AI risk #23/99: The FCA warns of hyper-switching. Is your retention plan ready?

Most business plans include a retention or renewal rate, and most of those rates assume a share of customers won't shop around. Comparing providers takes time, and plenty of people would rather renew than spend an evening on it. That habit has propped up revenue forecasts in banking, insurance, energy and telecoms for years.

Two things are now working against it. Customers are starting to hand the comparing to AI, and competitors are using AI to be the better option when they do.

Customers are handing the comparison to AI

In July, the Financial Conduct Authority published the Mills Review, its look at how AI could change retail financial services in the UK. One section is headed "AI interfaces may drive hyper-switching". It describes AI cutting the cost and effort of switching, and warns that agents standing between customers and firms could "reduce brand loyalty". Stakeholders told the review that firms built on "consumer habit, information asymmetry, or inertia" face the most disruption.

The review commissioned a survey of 5,026 UK adults. One in five said they would use AI that acts on its own within goals they set, and among people who already use AI the figure was 28%. Most people still want a say before an agent acts, so the shift is early. The payments that support it are already running, though. On 2 July, Visa said AI agents were completing real purchases for cardholders with merchants across Europe, with Barclays, HSBC UK, Lloyds and Nationwide among the participating banks.

Competitors are using AI to be what it finds

The same review expects that "AI-enabled firm capability will become a core driver of competition, reshaping how incumbents, challengers, smaller firms and new entrants compete". AI lowers the cost of running and growing a business, and it lets digital-native firms scale quickly. A competitor that uses AI to cut its costs can offer a better price or a better product, and an agent comparing the market for a customer will notice.

Energy retail shows how this could play out. In a paper published in August, the consultancy Roland Berger argued that what kept energy customers with their supplier for decades was mostly convenience, and that agents remove it. Once agents do the switching, it wrote, "being invisible to agents means being invisible to demand."

Where the risk lands

Put the two together and the retention line in the plan is under pressure from both sides. Renewals that were assumed may now be compared automatically, and the competitors they're compared with are getting cheaper to run. That lands on the objectives the line was written for: recurring revenue, the margin on long-standing customers, and what it costs to keep them.

The answer isn't to avoid AI. The FCA expects firms to respond with stronger retention offers, bundling and loyalty schemes. It also notes that building societies, mutuals and credit unions can benefit from AI, provided they adopt it to serve their members. The businesses that keep their customers will be the ones whose offer still looks good when an agent lines it up against everyone else's.

No UK or European business has yet reported losing customers to AI agents, which is why this belongs on the risk register now, while it's still a planning question.

What to add to the risk register

The revenue that relies on inertia. Which renewal and retention lines assume customers won't compare, and how much of next year's revenue sits on them.

The side-by-side test. What your offer looks like to an agent comparing it with competitors' on price, terms and service, and which of those competitors are using AI to lower their costs.

Visibility to agents. Who owns making sure your products and prices can be read and compared by the AI tools customers use.

The AI Disruption Index starts from your objectives, including revenue and retention targets like these, and scores the AI risks against each one, with a safeguard drafted for every risk. It's free and takes about ten minutes, and you can see a sample report before you start.