Though their multibillion-dollar technology budgets give large banks a competitive advantage in the AI space, industry experts say small banks can compete, they just have to be creative.
Dan Latimore, chief research officer at The Financial Revolutionist, uses the term "AI mavericks" to describe smaller banks that "punch above their weight" in artificial intelligence. Eastern Bank, Umpqua Bank, Cadence Bank, First Citizens and Axos Financial all fit in this category, he said. (These banks declined interview requests. A few said they were concerned about being connected with the word "maverick." "Maverick is sort of an interesting designation because it connotes pushing of boundaries, which is not really our approach," one said.)
"They're willing to go out and try new things despite this relative lack of resources compared to their bigger competitors," Latimore said in an American Banker podcast that will air Dec. 17. "They recognize that to stay competitive with these larger firms, they've got to be out there on the forefront of technology."
AI's competitive edge
Industry observers agree the deployment of advanced AI gives banks a competitive advantage.
"It can be a tool to help banks become more efficient, act quicker and be more nimble at a time when customers' needs have become more sophisticated and when change is happening at a breakneck pace," said Paul Davis, CEO of Bank Slate, a research and consulting firm.
This edge may be temporary, according to Jim Perry, senior strategist at Market Insights.
Banks are already using AI to improve efficiency and risk management, reduce operational cost, detect fraud, automate compliance processes and enhance customer experience, he said.
"I say 'for now' because the integration of AI in banking, for many of the use cases I mentioned, will eventually become table stakes," he said.
Large banks have always had an advantage when it comes to the deployment of technology, according to Perry.
"Community banks have typically had to invest strategically in the technologies that will help them remain competitive,'' he said. "But today, big tech is also leveraging AI capabilities to compete for a portion of our financial lives. So it is important to recognize that big banks and big tech use of AI will end up chipping away at some of what has typically differentiated community banks, such as high levels of personalized service or advice and flexibility in decision making."
Using AI to stay relevant
In Latimore's view, customers generally look to community banks for something different than what multinational banks offer, so the small banks' AI strategies need to be specialized.
"They don't have to offer every bit of AI or deploy AI in the same way that the AI titans are, but they've still got to be thinking about how it can be used, not just for offense — providing better customer service or letting their relationship bankers and call center reps do a better job servicing customers — but also to play defense, if you will," he said in the podcast. "So to guard against fraudsters who are themselves using AI in ever more creative ways."
Smaller banks typically rely on partnerships, vendor relationships and system integrators to do this, he said. In his report, "Most Impactful Banking: AI," Latimore cited First National Bank of Omaha's
Community banks must stop thinking about AI as a topic to tackle in the future.
"Despite being smaller and having fewer absolute resources, these folks have generally, from a leadership position on down, taken the view that AI is something they've got to be involved in," Latimore said. "They may not have dozens of experiments going on right now, but they are dipping their toes in the water, seeing where they can realize an economic return and then doubling down when they see success."
Perry believes smaller banks need a sense of urgency about AI.
"Community banks must stop thinking about AI as a topic to tackle in the future," he said. "It is time to look past the hype and prioritize AI-driven improvements to their operations and customer experience. Fraud detection is one of the most obvious use cases, but any use of AI to analyze data and improve operational speed and efficiency is going to help banks make more informed decisions and stay competitive."
This would help free up bankers to work on relationship-building, he said.
At the same time, community banks, like banks of all sizes, must tackle data governance, dedicate human and capital resources, and develop their employees' AI literacy, Perry said.
Davis said community banks could use AI to make better
"Banks' greatest untapped assets are the mounds of data in their possession," he said. "Transactional data. Customer complaints and call center transcripts. Financial statements. AI can assist banks in parsing through all of this data more quickly and more effectively."
A recent survey Bank Slate conducted with community bank executives found that, while they expect to spend more on technology in 2025 compared to this year, only 23% said they plan to allocate more funds to AI.
"This represents a missed opportunity," Davis said.
