Banks have an asset that's more valuable than their balance sheet: your laziness and confusion. But that's changing, and the death of inertia is here. Imagine your agent texting you about an opportunity to refinance at 8am, you give the thumbs up emoji and go walk your dog, returning at 9am to a signature form at the lowest possible rate. That's the agentic future we're rapidly marching toward, and as I've said before, retail banks need to watch out. What's changed in two years? Well, the meteoric rise of personal agents like Muse, Instinct and Town have put any business where incentives aren't aligned with those of customers in serious jeopardy.

The key thrust of my thinking then was to push financial services companies (and all companies) to ask not (only) what AI could do for them, but also what AI could do for their customers. The emergence of AI creates massive opportunities for cost cutting and growth, but it also creates the twin vulnerabilities of a) lowered barriers to entry for new and dynamic competitors; and b) the loss of information asymmetry and inertia that kept many customers in place despite economic logic. The always inevitable and now real emergence of personal AI agents brings that second vulnerability to life, and creates urgency around further thinking as to who is most vulnerable and what can be done about it.

As we do here at Bain Capital, I’ve created a 2X2 matrix to frame up the dimensions of vulnerability. Below I’ve arrayed various types of consumer financial services along the vertical dimension of Complexity/Switching Costs, and the horizontal dimension of Alignment. Per usual, you surely don’t want to be in the lower left box and should strive to get to the upper right.

The dimension of complexity and switching costs is relatively obvious; those financial services that are easy to understand and switch will go quickly. I continue to think retail banking is most vulnerable. The concept of net interest margin, the spread between what a bank pays depositors and what it charges borrowers, is fundamentally doomed to narrow as inertia, opacity and latency go away. This will impact both the liability side of bank balance sheets (what they pay for liquidity) and the asset side (people will refinance their personal, auto and home loans much more frequently).

The dimension of alignment is slightly more nuanced. Complexity and switching costs impact how capable I am of switching, while alignment impacts how motivated I am to switch. Like it or not (I don’t), much of financial services is adversarial. As with retail banking, the goal is to get consumers to pay as much as possible/more than they should (high interest rates on a low-risk loan) and demand as little as possible in return on their assets (interest, investment profit, insurance policy payouts.) It’s generally difficult for consumers to suss this out, but that is about to change. The age of information asymmetry is over, and consumers will be pissed when they find out the truth.

I won’t go into each example and explain the placement, but here are few themes. Within insurance, the different lines of business vary dramatically. Annuities are poorly aligned, particularly in a rising rate environment, but very hard to get out of. P&C, Life and Health insurance have better alignment in that in each category, the carrier wants the same result as the customer, but the claims process in health (and to a lesser extent home and auto) make it far more adversarial than life.

Wealth management generally has good alignment with varying degrees of complexity depending on the client segment. Within wealth, the firms that make money on idle cash, earn commissions from asset managers or get paid to churn your account (stockbrokers) are far more vulnerable. Asset management is generally customer aligned, even more so in alternatives, where a significant percentage of the economics only come with strong performance.

Over time, all of these categories will shift down. However high the switching costs are today, they will be lower in the future. Eventually you will be able to direct your personal agent to surrender an annuity and it will just happen. The imperative for players in each of these segments is to move to the right faster than they move down. That is, to increase their alignment before their switching costs get too low. That is a race I fear few players are set up to win.

Health insurance is a great example of what could be possible. A fully aligned health insurance carrier would spend their time and energy figuring out how to keep you from getting sick vs. denying you care when you do get sick. Insurance brokerage is another category with a real opportunity to drive right. The winners in that category will have transparent and aligned economics, “always on” advocacy to keep you in the right product at the right price at all times, and unconflicted and deep carrier relationships to find the right home for any risk.

Each segment has its own opportunity to move right, towards greater customer alignment. I fear that the first instinct will be to try to fight the move downwards, as banks are trying to do right now. It’s an understandable instinct but a terrible long-term strategy. As with any strategic question at this point, the right framework is to create an approach that gets stronger as the models get more capable, and blocking agents is the strategic equivalent of an ostrich burying its head in the sand. There’s only one answer: move right, or get left behind.