US banks fear deposit losses from stablecoin, AI: survey

US banks fear they could lose deposits to both stablecoin and AI over the next few years, according to a recent survey.

Nearly two-thirds of banks believe their institutions could lose deposits to stablecoins if consumers are allowed to earn rewards on the payment method, according to a survey by IntraFi LLC of 402 bank CEOs, presidents, CFOs and COOs nationwide. Respondents also said the growing use of AI for financial advice poses a threat to banks' deposit relationships.

If consumers are able to earn rewards on stablecoins comparable to deposit interest, 44% of respondents said it is somewhat likely their institutions would lose a meaningful amount of deposits within two years, while another 19% said such losses are very likely.

Although the GENIUS Act prohibits issuers from paying interest on stablecoins, whether they may offer rewards remains under debate as Congress works to finalize the CLARITY Act. The banking industry is fighting the possibility of rewards, arguing that it would lead to deposit flight. Conversely, yield proponents believe a ban would push consumers toward conventional deposit products and away from stablecoins, acting almost as a tax on stablecoins.

Survey respondents also identified AI as a growing competitive threat. More than half — 52% — said deposit and payment relationships are most at risk if consumers turn to AI before consulting their bank for financial guidance. Another 21% cited advisory relationships as the biggest risk, followed by cross-selling opportunities at 11% and fee income at 4%.

Only 12% of respondents said AI use for financial advice would have little impact on banks and could ultimately benefit them.

Overall, banks are reporting heightened deposit competition and expect it to continue. Asked to compare deposit competition from 12 months ago to now, 42% of banks said they have seen a moderate increase, while 46% said it is about the same.

Looking ahead 12 months, half of the banks said they expect a moderate increase in deposit competition, and 6% said they expect a significant increase. About 43% said they expect it to remain the same.

Several banks have discussed increased deposit competition during recent second-quarter earnings calls.

"Deposit competition is very, very fierce. And our outlook is that, that's going to continue," Simmons First National Corp. President, CEO and nonindependent director James Brogdon said on the company's earnings call. "We've seen that for a couple of quarters now and really expect that to continue."

Deposit growth is one of the company's biggest strategic focuses right now and is one of the areas where it will invest the most over the next 12 to 24 months, Simmons First National CFO Charles Hobbs said.

WSFS Financial Corp. may have to raise deposit rates to defend its market share, executives said.

"There's definitely more deposit competition out in the market. And we've seen that really build up over the last six months," WSFS CFO David Burg said. "We want to defend our market share and capture more share. We want to remain competitive. So ... we may need to increase in order to grow in some areas and be competitive. And so that does put some pressure on our deposit costs going out."

Burg gave a recent example of when WSFS found itself on "the low end of market pricing" with its six-month 3% certificate of deposit offering, Burg said. "If you go out, it's very easy to get over 4% for 12 months."

Truist Financial Corp. saw increased rate-chasing behavior among customers in the second quarter, CFO Mike Maguire said.