Road Runners and Wile E. Coyotes
The central business question of our time hasn't yet formed in the minds of most boards or C-suites: How will my business survive The Watershed?
With the collapse in the cost of cognition, businesses have an urgent need to transform their operations; to receive the full benefit of these changed input costs, and to defend their businesses against post-Watershed 'greenfields' competitors, who are already rewriting the cost structures of many businesses.
Some businesses - we'll call them 'Road Runners' - are already speeding ahead with their transformation, learning everything they can about the ongoing agentification-of-all-the things. As ice hockey legend Wayne Gretzky once put it, they're skating to where the puck is going.
Other businesses - the 'Wile E. Coyotes' - blithely unaware of the fundamental shift in business conditions, run out of runway, only to find themselves over the edge, staring down into an abyss. It takes a long time for a big business to fall; yet once that descent begins, it's nearly impossible to arrest.
We got an illuminating snapshot of the state of two of Australia's largest sectors - banking and retailing - at ADAPT's "CIO Network Effect" on the 21st of May.
In the middle of a conversation between former Westpac Group CTO David Walker and current Woolworth's Group Transformation Lead Vijayan Seenisamy, moderated by ADAPT's Lisa Drum, Seenisamy provided a clear-eyed view of the agentic future. "Within three years we expect agents will be shopping for you - checking prices, and going with the best price offer. If we're not ready for that, we'll lose all those customers."
Seenisamy highlighted the customer use case as the driving factor for transformation. A retailer doesn't have an option about whether to make all of its retail-facing systems agent-friendly: they either do it or lose customers. How long they have to do it is an open question: agentic retailing is in very early days, held up more by payments than by process.
It requires no major technology upgrades to transition from human to agentic online customers, but the agentic payments mechanisms have to be fully tested, vetted, and fraud resistant. Retailers will wear the bad press for 'poisoned' agents that redirect purchases to scammers, as they already do today. Agentification decreases purchasing friction, increases transaction velocity, but also opens a vast new attack surface. All of that has to be carefully considered and mitigated by an Australia retailer that carries reputational risk - like a Woolworths.
What about those payment systems? This is where David Walker offered his own insights from both DBS (a large Singapore bank) and Westpac. Walker appeared unconcerned about any emerging threats from agent-first banking systems, noting that the big 4 had beaten off a raft of 'challenger' banks in the years immediately preceding the pandemic: 86400, now part of NAB, Up in Bendigo Bank, with only Judo - a business bank - remaining independent and profitable.
Walker pointed to the regulatory moat that surrounds the banking sector as the key factor fettering the rise of any agent-first competitor banks. Yes, while banking licenses may be difficult to secure, they can be purchased through the acquisition of a bank. With more than 130 businesses regulated as Authorised Deposit-Taking Institutions (ADIs), there'd be plenty to choose from, should a well-funded agent-first bank want to set up shop.
The central reason challenger banks failed was because they failed to acquire customers in sufficient numbers; people have an emotional relationship to their banks (which is to say, an emotional relationship to their money) that the challenger banks could not supplant, even with better service offerings. That's often the way it is with customer relationships built on decades of trust, and that will certainly act as a moat, to the degree that these transactional relationships remain mediated by people.
But an agent-first bank is no longer people: it's a set of agents that interact with your personal finance agents. Everything happens offstage, and because of that, no relationship forms - or rather, forms to your personal finance agents, and indicative of where the real opportunity lies.
Note that this is a double-edged sword: the agent-first banks will have trouble retaining customers for the same reason - wholly transactional, agentic banking favours the best service at the best price, and very little more.
The two moats Australia's banks believe can shield them against and slow down the coming agentification of banking and finance at best offer only a minimum of defense. By the time retailers offer agent-first retail services to customers, there will be an agent-first bank prepared to handle those transactions in a convenient and broadly fraud-resistant service offering. Doing that well will be the new gold standard for retail banking in Australia, but looks and works almost nothing like banking as practiced today.
If they're not careful, Australia's banks could be heading toward their own Wile E. Coyote moment: run off the cliff by an army of agent-first service offerings, because they delayed making the necessary changes to business processes that would allow them to compete on equal (possibly even superior) footing.
These two examples do not exist in isolation; we can find repeated examples throughout both the Australian and global economy, across every segment of the service sector. Walker and Seenisamy gave us a snapshot of the present: Road Runners, conscious of the threats, accelerate toward opportunities, while Wile E. Coyotes, almost unaware of the tremendous changes happening all around them, stumble and fall into oblivion.
