Investors fear that artificial intelligence will squeeze business profits by helping consumers find better deals. That fear particularly affects banking and finance, where many consumers don’t bother to get the best deals possible. AI agents, such as Meta’s Muse, may find better deals compared to the user’s current choices. But the underlying economics don’t threaten business profits as much as they threaten the savviest, most conscientious consumers.
Banks Profit From Consumer Inertia
Bank accounts illustrate the issue. Market interest rates rise, but a bank doesn’t increase the interest it pays on deposits. Many consumers ignore the change, but some complain or begin the account-closing process. The banker says that they have a new “market account” that pays a higher interest rate, so the savvy consumers who ask get a higher rate. But the next time market interest rates rise, the “market account” rate is not increased. The consumers who complain learn that the bank has a new “super market account” that pays higher interest rates. Most consumers don’t bother to shop around regularly, and they give up interest income as a result.
AI agents could solve the problem for consumers, but at a cost to banks. Matt Levine writes, with tongue-in-cheek exaggeration, “And the basic business model of retail banking collapses, because every bank always has to pay a market rate on all of its deposits.”
Mortgage Lenders Profit From Refinancing Delays
Mortgage refinancing is broadly similar. A typical home mortgage comes with the option to prepay the balance and refinance the loan. Careful homeowners refi when interest rates have declined. That hurts the lenders, who would prefer that the money keep earning high interest. Many homeowners, though, don’t bother to refinance when it’s in their favor to do so. A Morgan Stanley research report states, “Artificial intelligence could dramatically simplify that experience—making refinancing faster, easier and more accessible for millions of borrowers.”
Consumer inertia comes because people have many things to do in their lives. Shopping for the best interest rate isn’t much fun for most folks, nor is generating the paperwork needed for a refi. And most weekly checks of interest rates turn up nothing better, so the effort feels wasted. As a result, people leave money on the table.
AI may lead people to continuously optimize their financial decisions. But the lost profits to the businesses may not be very large. Most of the pain will be borne by the deal-seekers, by the consumers who spend time finding the best deals. Here’s how it works.
Read More: AI Agents Threaten Finance Industry Profits Less Than Investors Fear
