Industry
Banking
Banking Services Transformation: Unlocking Exponential Value
Highlights
- Agentic AI has immense potential to transform operations, especially customer service and engagement, in the banking, financial services, and insurance industry..
- While banks and insurers must experiment with agentic AI, leading a workforce with humans and AI agents will give rise to new dilemmas where traditional leadership approaches will not work.
- Banks and insurers must ensure ethically sound leadership practices that can help leaders deal empathetically with the dilemmas that will inevitably arise.
On this page
Introduction
The dialogue on agentic artificial intelligence (AI) over the past few months has evolved in exciting ways.
The banking, financial services, and insurance (BFSI) industry is abuzz with the transformative capabilities of agentic AI, especially in areas such as operations, customer engagement, and risk management. Even as banks and insurers are excited about agentic AI’s potential for innovative customer service without the need for constant human oversight, they are wary of challenges around data security, ethical AI use, and regulatory ambiguity. As a result, widespread adoption is still a way off. That said, BFSI firms must carefully navigate this exploratory phase—not experimenting with this technology may expose them to disruption.
While the benefits of agentic AI making inroads into the industry are immense, its adoption has given rise to a leadership conundrum: how should CEOs at banks and insurance firms lead organizations that are not only run by people but also by autonomous AI agents? What are the dilemmas and how must they be navigated? Well-defined guiding principles alone may not be adequate and there is no copilot for this.
To lead and win in the era of agentic AI, banks and insurers will require leaders with a new mindset, the ability to deal with dilemmas, and a deep understanding of technology. Above all, leaders need a solid ethical compass to empathize with customers and employees whose jobs get more complex and challenging as tedious tasks are automated.
Agentic AI for exceptional CX
Agentic AI is the next wave of artificial intelligence with the capacity to solve complex problems autonomously, without the need for human supervision.
Globally, banks and insurers offer similar products at more or less the same price. In customer service, the industry has replaced people with machines to a sizeable extent, reducing human contact to a bare minimum. How can BFSI firms stand out amid such large-scale commoditization? One way is to aim for customer delight by creating memorable moments and making genuine connections. Customer experience (CX) is thus the key differentiator.
We see several opportunities for the adoption of AI agents in the banking and insurance industry, especially in CX. There is a market for AI-driven concierges that autonomously handle and personalize the end-to-end customer journey, without requiring constant human oversight. Imagine an AI agent that can proactively reach out to customers via a mobile banking or insurance app, or messaging platforms when customers visit the branch; and based on the customer’s history and preferences, offers to initiate payments, renew insurance policies, or share information about a relevant new product. If a payment is due and the balance is low, the AI agent can alert customers and help avoid fines for late payment.
AI-backed concierges can be configured to go one step further. Envision a personal agent that rebalances your investment portfolio or assesses your insurance policy and switches to one that delivers better value. The AI agent acts as a financial buddy and offers suggestions on how best to spend or invest the money saved based on account information and transaction history. All this while you are at work or sip a tropical cocktail in the sun!
We envisage a future where customers will utilize their own personal AI agents similar to concierges to engage with their banks and insurers. BFSI firms must ensure that their hybrid workforce comprising both AI agents and humans is equipped to interact with the customer-owned ones (see Figure 1). Payment providers have started launching buyer side agents to help customers browse and select products to purchase and in after-care. This will fundamentally change human and machine interaction and transform business models.
Figure 1: Interaction between bank- and customer-owned AI agents
Another area where digital concierges can help banks and insurers is marketing. Banks and insurers can build purpose-driven AI agents to optimize websites, manage repetitive content production tasks such as resizing and refining target audiences, and scale content and digital media production, as well as improve distribution of content through enhanced channel optimization. Additionally, we envisage a ‘smart marketing concierge' to develop campaigns encompassing ideation, creating content and visuals aligned with brand guidelines, testing, and launch in just a few hours.
Leadership dilemmas
Technology-driven transformation typically leads to pivotal change, giving rise to many challenges.
Agentic AI adds a new dimension by demanding a change in leadership patterns. Organizations including banks and insurers must skillfully navigate this.
The likelihood of banks and insurers embracing agentic AI cannot be ignored. Leaders may soon have to lead a hybrid workforce comprising both humans and AI agents that can decide and act autonomously. So, how should banks and insurers adapt traditional leadership models to accommodate this new addition to the workforce? Clinging to traditional leadership approaches will reduce competitiveness as AI systems will outpace command-and-control models. For example, rigid key performance indicators (KPIs) are used to measure performance which puts immense pressure on sales executives to maximize customer engagement and increase conversions. This leads to over targeting, especially to vulnerable customer segments, and annoying them or pushing products that are incompatible with their financial needs. Leadership must therefore shift from driving action to governing intentions.
Applying emerging technologies to maximize the perceived value of financial services will increase customers’ willingness to pay more, in turn growing revenue. However, there are limits to what is acceptable in enticing customers. What are those boundaries? At what point will banks and insurers end up crossing the moral line? In our conversations with clients, leaders of customer-centric banks and insurance firms expressed concerns around four key dilemmas.
- Is it ethical to know customers better than they know themselves? How far is too far with agentic AI?
AI systems possess the power to understand customers better than they understand themselves. With the ability to predict behaviors, desires, and even subconscious inclinations, a significant ethical question arises: is it ethical to leverage such deep insights? Where do banks and insurers draw the line between personalization and intrusion? For instance, if the algorithm analyzes a customer’s social media information which indicates psychologically difficult times signaling vulnerability, is it fair to offer a quick cash loan for some short lived retail therapy? In the absence of complete visibility into the customer’s existing financial commitments and obligations, won’t such an action on the part of the bank potentially compromise the customer’s financial health and wellness? In a world where AI can predict with incredible accuracy, what safeguards should leaders at banks and insurance firms put in place to ensure the protection of customer autonomy and privacy? - Going from empathy to artificial intimacy. Helpful or creepy?
In an AI-driven world, banks and insurers can create seemingly intimate customer relationships through automated, personalized interactions. However, this raises a philosophical question: what sacrifices are firms willing to make in pursuit of artificial intimacy? How can firms balance the genuine human connection that many consumers seek with the convenience and efficiency of automated systems? Think of a human-like avatar becoming the trusted financial advisor of a customer, mutually sharing vulnerabilities and deeper desires. Now, what if the human-like avatar assumes the face of an existing, trusted employee whom the customer has previously known and starts asking extremely personal questions? When will it cross the line and will this harm or strengthen the relationship? - What is the best business model? Open ecosystem or brand control?
Should banks and insurers embrace open ecosystems, allowing greater collaboration with companies in adjacent sectors? Or should they maintain tight brand control, focusing on proprietary solutions that safeguard their competitive advantage? Banks and insurers are investing in ‘beyond banking’ and ‘beyond insurance’ propositions—for instance, a leading UK insurer built a technology backed ecosystem to encourage healthy living among its members leading to deeper engagement, higher revenue and profit, and increased brand recall. But does this mean that other banks and insurers must embrace the ecosystem model? The decision here has far-reaching implications for both innovation and market positioning, and firms must carefully weigh the risks and rewards of each approach. - How do firms measure return on investment (RoI) in the age of agentic AI?
With the rise of autonomous systems and AI-driven decision-making, traditional methods of measuring RoI may no longer suffice. How can firms quantify success when outcomes are influenced by algorithms, machine learning, and complex automated systems? For example, suppose customer engagement is generated from a marketing campaign, banks and insurers must differentiate between the effect of the algorithm and team efforts, seasonal influences, and so on. Leaders will need to redefine what RoI means in this context, incorporating factors such as algorithmic lift, learning effects of experiments in addition to efficiency gains, customer satisfaction, and long-term sustainability into their evaluations.
Human first
For leadership decisions, banks and insurers cannot rely on AI or a copilot.
BFSI firms must adhere with the following guiding principles while remaining human-centric—basically, adopting a human-first mindset—before using agentic AI:
- Carefully monitor adoption of agentic AI by consumers and their motives for doing that.
- Push boundaries yet be comfortable with discomfort while keeping an eye on the ability of employees to adapt to the rapid pace of tech developments.
- Make value-driven decisions guided by the maxim—is it fair to all? Legal but harmful actions are not sustainable.
- Communicate organizational philosophy clearly. For example, “AI will make us super humans but we will always treat customers and employees with integrity.”
- Experiment in fields where agentic AI will have significant business impact, both across cost optimization and growth, for example, in routine tasks like change of address or sharing information on offerings or assisting a human agent by delivering timely customer insights.
- Collaborate with strong partners in the ecosystem.
- Answer the ‘what-if’ question: what if the core technology is disrupted and sets the firm back?
Think ‘human-first’ in anything you do—this is what banks and insurers must impress upon their workforce and imbue into the organizational culture. We are living in a fascinating era—and though we have access to more technological tools, it is all about balancing the relationship between humans and machines. These principles are not new and were equally applicable to the third industrial revolution. The difference is that now we have access to more sophisticated tools every day. The relationship between humans and machines, however, is still evolving—only at a faster pace. Consequently, the ‘human-first’ fundament must continue to prevail.
At the end of the day, customers are humans. Employees are also humans, though they will soon become ‘super humans’ in a world where many time-consuming and routine tasks will be executed by AI. Technology should always remain a tool, it can never replace human judgment and empathy—humans will continue to depend on leaders to make decisions, especially tough ones that ultimately rest at the top. Even as the nature of these decisions change, so too will the characteristics of successful leaders, and sooner leaders at financial services organizations develop these traits, the better equipped they will be to lead in the age of agentic AI.
