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Not all members of the FTSE 100 will emerge as winners from the advance of artificial intelligence (AI). For example, in August, WPP, the advertising and marketing agency, issued a profit warning. Many commentators believe this was caused (in part) by AI equipping some of the group’s customers with the tools to do more creative work themselves. Fortunately, it shouldn’t take too long before we know whether WPP’s business is in terminal decline or if it’s experiencing a temporary downturn.
On the other hand…
However, according to a firm of management consultants, the financial services sector should benefit. McKinsey & Company reckons the technology will add $200bn-$340bn in value to the global banking sector. If they’re right, the FTSE 100’s five banks will be among the beneficiaries.
Generative AI – the process of creating content by learning patterns from huge volumes of data – is being used by large financial institutions to improve the customer experience, minimise risk, identify market trends and enhance productivity.
Barclays (LSE:BARC) has created a “colleague assistant” that helps reduce call handling times by instantly providing its staff with answers to customer queries. It’s also analysing data to deploy “intelligent agents” to help automate routine tasks.
The bank’s electronic trading platform — ‘BARX’ — now features a bot (an AI-powered assistant) to enable its clients to develop the most appropriate investment strategy.
AI’s also helping it analyse millions of transactions to automatically detect suspicious behaviour and reduce fraud. In addition, the technology’s being used to meet its regulatory obligations more quickly with less need for human intervention.
Craig Bright, the bank’s chief information officer, says AI is a “strategic augmenter” with productivity “no longer defined just by individual effort”.
No guarantees
But this fourth industrial revolution brings with it some challenges. According to The Massachusetts Institute of Technology, 95% of organisations have reported no return from their investment in generative AI, despite an annual spend of $30bn-$40bn. Barclays could be one of these.
Also, more cloud-based applications could make the bank vulnerable to a cyber attack. And we know how damaging these can be.
However, McKinsey reckons most of the potential advantages come from improved productivity and the associated cost savings. These could be worth 2.8%-4.7% of the banking industry’s revenues.
A bit of an outlier
And the efficient use of its resources is one area where Barclays lags behind its peers. In 2024, it had the highest cost:income ratio (62%) of the FTSE 100’s banks. But if it could use AI applications to match the average of 57%, it would be able to reduce its operating costs by around £1.3bn a year. For context, its 2024 post-tax earnings were £6.3bn.
In 2025, it hopes to improve this ratio by one percentage point. For 2026, it’s targeting the “high 50s”. Of course, it’s impossible to know how much of the anticipated savings have already been factored into the bank’s share price. But at the moment, its price-to-earnings ratio puts it in the middle of the pack among its closest rivals.
All efficiencies – whether achieved using AI or other means — will help improve the bank’s bottom line, which can only be a good thing. As the FTSE 100’s least efficient bank, it has the most to gain. On this basis, I think Barclays shares could be worth exploring further.
