If there is a lesson to be drawn from the world’s ongoing obsession with AI-based text generator ChatGPT, it is that AI is more than just a fad. For the leading American banks, it is the technology that changes everything. That their European peers do not yet get this suggests that US dominance of the sector looks set to solidify.
ChatGPT has not only provided rocket fuel to the AI development race. Based on my recent conversations with many of the big US and European banks, it is clear that banking boardrooms globally are now waking up to the potential to transform their business operations – particularly in light of the recent industry turmoil on both sides of the Atlantic.
It’s estimated [by McKinsey] that AI could deliver $1 trillion of additional value to banking annually. This means that winning the AI race could potentially be the difference between surging ahead of rivals and ceasing to exist. And, from a European standpoint, the worry is that many of the continent’s leading financial institutions are well off the pace.
Photo by Olga Lioncat from Pexels
European banks are failing to grasp the AI opportunity
To use a familiar business adage, supertankers necessarily take time to change course. Yet when it comes to AI, precious few European banking supertankers are even thinking about turning.
Our recent assessment of commercial AI adoption amongst the leading North American and European banks – the first independent assessment of its kind – found that North American banks are comprehensively outperforming their European counterparts in building AI capability across all key metrics.
We looked at four key areas driving commercial AI adoption – leadership, talent, innovation, and transparency & trust. We found that while the leading North American banks displayed a demonstrable commitment to AI across each area, most European banks remained rooted in a phase of discrete AI experimentation.
In essence, the US and Canadian banks have taken notes from the Silicon Valley playbook. They are modelling their AI-inspired reorganisation on tech firms rather than traditional financial institutions and creating conditions that encourage and facilitate ongoing AI development and prioritisation. We found this approach evidenced repeatedly in the banks’ public behaviour – from their research strategies and R&D investments to everyday actions like the academic conferences that they attend.
The problem for European banks is not their reticence to explore AI technology; rather, it’s that – with the possible exception of UBS and ING, which performed more strongly in our research – they’re just not making it central to a group-wide transformation strategy. To paraphrase the words of one London-based bank, “We know it’s really important but it’s not a priority for this year”.
If AI holds the key to delivering a fundamental step-change in commercial and competitive capabilities – and most industry analysts believe it does – then it’s very hard to see how the European banks win based on their current strategy. The evidence from the industry leaders is that it takes many years to get this right, with decisions made half a decade ago only now coming to fruition.
Set this against a backdrop of both the US and China outpacing Europe in terms of overall investment in AI and other emerging technologies, and the European position looks all the more troubling.
AI talent remains an underexploited opportunity for European banks
European markets have deep talent pools and can offer significant strengths in AI. However, to date, they have not publicly demonstrated the ambition and sustained investment of the largest North American banks.
In organisations such as JPMorgan Chase & Co. and Royal Bank of Canada,, AI-powered transformation is happening across the board. These institutions have recruited senior AI research and analytics leaders, and created AI centres of excellence aligned with their business units. They are encouraging research in, and facilitating a greater understanding of, responsible AI within business, to ensure that the technologies developed don’t carry unforeseen and detrimental consequences – although, of course, it remains to be seen how impactful these R&D commitments may eventually prove.
What happens next could be pivotal. The battle for AI-related talent is heating up, with every bank grappling to attract the brightest tech minds at every level. And while existing AI prowess amongst the North American banking leaders is an undeniable draw, there are still plenty of ways in which European rivals can reassert themselves.
European banks must champion an innovation culture that extends well beyond job descriptions or pay grades. They currently under index in terms of original academic research papers produced, ownership of AI patents, or participation at leading academic conferences. Similarly, they lag behind North America in terms of the volume of investments, acquisitions and partnerships made with tech and AI-first companies.
A commercial imperative
In industries such as banking, embracing AI is no longer a choice but a commercial imperative. And yet, going all-in on AI is much easier than it sounds. Banks need to understand what best-practice AI adoption looks like and how to ready themselves – operationally and culturally – for an AI-first future.
In North America, the emerging leaders have been doubling down on the cause for over a decade, while European incumbents have been playing catch up. North America is in the lead, but it hasn’t yet won the race for AI supremacy. The question is, can Europe’s banks remedy past failings and take urgent, remedial action to close the gap and prevent an irretrievable bifurcation in the global banking industry?
