02:06And that takes me on to the second part of my talk today.

02:08So I'm going to call briefly on a survey

02:11we undertook earlier this year

02:13to answer the question before me.

02:16So we undertook an anonymous survey

02:18of 93 chief information and technology officers

02:21of many of the largest banks globally,

02:24including some of those that are present today.

02:28And the findings of that survey are fourfold.

02:32First, those banks expect to achieve

02:34over US$180 billion of profit upside

02:37over the next three to five years

02:39due to the rollout of AI,

02:42with eight in ten of those banks

02:43expecting to boost revenue by at least 5%.

02:46That comes at a cost.

02:48There's expected to be about 200,000 job losses

02:50as a result.

02:52But it's important to note,

02:53that's just 3% of the combined workforce

02:56of those banks.

02:57Therefore, we see AI more about transforming

03:00rather than trimming headcount.

03:03And there are cost savings,

03:05scope for cost savings.

03:06That is seen as relatively modest,

03:08and I'll come back to why shortly.

03:11So if I dive deeper into some of the findings

03:13from that survey,

03:14management teams are bullish,

03:16as I mentioned earlier,

03:17with more than 80% expecting to boost revenue

03:20by 5% or more over the next three to five years,

03:23with just one in 20 expecting no impact on revenue,

03:27and none expected of revenue to decline as a result.

03:3060% of respondents expect AI to drive a smaller workforce

03:38over the next three to five years.

03:40And that compares to just 24%,

03:42expecting that to increase.

03:44But compare that to the following slide,

03:46which is on the costs overall,

03:48and the picture is much more mixed,

03:50with almost as many banks expecting costs to rise

03:53as expect a fall as a result of AI.

03:55And that reflects a huge investment spend needed

03:58as the banks build up to prepare for the AI rollout.

04:02We also assess the main challenges

04:07banks face from implementing AI.

04:10Lack of skilled personnel,

04:11and integration with existing or legacy systems

04:14is coming out on top.

04:18We also look at the areas most likely to be impacted by AI,

04:21including risk management,

04:23fraud detection,

04:24and customer service.

04:27But before I wrap up on my agenda today,

04:29I'd like to leave you with a couple of thoughts

04:30to ponder over.

04:32I've mentioned a lot today

04:34about the huge revenue upside

04:35that these banks expect from AI.

04:38And what I'm showing here

04:39is a chart for the US banks

04:40over the last 40 years

04:41of revenue per employee.

04:44And I've adjusted the numbers for inflation

04:46over the period

04:47to restate all into 1984 prices.

04:50And what's clear

04:51is that over the 80s, 90s, and noughties,

04:54there was a steady rise

04:55in real revenue per employee.

04:57But since the great financial crisis of 07-09,

05:00that path has been much more stable.

05:02And therefore, my question I would leave you with

05:06is certainly for an individual bank,

05:08we can certainly see that huge revenue boost potential

05:11coming from AI.

05:12But for the financial sector overall,

05:15I think maybe a bit more challenging.

05:19And secondly, I had to go even further back,

05:21this time in 90 years,

05:22back to the 1930s.

05:24And of course,

05:25that's a period of huge technological advances.

05:28The impact of the invent of the computer,

05:31electronic payments,

05:32introduction of PCs,

05:34the internet,

05:35and mobile banking,

05:36all impacting the financial sector.

05:38And yet, despite that,

05:39the cost-income ratio

05:40for the US banking system

05:41remained remarkably stable

05:43within a very tight range of 56% to 70%.

05:45Now, of course,

05:48there's no denying the huge impact

05:50that AI will have on financial services.

05:52But when it comes to a turn on investments

05:54and banks' own profitability,

05:56will there really be this huge increase in revenues

05:59with costs remaining relatively stable,

06:01as people were predicting?

06:04And that would mean

06:05a breaking out of the overall 90-year trend.

06:08Of course, only time will tell.

06:10But thank you for that.

06:12And lastly,

06:13if I can just leave you

06:14with a very quick slide.

06:15I've talked today,

06:16excuse me,

06:17on banks

06:18and in the financial sector,

06:19but we are currently rolling out

06:20a much larger survey

06:22to over 600 senior executives,

06:24and this time across all sectors,

06:26so including pharma,

06:27autos,

06:28telecoms,

06:29et cetera,

06:29and many more.

06:31And BI Amis

06:31are currently crunching through

06:32the data on that.

06:33So please stay tuned

06:35and hit BI Go on your terminal

06:37as those results

06:38will be released soon.

06:40Many thanks.

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