AI likely to cement big 4 grip over financial services, expert claims
The nation’s consulting giants are often described as an oligopoly. According to a leading AI academic, their chokehold will only grow stronger as AI enters the mainstream.
Competition has been squarely on the government’s agenda for some time. In recent weeks, it has been centre-stage in the ongoing supermarket inquiry, the merger law reform, and the debate over ACCC divestiture powers.
The conversation largely overlooks the potentially devastating impacts of AI technology on market concentration.
“I think there’s a fairly high degree of complacency about the use of [AI] … I think that the Australian government is using that kind of logic too,” emeritus professor at the University of Queensland, John Mangan, told Accounting Times.
“I think it really is going to be anti-competitive … there’ll be an increase in concentration.”
He added that financial services will be among the first and most deeply affected industries by the technology.
Mangan released a report titled Australia’s AI Imperative for Kingston AI Group on Tuesday, which said financial services is among the 10 industries most likely to be affected by AI by 2030.
It ranked second behind the technology sector in terms of the percentage of practitioners who make use of the technology as an input in 2020–2021.
Asked why, he said it relates to the need for security and the volume of repetitive processes in financial services.
“We know in financial services that a lot of [time] is taken up making sure transactions are correct; checking the bona fides, the security,” he said.
“And the volume of repetitive services is absolutely designed for AI. Robotics in general, but AI in particular.”
In March, the Standing Committee on Economics released a report on the findings of its review into Australia’s economic competition and dynamism.
That report laid the groundwork for the government’s recently proposed merger law shakeup and the associated strengthening of the ACCC.
While a number of witnesses spoke to the potential competition opportunities and risks posed by AI, Mangan said “much more attention” should have been given to the technology.
“The smart firms will probably face some slack early on, introducing these systems, and [there will be] some resistance from unions and their associations,” he said.
“And then they’ll become even more important, and they’ll be even more dominant.”
Google submitted that the technology had “low barriers to entry” and that the tech sector, more broadly has “all of the hallmarks and elements of a fiercely competitive sector.”
On the other hand, Westpac said the digital economy “tends to drive us towards a winner-takes-all type of position” and that small businesses will struggle to keep up where “scale is really important.”
Bendigo and Adelaide Bank submitted that the barriers to entry, and maintenance, of AI technologies might come in the form of compliance and risk management “because it can be a bigger cost in itself.”
Shift Financial wrote that skilled recruitment is “relatively difficult” and often requires overseas sourcing.
The committee wrote that there is “no clear view” about whether AI will have net positive or negative impacts on competition, adding that it “may exhibit some characteristics that reduce competition.”
For one, it is less transferable than many other factors of production, including human, financial, and physical capital.
“Traditionally, competition is fostered in industries when workers leave to start competing companies, or when new firms emerge in different geographies, or when investors seek to mimic a successful innovator,” wrote the committee.
“But AI is less transferable across firms. It can’t be poached, like a good worker. It isn’t fungible like investment dollars. It isn’t necessarily limited by geographic boundaries. And AI, unlike other factors of production, is able to innovate on itself.”
