Finance
Exploring Three Scenarios For How Gen AI Will Change Consumer Finance
Could consumer-facing tech behemoths (such as Alphabet, Apple or Meta) disintermediate financial … [+]
The rise of generative AI has led to much hand-wringing and discussion about the potential for the technology to disrupt industries and eliminate broad swathes of human jobs. But the impact of the technology will vary from industry to industry, so it’s important to look beyond the high-level talk around disruption and to think through exactly how it will change the financial services sector.
In the case of financial services, the impact of generative AI can be simplified into three possible future scenarios: 1) non-financial tech firms develop a dominant generative AI-based personal assistant and disintermediate financial firms, 2) no disintermediation, but the technology further entrenches the dominance of the largest global banks, and 3) no firms manage to establish dominant generative AI assistants, and the technology becomes commonplace without drastically altering market share.
While we can’t predict the future, it’s essential that financial services organizations think through the three possible outcomes to develop long-term plans for how their business would react to each of these scenarios.
Before diving into this topic, a caveat. The goal of this article is to to make the subject approachable for someone who is not familiar with the nuances of generative AI. This article will not discuss the technical developments that would drive these outcomes – e.g., whether it becomes cheaper and easier to build a proprietary large language model (LLM). This article will guide non-technical individuals through how generative AI will impact the financial services industry.
Scenario one: non-financial tech player(s) take a dominant position
One possible outcome for generative AI technology is that the consumer-facing tech behemoths (such as Alphabet, Apple or Meta) and/or a breakthrough tech startup develop consumers’ go-to personal assistant for a very wide range of life tasks, including personal finance. Consumer behavior changes, and the average person looks to the leading generative AI-based virtual assistant(s) with dominant market share to help them with questions and concerns.
This outcome sees generative AI technology evolve in such a way that tech firms are able to develop a superior personal assistant that is so advanced it incentivizes consumers to almost exclusively use their personal assistant. This assistant would monitor consumers’ affairs (via linked outside accounts) and would provide advice when asked questions like “how can I improve my financial situation?” or “could my savings be earning more?” This development would disintermediate financial services firms and the assistant would be able to influence consumers’ financial decisions and behaviors.
An advanced AI-based general personal assistant with dominant market share would disintermediate … [+]
If this scenario becomes reality, the response of financial services firms to this disintermediation partly depends on how regulation shakes out and whether AI assistants can earn referral fees. Beyond the referral question, in the long-term this outcome would likely make the financial services industry much more cutthroat.
In this scenario, financial services firms would need to become far more innovative and would need to develop compelling and unique products and services. Financial services firms would need to incentivize clients to actually log into their website and app and not just rely on their personal assistant. A generic product lineup and a generic client experience would gradually lose market share in a world driven by tech firms’ high-performing virtual assistants.
According to Remco Janssen, Founder and CEO of European tech news media company Silicon Canals, “in past tech hype cycles, the established tech giants were often slow to react. When it comes to generative AI technology, however, the largest firms have acted quickly. Tech behemoths like Apple, Google and Amazon
Amazon
Scenario two: the largest financial firms use gen AI to further entrench their dominance
In this scenario, generative AI technology develops in such a way that tech companies do not disintermediate financial services firms, but the costs and complexity of advanced AI technology allows the largest global banks to gain a competitive edge over relatively smaller rivals in the industry. For an example of the gulf between the top financial services firms and the next tier of financial institutions, as of May 10th, the market capitalization of JPMorgan Chase ($570.80 billion) and Bank of America ($300.69 billion) both exceed the combined market capitalization of US Bancorp, PNC, Capital One and Truist. The combined market capitalization of those four institutions is “only” approximately $235 billion.
The largest banks can dedicate far more resources generative AI. The CEOs of Wells Fargo, Bank of … [+]
It may turn out that the largest financial firms–those which can afford expensive engineering talent and cloud computing resources–can develop meaningfully more powerful generative AI-based financial assistants than the average financial services firm and the industry’s third-party vendors. If the largest global banks can offer a superior generative AI-based financial assistant, they will use this offering to further entrench their dominance of the industry and to win market share from relatively smaller firms.
Scenario three: no dominant gen AI assistants emerge
The final scenario sees generative AI technology become somewhat of a commodity and no firm develops a meaningfully superior generative AI assistant. Generative AI-based assistants become a standard feature of financial services websites and apps without fundamentally disrupting the industry and changing market share dynamics. Financial services firms may even end up relying on multiple third-party generative models simultaneously, calling upon different models depending on the user’s needs.
In this scenario, financial services firms would need to be thoughtful about how they optimize their generative AI assistant to minimize costs and maximize revenue. Financial services firms would work to continually improve their generative AI’s ability to handle customer service questions (preventing more expensive queries to the customer service call center) and to drive desirable actions (e.g., establishing direct deposit, opening a new account, etc.). While this third scenario presents less of a threat to the average financial services firm, developing a high-quality generative AI assistant still represents a large and complex undertaking.
If no dominant generative AI assistants emerge, firms would look outperform peers via superior user … [+]
According to Dr Andreas Rung, CEO and Founder of Ergomania, “banks and financial institutions have a tendency to keep big tech initiatives in the experimental/ideation phase for too long. Time is of the essence when it comes to generative AI. Your organization needs to move quickly to deploy a generative AI assistant to your customer base. In order to keep pace with the competition, your generative AI assistant must also become a seamless part of the UX and customer experience.”
Gen AI has the potential to upend financial services, and firms must start planning for future scenarios now
Only time will tell how generative AI technology develops and which of these three scenarios becomes reality. But your organization should start to think through these outcomes and how to react in each situation. Could your organization restructure and make a massive investment in developing a cutting-edge generative AI assistant if that becomes necessary? If your firm uses a third-party AI vendor, what are the “switching costs” if your firm “backs the wrong horse” and must make a change in order to keep pace with the leading firms? In each of these scenarios, how would your firm adjust the human workforce? It is better to start planning now than to be reactive and scrambling to catch up to changing market dynamics.
According to Milan De Reede, Founder and CEO of Nano GPT, “I see our customers’ preferences shift in real time as new generative AI models and updates are released. There’s no clear “winner” as of May 2024. Our customers seem to prefer different generative AI models for different tasks. At some point in the future, your firm may need to change your generative AI infrastructure and approach relatively quickly depending on which of these three scenarios becomes reality.”
Parents who put money into their children’s “Trump Accounts” might face a headache come tax time: Even the smallest contributions may require them to fill out a little-used gift tax form that can take hours to complete.
Several tax experts have raised concerns about the new savings vehicles, which were created in Republicans’ massive tax and spending bill this summer, and have urged Congress to pass a new law so that families who use it won’t have to file gift tax returns.
“It’s going to create a compliance nightmare,” said Amber Waldman, senior director for estate and gift tax for RSM US, a tax and consulting firm.
Under the terms of the One Big Beautiful Bill law that created it, the federal government will seed each Trump Account with $1,000 for every U.S. citizen born from 2025 through 2028. Much like an individual retirement account, the money will be invested in funds that track the stock market. The idea is that children’s growing pot of money will eventually help them pay for education or a home purchase when they become adults.
Parents, relatives, employers and nonprofits also can contribute to the accounts. Businessman Michael Dell and his wife Susan have pledged to put $250 in each of the accounts of 25 million children who are younger than 10 today.
But some tax experts think lawmakers overlooked a tax requirement that could make the accounts too burdensome for most parents.
A contribution to a child’s Trump Account is a taxable gift, which requires the giver to fill out one of the IRS’s more complicated tax forms, Form 709. The 10-page document takes the average filer or their accountant more than six hours to complete, and the government has only accepted mailed submissions; that changes this coming tax season, when e-filing will become available.
It’s used by fewer than 225,000 households a year, federal data show, and is so obscure that commercial tax software like TurboTax doesn’t include it.
“If you want to apply for the $1,000 because your kid was born within the time period, fine. If your employer wants to make a contribution or you qualify for a contribution from a charitable organization … fine. But don’t put your own money in until this is clarified,” said Susan Bart, a lawyer who specializes in estate and gift tax.
Most gifts aren’t nearly this complicated. Under long-standing law, most people can give cash gifts to one another tax-free. But if it’s a sizable amount – more than $19,000 – the IRS requires the donor to file Form 709. Over time, if those gifts add up to more than $15 million in the giver’s lifetime, they need to pay certain taxes. The whole system is meant to prevent very wealthy people from doling out large cash gifts during their lifetimes so their heirs can avoid estate taxes later.
But because there’s no provision for contributions to Trump Accounts to count as exempt gifts under current tax law, donors would have to declare every contribution, several tax experts say. This applies whether the donation is $25 or as much as the $5,000 annual cap. That’s because to be considered a tax-exempt gift, the recipient has to be able to access the money right away. Trump Account beneficiaries cannot withdraw the money until they turn 18.
Asked whether Trump Account contributions are required to be reported, an IRS spokesman referred questions to the Treasury Department, where several officials did not answer questions from The Washington Post.
The American College of Trust and Estate Counsel, a lawyers group, sent a letter raising the issue to the congressional tax-writing committees last month. The group’s Washington affairs chair Kevin Matz said his group received no answer beyond acknowledgment that the letter was received.
Congress has dealt with a problem like this before. Lawmakers approved a clause exempting 529 accounts – the tax-advantaged savings accounts for a child’s education – from the requirement that the recipient have present use of the gift. That means parents, grandparents and others can put money in 529 accounts without filing gift tax returns.
The experts who raised the issue are calling on Congress to make the same legislative fix for Trump Accounts.
“It seems like legislators accidentally left that out,” Waldman said.
The 10-page tax form asks a series of questions that are nearly indecipherable to the uninitiated. It distinguishes gifts that are “generation-skipping” – such as a grandparent giving money to a grandchild. When a married couple makes a gift, it probes whether the amount can legally be considered split between them, or attributable to just one.
Even experts scratch their heads. “Not all accountants necessarily have the experience and background to be able to complete it without extensive study,” Matz said.
Bart agreed: “It’s not a DIY form by any means.”
She said she’s seen lawyers befuddled by Form 709 before. “Sometimes my partners in other practice areas who are very, very smart people, they think: I can do this for my own kid or grandchild. They come running back after they look at the form a while. You need to be a specialized attorney with a lot of experience in the area.”
Many people might contribute to Trump Accounts without knowing that they are supposed to file Form 709, and aren’t likely to file it. But experts believe that skipping the form could create problems for the parents if they’re ever audited. Or if tax software like TurboTax starts including Trump Account questions, the taxpayer might not be able to submit their returns through the software if they indicate that they gave to the accounts.
Parents can still create Trump Accounts for their children to receive money from the government and charities like Dell’s without triggering the tax form problem.
“Of course if the government’s giving you a free $1,000, go ahead and take it. That’s not going to hurt you,” Waldman said. “If you’re thinking about personally contributing, consider your other options.”
Even without the tax-filing complications, Trump Accounts might not be the best way for most parents to save money for their children, experts say. The 529 plans offer much better tax benefits – unlike Trump Accounts, parents can often take some state tax deductions when they put money into the account, and if the child uses the money to pay for education, the earnings inside the account are never taxed.
If parents want a multipurpose savings vehicle for their kids that is not just limited to education spending, an ordinary taxable brokerage account might also be a better choice, tax professionals say. Trump Accounts are untaxed during the beneficiary’s childhood, when the money is growing in the account, unlike a brokerage account that could require paying taxes on any dividends. But the tax treatment when the child does withdraw the money could be much more favorable on the brokerage account – that money gets the lower capital gains tax rate, while Trump Account withdrawals are taxed at the same rate as ordinary income, and even come with a 10 percent tax penalty if the child doesn’t use the money for a qualified purpose. And the brokerage account offers a much wider range of investment options.
“As a tax-advantaged account, it’s a terrible tax-advantaged account,” said Greg Leierson, senior fellow at New York University’s Tax Law Center.
Israel’s Cabinet approved a proposal for 19 new settlements in the occupied West Bank, the far-right finance minister said on Sunday.
The settlements include two that were previously evacuated during a 2005 disengagement plan, according to Finance Minister Betzalel Smotrich, who has pushed a settlement expansion agenda in the West Bank.
It brings the total number of new settlements over the past two years to 69, Smotrich wrote on X.
The approval increases the number of settlements in the West Bank by nearly 50% during the current government’s tenure, from 141 in 2022 to 210 after the current approval, according to Peace Now, an anti-settlement watchdog group. Settlements are widely considered illegal under international law.
The approval comes as the U.S. is pushing Israel and Hamas to move ahead with the new phase of the Gaza ceasefire, which took effect Oct. 10. The U.S.-brokered plan calls for a possible “pathway” to a Palestinian state — something Smotrich says the settlements are aimed at preventing.
The Cabinet decision included a retroactive legalization of some previously established settlement outposts or neighborhoods of existing settlements, and the creation of settlements on land where Palestinians were evacuated, Peace Now said.
Israel captured the West Bank, east Jerusalem and Gaza — areas claimed by the Palestinians for a future state — in the 1967 war. It has settled more than 500,000 Jews in the West Bank, in addition to over 200,000 more in contested east Jerusalem. About 15% of settlers are Americans.
The United Nations calls the settlements, which are scattered inside the West Bank and East Jerusalem, illegal.
Israel’s government is dominated by far-right proponents of the settler movement, including Smotrich and Cabinet Minister Itamar Ben-Gvir, who oversees the nation’s police force.
According to the U.N., settler expansion has been compounded by a surge of attacks against Palestinians in the West Bank in recent months.
During October’s olive harvest, settlers across the territory launched an average of eight attacks daily, according to the United Nations humanitarian office, the most since it began collecting data in 2006. The attacks, the U.N. reported, continued in November, with the agency recording at least 136 more by Nov. 24.
Palestinian officials said settlers burned cars, desecrated mosques, ransacked industrial plants and destroyed cropland. Israeli authorities have issued condemnations of the violence, but made few arrests.
XRP has continued to trade lower as crypto prices weaken across the board, with the total market shedding more than $1.3 trillion since October.
During the past three months, XRP has dropped more than 30%, keeping pressure on sentiment even as some commentators argue the token’s purpose goes far beyond short-term price moves.
Retail Vs. Institutional Viewpoint
According to health and finance commentator Dr. Camila Stevenson, much of the debate around XRP misses how large financial players judge settlement tools.
Everyday traders tend to focus on charts and quick exits. Banks do not. They look at whether a system can handle stress, move large sums, and keep working when conditions worsen. Stevenson compared it to infrastructure testing, where strength and capacity matter more than the initial cost.
XRP Was Built For Flows
Based on reports from her recent video discussion, XRP was structured to act as a bridge for moving value, not as a speculative chip. With a fixed supply, the token cannot expand in quantity to meet higher transaction demand.
Stevenson said that leaves price as the only way to support larger volumes. Analyst XFinanceBull echoed this view, encouraging market watchers to think in terms of flows rather than daily price action. Price Alone Does Not Prove Use
Even so, market behavior still plays a major role. XRP trades in open markets, and speculation continues to influence price direction.
A higher price may improve efficiency, but it does not guarantee adoption. Stevenson pointed out that many institutions position through custodians, OTC desks, and private agreements.
These transactions often happen quietly and may not show up as sharp moves on public charts. Sudden spikes during positioning, she warned, would suggest instability rather than healthy use. Why Higher Price Helps
Stevenson argued that banks moving billions would rather use fewer units that each represent more value. Fewer tokens can mean simpler settlement and less risk of slippage during busy periods.
Large financial systems tend to fail when money cannot move or when settlement slows, not when prices fall. In that context, a higher XRP price could support smoother transfers if volumes rise enough to test the system.Market Reality Remains Mixed
Despite the theory, clear proof of large-scale institutional demand remains limited. Regulation, liquidity depth, and reliable access still shape whether banks commit real volume.
XRP’s 33% slide over recent months shows how quickly sentiment can shift, even as long-term use cases are debated. The idea that banks prefer a higher XRP price rests on future scale, not current trading patterns.
Featured image from Unsplash, chart from TradingView
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