McKinsey Report: As AI financial assistants rise, client funds will flow into high-yield products, and banking profits will shrink by $170 billion

The rise of artificial intelligence poses a fundamental challenge to the global banking industry. According to a recent report by McKinsey & Co., as AI financial assistants capable of automatically optimizing savings become increasingly popular, customer funds will shift en masse from low-interest accounts to high-yield products, potentially leading to a reduction of up to $170 billion in annual profit pools for the global banking sector.

The report warns that AI technology is breaking the customer inertia that has long protected banks' cheap sources of funding. AI financial assistants launched by tech companies or fintech newcomers can seamlessly help consumers find and transfer funds to higher interest savings accounts, money market funds, or other investment tools, thereby eroding traditional banks' core profit source—net interest margin.

McKinsey estimates that $2.1 trillion to $4.7 trillion in retail deposits globally are at risk of flowing out of low-yield or non-interest-bearing accounts. This shift not only puts pressure on banks' liquidity management but also directly threatens their profitability. For banks that rely on low-cost deposits to support their lending operations, this is akin to a disruptive blow to their foundations.

The report points out that the banking industry is at a critical crossroads. They must quickly make strategic choices: either raise deposit rates to retain customers, thereby compressing their own profit margins; or watch deposits dwindle and bear the consequences of rising funding costs. Regardless of the path chosen, traditional banks' profit models will face severe tests.

AI Breaks Customer Inertia

For a long time, the profit model of traditional banks has largely benefited from customer "stickiness" or inertia. Due to information asymmetry and the cumbersome process of transferring funds, many depositors tend to leave their money in low-interest checking or savings accounts, providing banks with a stable and cheap source of funding.

However, McKinsey's report clearly states that generative AI is fundamentally changing this landscape. AI financial assistants can monitor market interest rates 24/7, automatically identify the optimal fund storage options for users, and complete transfer operations with a single click.

The report states, "The friction that has protected banks' low-cost deposits for decades is about to evaporate." This automated and intelligent service will significantly lower the barriers for customers to transfer funds, making price sensitivity the primary factor determining the flow of funds.

Profit Pools Face Huge Impact

The impact of AI-driven fund transfers on bank profits is direct and substantial.

McKinsey estimates that, in the most likely scenario, this outflow of deposits will lead to a reduction of approximately $170 billion in annual profits for the global banking industry. This figure primarily stems from the narrowing of net interest income (NII).

On one hand, to respond to competition, banks may be forced to raise the interest rates on their deposit products, which will directly increase their funding costs. On the other hand, if banks fail to effectively retain deposits, they will have to turn to more expensive financing channels, such as the wholesale financing market, which will also erode their profits.

The report emphasizes that this impact varies for different types of banks, with those heavily reliant on retail deposits and slow to digitize facing the greatest risks

Banks Need to Actively Adapt

In the face of the disruptive challenges brought by AI, McKinsey believes that banks can no longer remain indifferent. The report presents several key strategic paths for the banking industry to respond to the impending transformation.

First, banks need to reassess their value propositions. Simply serving as a repository for funds is no longer sufficient to retain customers. Banks must accelerate the development of their AI capabilities and create personalized wealth management and financial planning tools that can compete with, or even surpass, external AI assistants, thereby shifting customer relationships from mere interest rate competition to deep ties based on value and trust.

Second, banks should actively explore diversification of revenue sources. As net interest margins face long-term pressure, business models reliant on interest income will become increasingly fragile. Banks need to vigorously develop non-interest income businesses such as wealth management, investment consulting, insurance, and payments to hedge against the risk of declining profits from deposit operations.

Finally, investing in technology and talent is the key to winning in this transformation. Banks must increase their investment in data analytics, artificial intelligence, and customer experience technologies, while attracting and retaining top talent capable of harnessing these technologies. The report concludes that those banks that can proactively embrace AI and integrate it into their core operations will have the opportunity to stand out in this industry reshuffle, while those that act slowly may be marginalized