At an investor conference last week, Bill Winters, the CEO of Standard Chartered, produced a quote that’s now being printed on t-shirts.
Winters was making the case for artificial intelligence (AI)-driven headcount reduction. “It’s not cost-cutting,” he said. “It’s replacing in some cases lower-value human capital with the financial capital and the investment capital we’re putting in.”
One can see what he was trying to say. One can also see why it landed poorly.
It made me think about the opportunities that will come for financial services, not from cutting costs, but by growing revenues. And I’ve also been thinking about how AI, and technology more broadly, might allow better and wider access to financial services in the future. With financial service access, comes economic growth and maturity.
This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest.
Bigger than you might think
Before getting to AI, it’s worth stepping back.
When most people think of financial services, they think of banks like Standard Chartered. But banks are less than half the sector. Financials is the second-largest sector in global equities at roughly $27 trillion in market cap, spanning payments companies, exchanges, insurers, asset managers, consumer finance providers, and data businesses.
It has been the third-highest performing equity sector over the past decade, and yet still trades at the lowest valuations relative to other sectors. That combination of strong returns and cheap valuations is not one you encounter often.
It also matters for diversification. Global equity markets are heavily weighted to the US, and within that, technology. Financials offer genuine geographic spread across North America, Europe, Asia Pacific, and emerging markets, which becomes increasingly relevant if investors grow concerned about concentration risk.
The revenue story
Here’s where AI changes the picture in ways that go well beyond cost savings.
Andrea Orcel, CEO of UniCredit, recently said that an AI model, that took one week to develop, cut the time it takes to compile a loan application, from six weeks to just 14 minutes, with 98% accuracy.
That’s not just an efficiency gain. It means a bank can serve more customers, faster, at lower cost per transaction. The revenue capacity of the same team expands materially.
Charlie Nunn at Lloyds put it plainly on the bank’s January earnings call.
“When you look at our industry, what’s more differentiating is our ability to differentiate our services and build broader relationships on the revenue line than driving efficiency.”
Larry Fink at BlackRock is aiming for more than $35bn in revenue by 2030, with at least 30% coming from private markets and technology, describing AI as a powerful accelerator for Aladdin, the firm’s massive investment management platform used by institutions globally.
Customisation at scale and ever-expanding reach
I spoke to Nick Brind, who manages the Polar Capital Financial Trust, and he noted the opportunity for ‘customisation at scale’. The financial services sector has long faced a tension between personalisation, which is expensive and labour-intensive, and reach.
AI helps resolve that tension. Brind thinks that in the next 12-18 months we will start to see financial services companies talk more about this.
Technology will be able to free up the admin drudge and let advisers focus on providing better advice, more quickly, and drive more sales.
The ability to personalise financial journeys, and engage clients at exactly the right moment, transforms what was previously a premium service into something distributable across many more customers. That is a genuine revenue expansion, not a reclassification of existing income.
It also extends the global reach of financial services. Mortgage penetration across Southeast Asia and Latin America remains low. Insurance coverage in emerging markets is thin. AI-enabled underwriting, distribution, and servicing makes that expansion economically viable in ways it simply was not before.
Additionally, retail trading on platforms is increasing. Our own Savings and Resilience Barometer shows that many younger people are dipping their toes in the water. A Charles Schwab survey in March 2024 showed that ‘Baby Boomers’ first started investing aged 35. For Millennials, it’s 25. For Gen Z it’s now 19 years of age, on average.
A sector worth a second look
Despite all of this, financials remain lowly valued relative to the rest of the market. Returns on equity are improving. European banks look particularly attractive given valuations, a steeper yield curve, and a pick-up in loan growth.
Capital markets activity is rising, as are equity and debt issuance, trading volumes, merger and acquisitions (M&A), all of which feed directly into revenues across the sector. Brind’s team also reference that deregulation in the US is speeding up bank consolidation, as deals complete quicker.
Which brings me back to the t-shirts. Let’s all endeavour not to say things that get printed on t-shirts. Apart from perhaps ‘diversification is cool’.
For more expert insight, HL’s share research team covers some of the biggest financial services names on the London and US markets, which you can get delivered straight to your inbox.