Idea · carried by 1 source
The Business Model Too Good to Innovate
Banks aren't laggards in innovation because they're incompetent — they're laggards because their business model is *too good*. When you're already highly profitable, the incentive to change is structurally absent. This creates a massive opportunity for those who can harness AI on their behalf.
Where it comes from
William Hockey, explaining why legacy banks are slow to adopt AI, in highlights/william-hockey-bet-on-yourself (~1:07:30): “Financial services, especially large banks, they suffer from the fact that the business model's too good. Banks are pretty profitable. If you're on a bank and you need to be more profitable, that's a problem. Like you've clearly done something wrong.”
How it works
- Profitability as a trap: “The business model fundamentally is really good. And so that's made them laggards in a lot of ways.”
- But also opportunity: “That also I think makes their massive opportunity where I think financial services and legacy banks tend to be the largest inefficiencies out there.”
- Hard to disrupt: “They also are very hard to take over. Like there's not a lot of private equity activity in financial services because it's highly regulated.”
- The AI angle: Banks are “pretty head count focused, and pretty technology focused. That's where majority of the money goes to. The actual physical branch infrastructure is such a minority of your balance sheet.” This means AI can actually move the needle — unlike railroads where “99% of your money is spent on fuel, track maintenance, and people... you take conductors down from 1,000 to 500, it doesn't change the equation at all.”
- Winner selection: “The banks that are the most effectively run, have the largest distribution, the largest cost structure are going to be the largest beneficiaries.”
A business model that's “too good” creates organizational inertia — but also leaves massive room for efficiency gains when external technology (AI) finally forces change. The winners will be those who act before the business model forces them to.