Small Banks Lead AI Adoption but Face Scaling Challenges, Study Finds

Small banks, credit unions, and lenders are leading in Artificial Intelligence (AI) adoption within the small and medium-sized business (SMB) sector, outperforming similar-sized firms in insurance, government, healthcare, and life sciences. This finding comes from a recent AI readiness study by SAS, with research and analysis conducted by IDC.

Despite demonstrating the strongest strategic alignment, most established governance practices, and the highest integration of AI into daily operations, the study identifies significant hurdles to AI's wider proliferation. AI use remains heavily concentrated in IT functions; nearly two-thirds (64%) of small financial institutions utilize AI in IT, compared to lower percentages in customer service (42%) and product development (39%).

Infrastructure poses a bottleneck for nearly two-fifths (39%) of respondents, who find it inadequate or too costly for broader AI deployment. Furthermore, concerns regarding security, privacy, and regulatory compliance impede AI scaling, with one-third (33%) citing the lack of a unified data, analytics, and AI platform as a challenge.

The study indicates that small financial institutions prioritize practical AI objectives, such as automating and streamlining core business processes (30%), reducing costs (30%), and improving data quality and integration (28%). Industry experts emphasize that true transformation requires bridging silos, connecting isolated functions and decision-making capabilities through shared data, governance, and infrastructure, enabling AI to spread more effectively across the organization.