Banking Industry Faces $170 Billion AI Profit Squeeze, McKinsey Analysis Warns

AI’s Banking Revolution: $170 Billion at Stake

Global banking institutions face a potential $170 billion decline in profit pools over the coming decade if they fail to adapt to rapid artificial intelligence adoption, according to McKinsey & Company‘s latest Global Banking Annual Review. Analysts suggest that AI represents a “double-edged sword” for the sector, offering substantial cost reduction opportunities while simultaneously disrupting traditional revenue streams as customers increasingly use AI tools to manage their finances.

AI’s Banking Revolution: $170 Billion at Stake
The AI Divide: Winners and Losers Emerging
Record Profits Mask Underlying Vulnerabilities
The Precision Banking Era
Consumer Behavior Transformation Accelerates

The AI Divide: Winners and Losers Emerging

The report indicates that the impact of AI will not be evenly distributed across the banking industry. Sources familiar with the analysis suggest that early adopters of agentic and generative AI could see their returns on tangible equity increase by up to four percentage points, while slower-moving institutions risk significant long-term profit erosion. McKinsey reportedly predicts that agentic AI, which enables autonomous systems to perform complex decision-making, could reach a tipping point within three to five years, fundamentally reshaping how banks operate and interact with consumers.

According to the analysis, banks could potentially reduce operating costs by up to 20 percent through effective AI implementation. However, the same technology threatens traditional profit pools as customers gain more financial management capabilities through AI-powered tools.

Record Profits Mask Underlying Vulnerabilities

The warning comes despite years of record-breaking financial performance across the global banking industry. The review reportedly shows that between 2019 and 2024, funds intermediated by banks and nonbank providers surged by $122 trillion, representing approximately 40 percent growth. Revenues reportedly reached $5.5 trillion in 2024, with net income hitting an unprecedented $1.2 trillion.

Despite these strong financial metrics, market valuations have not kept pace, with banking stocks trading at valuations 67 percent below the average for other industries, according to the analysis. McKinsey attributes this gap to fading tailwinds such as high interest rates and low credit risk, alongside intensifying competition from fintech companies and private credit providers.

The Precision Banking Era

The 2025 review emphasizes that “precision, not heft” will define the next era of banking success. The report outlines what it calls a “precision toolbox” across four key dimensions: focusing technology investments on the most impactful areas, offering hyperpersonalized products based on real-time data, applying micro-level capital efficiency to free up trapped capital, and pursuing targeted mergers that deliver specific strategic capabilities rather than simply increasing size.

“Precision, not heft, is the great equalizer,” the report states, suggesting that even smaller institutions can outperform larger competitors if they embed focus and discipline into every aspect of their strategy.

Consumer Behavior Transformation Accelerates

The analysis highlights a dramatic shift in consumer behavior and expectations. Loyalty to incumbent banks has fallen sharply, with the report indicating that in the United States, only 4 percent of new checking account openings now come from existing customers, down from 25 percent in 2018. More than half of consumers already use generative AI tools, and nearly all surveyed indicated they would switch providers if their bank failed to keep pace with technological innovations.

McKinsey concludes that banks must urgently embed AI into their customer journeys and strengthen mobile-first engagement strategies to remain competitive. Institutions that successfully integrate AI-powered insights with human connection can build stronger trust and loyalty, while laggards risk displacement by emerging fintech challengers.

The report ultimately suggests that the next growth wave in banking will be driven not by institution size but by precision—by organizations that combine technological focus, data-driven consumer understanding, disciplined capital allocation, and targeted growth strategies to create lasting value in an increasingly competitive landscape.