$200 Trillion at Risk: The New Threat to Banking

Jim Marous (00:11):

Banking executives know their industry is being disrupted. What they don't know is how much their balance sheet they've already lost control of. According to Accenture, more than $200 trillion in global bank deposits and loans are now at risk, and that threat isn't coming from another bank. It's coming from stablecoins, AI agents that can automatically optimize finances and platforms that can quickly move cash often outside of the traditional banking system.

Jim Marous (00:44):

Today's guest, again is Michael Abbott from Accenture. His team's new report on the top banking trends for 2026 reveals some uncomfortable truth. For instance, 70% of IT spending still goes to maintaining outdated systems. Margin compression could reduce US bank's pre-tax income by 22%, and many of those loyal customers they've stayed with their bank for seven years, the research calls them lazy loyalists.

Jim Marous (01:17):

The real question for banking leaders isn't whether this stuff is happening, but how much of the balance sheet they will still control when it does. Mike joins us to discuss how banks can respond to these threats by moving faster than their modernization efforts right now are going.

Jim Marous (01:35):

So, Mike, welcome to Banking Transformed Five Timers Club. As we dive into Accenture's annual banking report, it's unsurprising that your episodes consistently rank among our most popular because you as a person and Accenture as an organization, don't pull punches.

Jim Marous (01:55):

So, let's start. Accenture describes 2026 as the start of unconstrained banking. What's the one constraint banks must most urgently need to remove first?

Michael Abbott (02:09):

Jim, by the way, it's great to be here, and you did a fantastic job summarizing all my report. I want to record that and take that for myself. Just phenomenally well done. We got a lot to cover here.

Michael Abbott (02:21):

So, let's start with the title report: Unconstrained Banking. And here's where this came from. As I went around the world, and I think many of us know, you talk about the impact of generative AI, and what I would say is I would say you get a lot of negativity, like it's going to take out jobs, it's going to do this, it's going to do that, et cetera.

Michael Abbott (02:41):

And the way I would describe it is back to my childhood days. There's a lot of Eeyores out there, Eeyore from Winnie the Pooh, right? There's a lot of people, “Oh, pooh, the sky is falling, my jobs are going to go away and everything.”

Speaker (02:53):

But as we went around the world and we looked at the inbound of what we have (and we'll talk a lot about this, whether it's stablecoins, whether it's technology development, et cetera), I saw the opposite. I saw a Tigger opportunity. What I saw is I saw if you stop and you look at banking, because constrains in banking have been always about the amount of work you could do in technology, the number of people you had.

Michael Abbott (03:14):

Every banker is like, “Can I hire more? Can I hire more? Can I hire more?” Well, imagine now instead of looking at generative AI as a constraining technology, instead, think about what you would do with 10,000 more people at marginal costs, right? At almost next to nothing marginal costs. What would you do? What would you do with them? How would you change?

Michael Abbott (03:33):

And if you think about generative AI as an unconstrained technology and take a Tigger approach to this, you see a very, very different world. In fact, one of the things we observed was if you're a bank of 20,000 people, I don't think you're going to be a bank of 20,000 people anymore. I think you're going to be a bank of 200,000 people if you think about it right.

Michael Abbott (03:53):

And that's the impact of unconstrained banking. You're going to be able to do things you just never could get to before. So, that's what this report's all about.

Jim Marous (04:01):

It's interesting, you referenced it right here, the report suggests that growth is no longer tied to headcount. In fact, you have the 10x bank, which really is looking and saying with AI and all the tools we have available, you can do what 10 times more people couldn’t have done in the past, which really is great for the big banks, but really cool for the smallest banks that right now can do things.

Jim Marous (04:23):

They can do things that Chase is doing today, almost exactly the way Chase is doing for a minimal investment overall, and actually, do what the consumers are asking of their most sophisticated banking partners. So, the reality of that concept for most institutions, what is that over the next three years?

Michael Abbott (04:44):

And Jim, you nailed it. In fact, we're famous obviously for working with some of the largest players in the world, but believe it or not, I actually work with community banks too. I do a lot of work with community banks, even mutual banks, not-for-profit mutual banks.

Michael Abbott (04:56):

And what we've seen is we've seen that this technology has been democratized to a point where even a mutual small community bank, if they want to change their marketing programs and do a marketing campaign, you can get an AI engine that will do all of that that an agency had to do before. If you want to develop a very quick website, all you have to do is have the concept and you can deploy it very fast.

Michael Abbott (05:16):

Risk compliance. In fact, one of the key learnings in this (back to your point around unconstrained) is that to think unconstrained, you have to think about AI not as being for a few, but for the many. And if you take a simple approach of saying, I'm going to enable every single person in my firm to figure out how to do their job differently, you will by definition start unconstraining the bank.

Michael Abbott (05:40):

And so, I think it's going to hit everything: legal, risk, compliance, technology development, marketing, relationship managers, you name it, the opportunities are almost unlimited.

Jim Marous (05:50):

Well, you know what? And then it gets back down to, and it goes back maybe 1, 2, 3 or four years of our discussions; the power of democratizing not just insights, but the way things are done throughout the organization. If you enable people to become smarter with all the tools that are available today, they can grow with the marketplace. The challenge is it feels risky to a financial institution that never shared anything internally.

Jim Marous (06:18):

I mean, I mentioned to you before when I was in marketing, I have to go to the IT department to get any reports of any program results we got, and I get those six months later. The reality is these are available instantaneously. And if a financial institution wants to, everybody within the financial institution as well as to the consumer themselves – the challenge is that whole risk mentality that says, I'm concerned about what could happen if I share holds financial institutions back.

Jim Marous (06:48):

And it gets back down to, again, leadership culture and the way we've done things in the past tend to be our biggest ankle bracelet that really creates challenges going forward. Mike, money is becoming programmable, agentic, and autonomous (cliche words), but the report shows that stablecoin transaction volume reached, I think it was $51 trillion with 88% year over year growth.

Jim Marous (07:20):

Now mind you, that's not a small X to make it Y, but 35% of consumers are open to letting AI handle purchases automatically. What does this imply for traditional deposit and payment economics as customers gain the ability to actually build their own optimized solutions?

Michael Abbott (07:43):

Yeah, Jim, there's so much in there. I'm going to do three parts to this. One part just to comment on what you said before. Culture I think is the critical one. In fact, I would argue that people ask me what's the greatest differentiator right now? I think culture, and it's banks that have a culture of curiosity tempered with execution are the leaders, meaning they're natural, they encourage their people to try new things, but they're execution oriented and they focus on risk and compliance.

Michael Abbott (08:11):

I'm going to answer your middle part on this, but the other part we'll talk about is on competition too from the outside. But as it relates to specifically for payments and stablecoins, here's the interesting thing about it – and yes, stablecoins now have over a quarter of a billion users globally. We looked at this extensively as part of the report, and what you see is you see it really is a deposit system that's outside of the banks, but it's dominated by two players. Circle and Tether represent over 70% share.

Michael Abbott (08:38):

And in many ways, what they become is they become kind of a telephone network of money to move it around the world. So, a lot of what you're seeing, that international stats you've seen from moving money around … they move more money internationally now than Visa and Mastercard across the world.

Michael Abbott (08:57):

So, here's the thing, but they're not depository institutions just yet. So, my personal view right now is I think it's a little overblown that they're going to take out the deposit side of banking stablecoins on their own. But I do think they represent a very new way of paying, especially as they start to move to the point of sale and people can access that money directly.

Michael Abbott (09:19):

But right now, it's still very much kind of a place to park money rather than a demand deposit account or a checking account that you would see in a traditional bank. That's the consumer side.

Michael Abbott (09:32):

The opposite is true for commercial. The opposite is true for commercial, because in commercial, stablecoins are already disrupting the whole nostro vostro accounts, and frankly the things we've inherited since the days of the Medici.

Michael Abbott (09:44):

All of a sudden, you're seeing now, you think about back to the days of the Medici, what did you do? You moved gold from one bank to another bank. And by the way, we inherited that when we built our digital systems. We move money from one bank account to the other.

Michael Abbott (09:58):

Imagine a world where the money just sits in one place and all you do is change the pointer. When you get to commercial banking, you can collapse globally. Nostro, vostro, all that trap cash, we're seeing banks already do that and out there publicly. And it is incredibly game-changing technology there.

Michael Abbott (10:16):

So, sorry, that was a long answer to it, but consumer side, maybe probably not as much risk right now. Commercial side, huge opportunity.

Jim Marous (10:25):

Well, we just talked to somebody about stablecoin, and it really, it's going to disrupt probably the payments area first with Walmart and Amazon playing a role, PayPal playing a role. Chase obviously, playing a role. But the reality is, I think you've seen it, and I've seen it, that more and more institutions are putting a stablecoin part of their core together without really knowing how it's going to be used or what it's going to be doing.

Michael Abbott (10:51):

But they're putting things in a place point where they can actually leverage it in the back office if they need to. They just don't know where it's going to be pointing. And you point out that customer experiences are shifting away from bank-controlled channels. How should banks reconsider their engagement strategies when AI assistance and digital wallets act as intermediaries between them and the customers?

Michael Abbott (11:21):

And so, let's dive into this one and maybe go nature of competition. We see (and you mentioned upfront on the $200 trillion at risk) – what we're seeing right now is we're seeing startups come in and say, I don't need to be a bank to control banking. And it's fascinating because when you look back, 2000 was the height of the dot com bubble. So, it's 26 now.

Michael Abbott (11:46):

Quarter of a century of digital disruption, but not one digital bank’s in the top 250 globally, not one digital bank; because banking is a business of scale, trust, relationship, and it's mathematically limited by your return on equity, your growth rate, unless you go get more and more money.

Michael Abbott (12:04):

The future's not that. The future is players coming in from the outside and attacking the balance sheet without being banks. And the greatest example that you've already seen is private credit, certainly on the commercial side, coming in and offering credit on that side. And what we see is we see over the top players coming in to say to consumers, “I can optimize your money for you.”

Michael Abbott (12:26):

So, just imagine it's simple for the listeners. Imagine if you could go to ChatGPT and say, “Optimize my idle cash” and give them access to your bank account. You don't need to be a bank anymore. You can move that money around, and if just 15% of that money moves, you wipe out the quarter of the profitability of banks in the US.

Michael Abbott (12:48):

It's that deposit beta that's sleeping out there. That's those lazy loyalists you talked about before. If they get woken up, there's a lot to be risked there, and you don't need to be a bank to do it. And that's where we see the competition coming.

Jim Marous (12:59):

Well, it's interesting because what you're talking about here between stablecoins, digital intermediaries, the whole issue of around agentic AI and all this, it's like financial institutions have to play Whack-a-Mole. I mean, it is like one thing after another where they got a hit and say, what do I deal with right now? How do I prioritize?

Jim Marous (13:21):

And on the foundation of all this (and this is something we've talked about every single year you've been on this show) is many banks have invested heavily in digital experiences making their mobile app liked by the consumer, and they're all looking roughly the same. But your report indicates that 70% of IT spending goes to maintaining outdated systems as opposed to improving to a digital world.

Jim Marous (13:50):

Technology costs have increased four times faster than banking revenue over the last 15 years, and yet, it's still becoming a liability as opposed to an advantage because they're investing in old ways of doing things and just try to make them more digital.

Michael Abbott (14:08):

And Jim, we call it the high cost of low-cost decisions. So, if you look over the last 20 years, banks have progressively as they've done an incredibly great job on the digital side, even though it's become a sea of sameness on that front, every bank app is great. They're all rated 4.8, 4.9.

Michael Abbott (14:24):

What they've done though to fund that is they've taken the core systems, and they said, look, I'm just going to keep making very incremental low-cost decisions, not progressively moving. And what they have now is they have a spider web of code that's sitting out there that's eating up 70% of their most precious commodity, their people to maintain it.

Michael Abbott (14:42):

And so, what we see in this report, and you'll see in there is I don't want to just admire that … I can see that problem. What we're seeing is we're seeing that generative AI emerge and the ability to reverse engineer, forward engineer, and change the very nature of how that software development gets done. That's point number one that we think is a game changer.

Michael Abbott (14:59):

Point number two though is kind of moving towards, I would describe it as a, call it Linux cloud, whether you're on-prem or in the cloud, I don't care. But collapsing the complexity of your operating systems and everything that's underneath there and simplifying that environment.

Michael Abbott (15:14):

Because if you can get back to frankly like a world we were back in the seventies where you have just one operating system in the mainframe (except now it'll be kind of a Linux cloud environment), you can radically simplify and reduce those costs and take the complexity out.

Michael Abbott (15:28):

Because a lot of that complexity is just trying to match up old APIs to each other, and we're now starting to see that happen. And the last piece, I would say, the third big thing is that if you looked at that problem three years ago, the general rule of thumb was if you're spending you a million, you have to spend 3 million to move it. That number I think is getting closer to one-to-one, and it's going to come down even lower. So, now, it's possible to actually finally economically tackle this problem too.

Jim Marous (15:58):

And you can now implement it in stages. It used to be you have to replace the entire core, where now you can look at your biggest challenges, you can look at your North Star and determine what do we have to fix first for who we're going to become, and become more resilient, at least in the spots where you're most at risk, and then continue to evolve in a way that can be done quickly.

Jim Marous (16:20):

I mean, we go back to a time when you and I might take three to five years to replace a core. Now, you can replace the most sensitive part of your core in a matter of six months if you wanted to. It takes focus. It may talk about dual systems running it once at certain times, but the reality is you can't afford to wait any longer, and you can't simply take your old system and digitize that. I think it's a mindset as well as a strategy, I believe.

Michael Abbott (16:52):

I agree. We call it progressive modernization. You don't need to do the big bang anymore. In fact, I can't think of any bank anymore that would do a big bang approach to modernization. We say it's a progressive modernization. You can isolate move, and you can move in six months cycles and you can move the thing that has the best economic impact to you.

Michael Abbott (17:10):

And where we're seeing that more so these days? Is around product sets and features so they can get at better pricing cross product capabilities. So, you're seeing it where it's kind of moving out of the experience layer into the product pricing layer so that you can do a much more sophisticated pricing and product because there’s a lot of value there.

Jim Marous (17:32):

You mentioned the report that competition is actually shifting from products to balance sheet. The research shows that we talked about that a 15% erosion in deposit margins, which is very feasible right now, could lead to a 22% decrease in pre-tax income for US banks.

Jim Marous (17:53):

What incumbents are the most exposed to this margin compression and who's adapting the fastest? And you can name names, you can name segments, you can just give examples, whatever you feel comfortable with.

Michael Abbott (18:05):

Yeah, and I was talking about this a little bit earlier. This is the question of going to ChatGPT and say, “Optimize my idle cash,” and then all of a sudden, you can move that around. Right now, deposit beta in the US is about 50% plus or minus, which means that if you look at the federal funds rate versus the average that banks pay to depositors, it's about 50% less. So, they make that kind of as a risk-free spread.

Michael Abbott (18:28):

So, any bank that's making excessive margins on that risk-free spread is probably most likely at risk, which believe it or not, is probably not so much the community banks, but it might be the larger ones out there.

Michael Abbott (18:42):

And then in response to that though, the question is what do banks do? And I think there's both an offensive and defensive approach to this that we're seeing out there around the world. On the offensive side, we're seeing banks contemplate putting that kind of ChatGPT function into their own banking app, meaning I'm going to do it first. I will get out there and I will say, I will optimize your idle cash, link up all your accounts to me, and I'll make it happen for you.”

Michael Abbott (19:07):

Because now, all of a sudden, the thesis is I'll see visibility to everything that you have and I'll help you optimize it, move it around, and if I have the best thing, I'll do it. If not, I'll move it outside, but at least I have control and visibility. So, that's an offensive approach, say I'm going to do it before it gets done to me.

Michael Abbott (19:24):

The defensive side we're seeing is around product innovation, that rather than let your products get picked off one by one individually, can you integrate your products together across your deposits and lending side in such a way like offset mortgages and other things where it makes it virtually impossible to be picked off by a simple GPT.

Michael Abbott (19:44):

So, Jim, what we're seeing in this is banks are recognizing this is coming, and they are responding both offensively and defensively.

Jim Marous (19:52):

So, that said, we have a situation that I'm going to get back to risk again. It makes all the sense in the world that a financial institution would take an aggressive position and say, “We're going to help you optimize your positioning even if we have to move it to another organization outside of our organization to help you.”

Jim Marous (20:13):

I gave I think last year my example of my mortgage that they waited so long to even offer to change my rate, that by the time they were ready to say something, I had already decided I was going to move it to another organization and combine it with a mortgage down here in Florida.

Jim Marous (20:29):

Well, they lost, and they could have gained overall from a revenue standpoint, but they hesitated. In you're working with financial institutions, how many organizations are really ready to think on behalf of the customer if it might end up hurting their bottom line?

Jim Marous (20:48):

How many people are in that mindset, or put another way, how many organizations are really willing to take the risk of maybe offering to do something that may not be the perfect answer. Even when I was back in the banking days, the organization would continually hesitate, “What happens if we're wrong?”

Jim Marous (21:07):

They give you three offers for credit cards because you go, “I want you to make the choices, not me.” Are the mindsets changing the marketplace enough to embrace personalized solutions, to embrace agentic AI to embrace the ability to maybe offer product outside their product set?

Michael Abbott (21:26):

That's a great question, Jim. And to answer it very directly, not many right now, not many right now. You're absolutely right. I'd be lying to you if I said, oh yeah, banks are all over this. There's a few that are starting to realize it and looking at it. And the way they're approaching it (and I mentioned it said before, offensively and defensively), what they're also doing is they're doing it very carefully at a segmented level.

Michael Abbott (21:48):

Meaning your example of a mortgage is a perfect one. If I can get those signals from you, from your web behavior, et cetera, your digital marketing footprints, and so what we see the best ones doing is organizing the data around the customer just like a relationship manager would, like a digital memory.

Michael Abbott (22:03):

And then using that digital memory to then prompt, I should take an action here. So, do I think anyone is going to launch and do it immediately across the board proactively? Probably not. But what we are seeing is we're seeing them think like a branch manager, which is a key part of the future of experience.

Michael Abbott (22:22):

Organizing data around the customer, understanding their intent before they take action, and then meeting them where the intent is. And the mortgage example is a great one of ones we've seen banks do. I've seen banks even looking at geolocation information from the phone and understand that you may be living in a certain area and going to visit an area where new houses are being developed, and then proactively pinging you around getting a mortgage.

Michael Abbott (22:48):

So, it's a very fascinating question, but to answer your question, no one's doing it flat out. They’re very careful.

Jim Marous (22:57):

Interesting part is with all this digital information out there, they can be a quick reactor, but it's who's going to be willing to take that proactive step? Because my mortgage situation was a great example. We were shopping for a mortgage, and the only time my old mortgage holder knew that we had made a decision to go elsewhere is when they needed a payoff for the new organization.

Jim Marous (23:17):

And the president of the bank called me, the credit union called me and said, “Can we get you back?” I said, “You could have.” This is not something that was new. I've been sitting on a bad interest rate now for five years, and you keep on saying you're looking out for me, but you're not. You’re not even offering me some margin break where you say, “Hey, you know what? Let's take you halfway to where the interest rates are today.”

Jim Marous (23:38):

That would even be a good move that may keep us in the game, but the reality is when you only react when I've already made my decision, if you only offer me a great car rate after I bought a car as opposed to when you could have gotten me when I was shopping for a car, it becomes a late reaction, especially at a time when as a consumer, I know I can make a decision almost while I'm having this podcast interview with you.

Jim Marous (24:03):

I can do it seamlessly and easily through a lot of digital alternatives and the organizations, if they just looked at transfer of funds, they looked at communication, they looked at credit bureau pings, all kinds of triggers that are out there, but they're afraid of offering you something that may be a mistake when I'm saying Amazon continually offers me things that aren't exactly on track, but I know that they're using data to drive that decision.

Jim Marous (24:36):

So, I'm kind of okay with mistakes because I know they're looking out for me in a way at least to make it so I make a good decision.

Michael Abbott (24:43):

The way you put it there, I would say for all of our listeners out there, I'd say defense can prevent you from winning, but you're only going to win with offence.

Jim Marous (24:53):

From that same context-

Michael Abbott (24:53):

You have to play an offensive game here. You have to say, how am I going to lean in to reach out to that customer before it's too late?

Jim Marous (25:01):

In that same context, Accenture argues that banks must choose whether they want to defend, partner, or change the game. How should leaders decide which path is right for their organization because it’s not the same for everybody?

Michael Abbott (25:14):

By the way, it's not. And what you're referring to there is as GPT engine … so, let's just back up real quick because the context here is critical. The internet is being broken right now, the value equation. And what I mean by that is in the old days of search, the quid pro quo was, I'll put my site out there, I'll let you crawl my site because I know you're going to present me in a search engine.

Michael Abbott (25:40):

When you go to a GPT, you do not get presented anymore. You just go in there and the GPT will go do everything behind the scenes and come back with just the answer. So, what you're referring to is what we're looking at saying banks are going to need to make a decision as consumer eyeballs move away from search, and there's no longer a link up there. How do they want to present themselves in these GPT engines?

Michael Abbott (26:02):

Do you want to stay with a brand and be branded only and say, I am not going to present myself in there because I'm going to defend? And by the way, for scaled consumer businesses, that will probably be the answer they'll take. They will not let their brand go in there.

Michael Abbott (26:17):

Or the other end of that extreme is I am going to expose my capabilities at a detailed level like mortgage application you just mentioned. So, the GPT engine can go right through and see if I'm approved for the mortgage and go right into it, and I'll make it available to them.

Michael Abbott (26:33):

In fact, what we're seeing in retail is we're seeing retailers develop two sites. One site for the consumer and one site for the agents to come directly in. That has not come to banking yet, but that's the core of the decision banks are going to need to make, is do I want to maintain the brand and the user experience, or do I want to look at these new channels as distribution where they will come directly to me and will I be end up building new sites for them to come in for my product specifics?

Michael Abbott (26:58):

To answer your question directly, I do not think it'll be one answer for a bank, nor do I think it'll be one answer within a bank's product lines. I think some banks will say, “Hey, for the retail side, I'm not putting my retail customers out there inside of this, but if I'm doing auto loans and I'm just looking for a distribution channel, I'll expose my auto business.” So, I think it's going to vary by product as much as by company.

Jim Marous (27:20):

Interestingly, our research that I read of yours and what we've done – we've seen a pretty large gap between what financial institutions say and what they actually do, and a big gap between what executives want to achieve and their ability to achieve it.

Jim Marous (27:43):

In fact, when we did our research on this coming year, we looked at the trends and priorities. Well, what they saw as trends didn't necessarily guide their priorities, and that's that operational reality. Where do you see the biggest gap today between executive ambition and operational reality?

Michael Abbott (28:01):

Great question. I call it the say-do ratio. It's something I've believed in all my life. If you say it, you do it, and you measure it, right? It's kind of a build G training that was drilled into me over decades. I think the biggest gap is in generative AI. All of them are talking about what they're doing, but most of them are science projects.

Michael Abbott (28:20):

They're not prepared to scale. So, they're playing with them on the side, but they're not really making the commitment to enable everybody to put it out there and fundamentally change the way that we do it.

Michael Abbott (28:31):

In fact, I won't say who it was, but I was meeting with a bank, and I was talking to them about what they could do with summarizing a phone call. It's the basic thing that even most community banks do now, which is after a phone call is done, summarize the notes so that the person doesn't have to write them up anymore.

Michael Abbott (28:44):

Pretty easy generative AI case, I think it's the easiest one in the world right now. And they were talking about, yeah, we've got it done, everything. And I'm like, well, why haven't you deployed it? And the blank stairs across the whole room? I'm like, you know what to do.

Michael Abbott (28:56):

So, Jim, if I had to point to it, I'd say the say-do ratio on generative AI, it needs to move from being a science project to being deployed, and that would be the number one metric I'd look at if I were a bank exec at the moment right now, what's my say-do ratio on generative AI?

Jim Marous (29:11):

Well, and then the third part of that, which is measure it. You've done surveys and research, McKinsey's done them, we have other organizations have done them and say, we don't know if we're getting the payback on AI. And then you go, well, let's dig a little bit further because that’s great click bait.

Jim Marous (29:28):

But the reality is it's not like they've measured and they can't figure out if it's making money. No, it's that they're not measuring it. They don't have really good set plans as to what does it have to do to execute and what are we going to measure, and how are we going to determine the value of it? We're just doing things, and that doesn't get us anywhere, and it puts jobs at risk.

Jim Marous (29:47):

Because you’re looking at something, you're going like, geez, I don't really know why they're doing this, and I can't tell you if it's actually achieving what it has to. Well, if I don't know that, then I can't justify further investment, which gets even more dangerous.

Michael Abbott (29:59):

So, not to go too far down this measurement rabbit hole, but I think for everyone, this is an observation I've had, which is there's two simple ways I've seen different banks do this: leaders versus followers.

Michael Abbott (30:11):

The followers generally speaking are when they look at the use case and the cost of it, they load up every single thing, all the startup costs, everything into each individual use case, and then it looks like it's negative. The leaders on the other hand have taken the view that this is 1980, generative AI is Excel. Excel has just been released, and you're not going to be able to do banking without Excel going forward. I think we can all agree on that.

Michael Abbott (30:36):

I'm going to take the cost of enabling this at the corporate level, and now the marginal cost is just how much time or money it costs you to run the LLM, and it encourages them to pick the right LLM and be super-efficient. Banks that think that way are without a doubt leading across the board. Because they've said, I'll take the cost of enablement out of the way, I've given you all Excel, figure out how to use it. Just a complete different way of looking at the return, Jim, that I've seen out there.

Jim Marous (31:04):

Well, it's also one of these things too, as you look at this and you say a challenge of simply looking at cost savings as opposed to revenue improvement, we continue to deploy AI tools as a way to save money because it's easier to measure without looking at the revenue side potential, which really is significantly bigger according to your research and my research than the cost savings because you only can squeeze that so far when you have so much operational costs that are built into the mechanism already for a traditional bank.

Jim Marous (31:40):

It's a matter of saying where are you going to amp up the revenue? Which again, gets to how are you going to deploy your solutions in a way that helps the customer, because otherwise, you're not going to get the revenue increase.

Michael Abbott (31:52):

By the way, a simple way I've heard that said from one CEO, I thought they summed it up really well. They said in banking, you win revenue once, everyone gets cost. If you want to be a winner, you need to win revenue. So, it's exactly that. And I would say 90% of the banks out there are focused on cost of generative AI. The great ones are focused almost exclusively on revenue, and I'll get the cost later.

Jim Marous (32:17):

Let's take a short break here and recognize the sponsor of this podcast.

[Music Playing]

Jim Marous (32:24):

So, in your report, what was the biggest surprise that you didn't see coming but it hit you in the face?

Michael Abbott (32:33):

That's interesting. I think the one that kind of stunned me as we went through when we were thinking about it was it kind of goes right back to the title: Unconstrained Banking or Banking Unconstrained, that I too had fallen into the trap of thinking of the impact of generative AI as a limiting technology and et cetera, and efficiency. It's kind of the way we're all trained.

Michael Abbott (32:55):

And when I step back, exactly the point you're making around revenue, you start thinking about the opportunities and moving from a position of Eeyore to Tigger and saying, “What can I do with this?” I really didn't see that coming. And when I still look at all the conversations out there with all the analysts, almost all of them are a bunch of Eeyores. There's very few Tiggers.

Michael Abbott (33:14):

And this report is about changing the narrative. It's about changing the narrative in the industry to one of the sky’s falling to the sky, it's a huge opportunity here. Embrace it, run with it, drive the change.

Jim Marous (33:26):

Boy, that's a great comment because we talk about even in the sense that you may have some job losses or some jobs shifts at all, but the reality is everything under the roof is going to be doing more. I think there's a tremendous upside.

Jim Marous (33:43):

And I think one thing that caught me by the report, and I kept on reading page to page saying, okay, where do we get to this number? It's the size of the risk. I mean, it is not an easy number to comprehend. You keep on looking and say, “Guys, if you don't do these right things, if you don't do the aspirational things, then the sky will be falling.”

Jim Marous (34:08):

And one of the things you got back to, and I mentioned the introduction, is the lazy loyalist. What's the most dangerous assumption that leadership has around loyalty today, and one they keep on hiding under?

Michael Abbott (34:24):

Believing consumers will never wake up to the rates you're charging them like you woke up last year on your mortgage rate. That assumption by the way, has been a good assumption for a hundred years. But in the age of transparency, the age where you can just simply go to a GPT and all of a sudden, you've got social media that can show the art of the possible where people are not looking to the banks for information, but the TikTok influencers and all of a sudden, somebody out there with 10 million views tells you, “Here's how you can optimize your money” – you don't want that to happen without having thought that through.

Michael Abbott (34:57):

And that's the point you're making around the 200 trillion. There's a hundred trillion on both the deposit and on the credit side. So, that’s how the 200 trillion comes out. That’s at risk, and to go after that now, today, you used to have to be a bank. The point we're making in this report is you really don't need to be a bank anymore. You can really come over the top on this both on the liability deposit side and on the asset side, the lending.

Michael Abbott (35:22):

And you're already seeing that start more so on the lending with private credit right now, but we're starting to see it around the world happen on the liability deposit side too.

Jim Marous (35:31):

Well, it's interesting too because I've said this example many times in this podcast that I'll get in a room of bankers, 200 bankers, and I ask, “How many of you have changed a primary financial relationship in the last five years? Or how many of you have closed a primary financial relationship in the last five years?” And virtually nobody raised their hand.

Jim Marous (35:52):

And that's a biassed audience because a lot of these people work for the banks and that's why they have the relationship there. But then I say, “How many of you have opened an additional financial relationship with your non-primary financial institution being on a credit card side, a loan side, or a deposit side, a saving side?” And everybody raise their hand.

Jim Marous (36:10):

And I'm going, “Guys, look around; guys and girls, look around. This is the silent attrition that happens to you every day because it's so easy to open an alternative financial relationship without closing your existing. And if organizations are not watching their flow of funds, if they're not continuously monitoring during paycheck day, where do funds go? What happens?

Jim Marous (36:32):

It's not just paying for things, it's moving transactions. It's maybe going to Robinhood, maybe going to SoFi, maybe going to Chime. And I use Chime as an example because you've seen the results. We've seen it everywhere that the highest number of new checking accounts are opening with Chime.

Jim Marous (36:49):

I mean, it used to be that organizations said, “Yeah, but there're small accounts, there's secondary accounts, all this.” The reality is Chime's been around for I think seven years and no longer are these people saying it has to be a secondary relationship. They know they're safe. All their questions about are they going to be around have been answered, and there's other players coming into the marketplace.

Jim Marous (37:08):

And I think that assuming that a person is not going to build their own open banking relationship around other players, and if you think your part of it is going to hold tight, look at the flow of funds. Look what happens on a monthly basis, look at the number of times a person comes into the office or actually transacts something besides an automatic transfer.

Jim Marous (37:28):

And by the way, look at the amount of insight you're capturing (and stablecoins are going to cause a problem here too) around each one of your customers. It's becoming less and less because so many things are digital. My business bank only sees PayPal transactions either inflows or outflows by PayPal. They don’t know who in the world I'm paying, they just know PayPal.

Jim Marous (37:50):

That's risky. That's assuming that you're going to stay, as Ron Shevlin will say, the deposit warehouse on an ongoing basis, it's not going to happen.

Michael Abbott (37:59):

Could not agree more. That is exactly it, and it was always friction, the pain of opening a new account, moving the money around. Now, imagine, again, you go to ChatGPT, you say, “Optimize my cash.” “What bank do you have?” “Oh, okay, got it. We'll go log and we'll find, oh, here's what you got. You're keeping $10,000 too much here. I can push it up to a stablecoin for you and get your 4% right now. Risk-free, backed by treasuries, would you like me to do that?” “Yeah, sure.” “Done. Okay, I opened the account, I've done it for you, it's all set.

Michael Abbott (38:25):

The problem was friction's coming out of the barriers that were there before, and I think that's the key point of the report.

Jim Marous (38:31):

What's funny too is friction's still in the closing of an account, not surprisingly, but the reality is it doesn't have to be an active account anymore. My son has his money at a specific bank, but every single one of his transactions is done someplace else.

Jim Marous (38:48):

The bank simply is the holding place, which you make money on that, but when the margin starts to shrink and you're not getting any transaction fees, you're not getting any relation fees – and by the way, it's going to get easier to usually go, “Why do I even have an account here? I've never seen a branch, I've never walked into a branch since the day I opened. I don't write a check, I've never had a check.”

Jim Marous (39:08):

What's the friction that's still there besides the name on where your deposits go from your paycheck? And that's changing because offers are out there that're much better. So, Mike, to get to the last point, if a bank and CEO can only act on three priorities in 2026, what should they focus on immediately?

Michael Abbott (39:31):

One is what we've talked about over and over again, which is immediately is turning gen AI from a science project into action, into execution. The say-do ratio, driving it and driving it through. I mean, you have to drive that because the other thing too is you can't go hire somebody with five years experience. The only way you're going to be able to do this because they don't exist, only been out for three – you're going to have to create your team to do it. So, they have to focus on that without a doubt, and that can take a host of different things.

Michael Abbott (39:57):

The second is revenue. Revenue, revenue, revenue. You win revenue once, everyone gets costs. You have to focus on how can you use these technologies and approaches and revenue, whether that is like we talked about, Jim, here on stablecoins, opportunities that you might do there, whether it is on the product innovation side, whether it is looking at your capabilities and what you might want to expose the GPT engines, but you need to really be looking at how you're going to use your platform to drive revenue against these competitive threats and opportunities that we've talked about today.

Michael Abbott (40:31):

And then look, I'd say in the third, I'll give two things. I'll give one further out, but one immediate. The further out, I think you've got to look at the competitive threats and understand how you're going to position yourself against what is coming and how you want to have your brand and what it wants to stand for from a strategy point of view, and then align that to your products.

Michael Abbott (40:50):

I think near term, people culture. I think that's near term. I would put the culture in that. I'd say that you've got to really look at your culture and kind of figure out, can you have this culture of humility, curiosity, tempered with execution, because none of us can know exactly what's going to happen. You have to be able to learn and test and fail a little bit, but to have a strong focus on execution at the same time, there's no way any of us can know everything that's going on right now. So, that's where I'd leave it.

Jim Marous (41:20):

I love your last one because I think we have to remember that culture starts at the very top. You can't have culture built on a weak foundation when the top person is not playing the game. You're an ongoing learner. We've talked about this before between the two of us privately and publicly, that the reason why we're still in this game is we have a thirst for knowledge, and the marketplace is changing so fast.

Jim Marous (41:45):

It's actually fun as hell that we're able to do this for a living because the reality is the marketplace keeps changing. I look at your reports over the last five years, they all recommend something different, but there's always something that tails through.

Jim Marous (41:57):

But the reality is, if you aren't a continuous learner – I just published a brand-new insight video on the power of optimal and lifelong learning, and the risk of becoming obsolete while you're looking in the mirror, because obsolescence happens in a nanosecond now. I get marketing people that come out of college, and they graduate with an advanced degree and they say, “What do you need to tell me today?”

Jim Marous (42:23):

I say, “Well, enjoy the next two years when you have knowledge that nobody else has. But the reality is, in two years, you better have learned two more years of information, otherwise everybody's caught up to you. You have no competitive advantage in the marketplace anymore except maybe a diploma that says you're better than the rest, but the marketplace is moving too quickly.”

Jim Marous (42:42):

So, the culture is going to have to start at the very top. You're going to have to build a whole core of people that want to learn, want that democratized insight so they can do something with it, and that makes all the other parts you're mentioning about revenue, about modernization, about holding onto your loyalty, all that much easier because you have a base of knowledge to build from because we're not going to be where we are. We'll look at COVID as being a point of reference, but certainly not a point where things stopped. It got faster.

Michael Abbott (43:15):

And Jim, I'll just put a staple right into that point that you made. I can't prove this statistically, but I will tell you the absolute best banks I work with, and they have the highest price to book around the world, and I meet with all of them. When I go in there, they grill me for information, and I'm thinking to myself, they're much smarter than me. They know a heck of a lot more than I do.

Michael Abbott (43:31):

But they just have this insatiable curiosity to figure out what's going on, to learn, et cetera, and push it forward. It's just fascinating, and they execute very well. The worst run banks, which I'll leave not named, when I walk into them, you talk about something and say, “I did that five years ago. You're stupid. You don't know what you're doing.”

Michael Abbott (43:49):

And I'm thinking, wow, that wasn't even available five years ago, but I'm glad you were doing it. You're obviously the smartest person on the earth, and meanwhile, they're the worst run banks out there.

Jim Marous (43:58):

We get caught in our own successes. I mean, I talk about it and it doesn't go over really well every place. In fact, probably most places, it doesn't, that a lot of these mid-size organizations have a group of men that play golf together 20 years ago on a Monday night as trainees, and they've not had a bad year.

Jim Marous (44:15):

You can't rest on your laurels today, and if you are, you should get out of the business. But you're right, I think the best run organizations, the ones that have the leaders that really have a thirst for testing the waters, dipping their toe are the ones that are the most successful because they set up a whole core and a whole culture behind them that lives and breathes that. I think at the end, it's going to be those that have the inquisitive of minds.

Jim Marous (44:38):

And just look at the way that ChatGPT talks to you now and how Claude AI talks to you. It never finishes an answer without asking three or four additional questions. It's the questions that are guiding the intelligence, not the answers anymore. It's better to be the smartest questioner in the room than the person with all the answers because there's people in the room that are going to tell you really quickly, you're not the person with all the answers.

[Music Playing]

Jim Marous (45:03):

And I'm sure in your business, it's changed. There was a time when you would have called in to give me the answers. Now, they're digging behind those answers and probing you as to why do you say that? And actually, you're asking them the questions as opposed to them asking you, which makes it so you can bring better answers to the table.

Michael Abbott (45:24):

Socrates is alive and well.

Jim Marous (45:26):

There you go. Mike, as always, it is so great to have you on. Everybody, if you've listened to this podcast, it doesn't get old. Listen to the other podcasts we've done with Mike at the beginning of every year for the last five years because there's points of view in those podcasts that are still a thousand percent relevant.

Jim Marous (45:47):

If we had all the answers, we did everything you said, we probably won't have this podcast. But the reality is, if you go … I did this. Go back one, two, or three years, 90% of it is still applicable. It's just that it was a different angle on the same theme and new technologies. Thanks a lot again, Mike.

Michael Abbott (46:04):

You're welcome. Thank you for the time, Jim. Always a pleasure.

Jim Marous (46:08):

Thanks for listening to Banking Transformed, the winner three international awards for podcast Excellence. If you enjoy what we're doing, we would really enjoy a positive review. Also, check out my recent articles in The Financial Brand, the research we're doing for the Digital Banking Report.

Jim Marous (46:24):

This has been a production of Evergreen Podcasts. A special thank you to our senior producer, Leah Haslage; audio engineer Chris Fafalios, and video producer, Will Pritts.