Can AI spell doom for deposit accounts?
When you think of all the challenges associated with a deposit account, whether your country pays you a nominal interest on your ‘balance’ or not, it’s quite a hassle to maintain.
Save for the fact that it helps receive funds from your customers or serves as the ‘home’ for your monthly paycheck, the traditional deposit account isn’t very useful, and for more than a decade, hasn’t seen any innovation.
However, according to a new ‘visionary’ report issued by the World Economic Forum (WEF), the traditional deposit account might just be headed for doom.
In fact, the organization sees wealth managers moving to become the center of the retail customer experience, managing all flows of money for customers.
Funds, as and when they come in, will flow to the optimal account, be it debt, savings, or expenses – matching the customers’ ‘mental accounting’ of their overall budgets and accounts.
The model that the WEF is proposing isn’t entirely new. It is centered around an AI-powered wealth manager, much like the robo-advisors we’ve come to know and love already.
And although they deal solely with long-term investments, it seems like extending their ‘function’ can be a good idea, given the benefits it will bring to customers (although it diminishes the utility and purpose of a deposit account quite significantly).
According to a Barron’s article, the existing class of Robo-advisors with a long-term focus recently crossed the US$200 billion mark in assets under management (AUM).
And although US$200 billion is a small number in the portfolio management industry, the success and attractiveness of robo-advisory is luring traditional true-blue investment companies such as Vanguard, Morgan Stanley, Wells Fargo, and T. Rowe Price into the game.
Next-gen robo-advisors can transform wealth
It seems like having a robo-advisor can truly transform how customers manage their money, if its purpose extends beyond long-term investments.
Through its understanding of the customer’s risk profile, spending habits, and other behaviors, the robo-advisor will be able to help radically improve the customers’ financial health. It can make smart investments that optimized savings rates and automate loan repayments that minimize interest expenses.
Since such an offering breaks down the demarcation between spending, borrowing, and wealth management, the robo-advisor is tasked with managing the flow of the customers’ money across multiple accounts, making the whole process more efficient.
By clearly articulating spending categories and allocating funds directly to accounts, this trend helps customers realize their aims better than they could through manually managing their own cash flows.
However, ensuring that an offering can automatically make optimal choices on behalf of customers requires the development of AI solutions that can consider a broad set of financial and nonfinancial information to understand customer contexts comprehensively — which is something existing players need to work on developing.
Another impediment to the AI-driven wealth management model that might doom deposit accounts entirely is regulation. Institutions are currently restricted by regulation in their ability to transfer funds across other institutions and across accounts without explicit, per-transaction customer consent, limiting the ability to automate flows of money.
An evolved robo-advisory offering is perfectly in line with what customers want, however, the maturity of existing AI solutions and the noose of tightening regulations seem to make this a difficult dream to achieve.
However, new players like Vanguard and Wells Fargo might accelerate the evolution of these AI-powered bots, the demise of deposit accounts, and the rise of a new era of financial security for individuals.
30 November 2023
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