Trust Agents, ℕot Banks: ℍow Agentic AI and Open Finance ℝegulation Will Topple Banking’s Last Fortress

Introductions

The financial services industry has long rested on a sturdy (stubborn) foundation: Consumer Trust

For decades, #incumbent banks and financial institutions (FIs) have talked up their reputations, perceived stability, and regulatory protection to maintain their dominance. But this era could be potentially drawing to a close. The twin forces of #AgenticAI - intelligent, autonomous agents acting in consumers’ best interests—and the global rollout of Open Finance Regulation are set to dismantle the final #bastion of defense that banks hold over challengers - digital banks and fintechs. Consumer trust, once #monopolized by incumbents, will soon shift towards AI-driven agents designed to eliminate friction, maximize transparency, and truly serve their users.

Challenger banks and fintech companies, armed with agile architectures and forward-thinking strategies, are poised to harness these emerging technologies and regulations in ways traditional banks might struggle to match.

Say hello to your new best friend; Agentic AI

Agentic AI refers to artificial intelligence systems that possess agency, meaning they are designed to act autonomously on behalf of users or organizations to achieve specific goals. These systems can make decisions, take actions, and adapt their behavior in dynamic environments without requiring constant human intervention.

Key Characteristics of Agentic AI

• Autonomy: Agentic AI operates independently within predefined parameters or goals, using its programming to decide and act without direct input for every action.
• Goal-Oriented Behavior: It is typically designed to fulfill specific objectives, such as optimizing a process, solving a problem, or assisting users in achieving tasks.
• Context Awareness: It can perceive and interpret its environment or context to make decisions that are situationally appropriate.
• Learning and Adaptation: Through machine learning, agentic AI can improve its performance over time by learning from interactions and outcomes.
• Decision-Making Capability: It uses algorithms, rules, or predictive models to evaluate options and make choices aligned with its goals.
• Interaction with the Environment: Agentic AI interacts with the world around it, which could include physical systems, digital platforms, or human users.

Why Agentic AI Will Redefine Consumer Trust

👽 Knowledge Empowerment: Agentic AI gives consumers unparalleled access to financial insights, advice, and decision-making tools. These systems operate without bias, actively looking out for their users’ best interests—the days of opaque fees, complicated terms, and unnecessary financial friction are potentially numbered

👽 Elimination of Friction: Unlike traditional banks, which often profit from consumer inertia and inefficiencies, Agentic AI streamlines financial management. From identifying better savings accounts to automating loan repayment strategies, these agents reduce the mental and operational burdens of personal finance

👽 24/7 Advocacy: Agentic AI doesn’t sleep, doesn’t take holidays, and doesn’t make decisions driven by quarterly profit goals. It advocates relentlessly for the consumer, providing a level of #trust and reliability that banks cannot match

The Great Equalizer called Open Finance

The introduction of Open Finance regulations in many markets, which build upon the principles of Open Banking, is a potential game-changer in my humble opinion. By mandating the sharing of customer financial (and non financial) data across a broader range of financial products and services, these regulations will:

• Force a more level playing field: Open Finance allows fintechs and challengers to access customer data previously siloed within traditional banks. This levels the playing field and opens the door for innovative products that compete directly with incumbents.
• Accelerate Customer Switching: The transparency and portability mandated by Open Finance make it easier for consumers to compare and switch providers. This dynamic, combined with fintechs' superior use of AI, creates a compelling case for consumers to move away from legacy institutions.
• Promote Greater Ecosystem Integration: Fintechs are leveraging Open Finance to create interconnected ecosystems of financial products, providing customers with seamless, one-stop solutions. Banks, with their siloed structures, often struggle to replicate this.

This open and ready access to customer data through open finance regulations will supercharge the effectiveness of agentic AI by breaking down the silos that have protected incumbents.

Why I fear Incumbents Will Fall Behind

Incumbent banks face several challenges in adapting to this new era, including and not limited to:

• Legacy Infrastructure: Many banks operate on outdated core systems that hinder the adoption of AI and Open Finance capabilities. In a number of regions, banks continue to operate in an on-prem environment with their legacy providers (who seem to have convinced their clients that they are the best option in the market)
• Cultural Resistance: Organizational inertia and resistance to change is evident across most incumbent organisation. Also, the limited understanding of concepts such as 'sunk cost' and how to factor the same into ones decision making seems to be lacking
• Regulatory Caution: While fintechs thrive on agility, banks often tread carefully to avoid regulatory scrutiny, delaying the rollout of transformative solutions. This is further compounded by the fact that most countries and financial regulatory bodies are struggling to cope with how to regulate the use of AI within their own industry
• Data Utilization Gap: Despite possessing vast amounts of customer data, incumbents often lack the AI capabilities to harness it effectively. There is a whole host of reasons why banks still struggle in being able to fully use the data which they have access to within their own ecosystem, leave alone be able to leverage 3rd party data for their benefit.

The Fall of Banking’s Final Fortress

The combination of Agentic AI and Open Finance is not merely a convergence of two trends; it’s potentially a paradigm shift. Challenger banks and fintechs that capitalize on this convergence are positioned to:

• Disrupt Customer Loyalty: By offering better, faster, and more intuitive services, they can erode the trust traditionally reserved for incumbents.
• Redefine Financial Landscapes: As they gain consumer trust, they also attract new partnerships and expand their ecosystems, further marginalizing traditional banks.
• Capture New Markets: Their ability to scale quickly and innovate makes them formidable competitors in untapped or underserved markets

Traditional Banks’ inability to match the speed and customer-centricity of AI-powered solutions will erode their core value proposition i.e. Trust. As consumers shift their trust from banks to their digital agents, challengers will, no doubt, capitalize on the exodus

Concluding Thought

The convergence of Agentic AI and Open Finance, for incumbents, is a wake-up call to innovate or risk obsolescence.

The battle for consumer trust is no longer fought on the basis of heritage and stability—it is now a race driven by agility, technology, and customer-centricity. The winners will be those who can harness the transformative power of AI and Open Finance to create a banking experience that truly resonates with the needs of the modern consumer.

TRUST — long the linchpin of incumbents’ dominance - will become their Achilles’ heel. In this new era, the players who truly empower consumers, rather than exploit them, will own the future of financial services (but we all knew that already, agentic AI or not🤷🏻♂️)