• Incumbent banks today are facing increasing pressure to remain competitive, as challenger banks and fintech startups crowd the once-cavernous space. The biggest threat to legacy players comes in the form of digital-savvy entrants that lure in consumers with user-friendly offerings. 
  • To remain competitive, these legacy players must innovate digitally. Chatbots — computer programs that typically use text-based live chat as an interface through which to carry out a task for a consumer on behalf of a business — are emerging as an inexpensive way to introduce digital products to retail banking. 
  • Banks can build chatbots in two ways. They can either partner with a third-party developer and use an external channel to host the chatbot, or, less commonly, they can build a chatbot in-house and host it within their banking app.
  • While chatbots undoubtedly have the potential to solve at least some of legacy banks’ existing problems, they still have risks attached to them. If legacy banks don't properly navigate strategic, consumer, and technical risks, chatbots can create new problems for banks — namely, they can tarnish a bank's reputation or diminish customer loyalty, which players in the industry rely on heavily.
  • The benefits of legacy banks implementing chatbots outweigh the risks. A chatbot will be a worthwhile investment for a legacy bank if it can effectively automate a currently manual task. To do so, it must execute that task more quickly and cheaply than a human could, without undermining the quality of service customers receive.
  • Legacy banks should implement chatbots in areas where many humans are performing basic and time-consuming tasks. This will allow them to cut down on salary and benefit costs, improve back-office efficiency, and deliver better customer care.  


Banks are facing increasing competition from new, digitally savvy players — like Prosper, Stripe, and Wealthfront — that have found success attracting consumers with user-friendly offerings. At the same time, large legacy banks are finding it difficult to invest in developing innovative products that could level the playing field. That's due in part to market volatility that's hurting demand for key products like loans, and in part because challenger banks, as digitally native startup lenders are known, are less restricted by regulations that force incumbents to spend heavily on compliance and maintain large capital cushions.

To remain competitive in the space, legacy banks [...]