The Frontier Firm in banking: A blueprint for advanced AI innovation
The banking industry is undergoing a profound transformation, driven by unprecedented investment in AI. By 2027, spending on AI across financial services is projected to rise to $97 billion, up from $35 billion in 20231. Banks are racing to innovate, shifting focus from experimentation to strategic deployment, particularly around AI agents—increasingly intelligent, task-oriented systems that will change not only how banks operate but also how they drive top-line growth and margin expansion.
As banks compete aggressively with AI, many are gravitating toward the concept of the Frontier Firm—a new kind of enterprise that doesn’t just use AI, but rearchitects itself around it. Frontier Firms view AI agents as digital colleagues, empower employees to act as agent bosses, and operate with intelligence on tap to work smarter, scale faster, and create new value.
Characteristics of the Frontier Firm in banking
The speed of transformation sparked by generative AI is unprecedented, leaving banks precious little time to make critical decisions. Across industries, 82% of leaders say 2025 is a pivotal year to rethink their organizational strategy, and 81% expect AI agents to be deeply integrated into their workforces within the next 12 to 18 months. In banking, 70% of companies that have adopted AI are realizing cost savings.2 The challenge is to forge a strategy that delivers immediate ROI while also fostering long-term transformation.
The Frontier Firm concept brings clarity and a workable blueprint to this high-stakes challenge. It blends machine intelligence with human judgment, resulting in systems that are AI-operated but human-led. The Frontier Firm features the following characteristics:
- Intelligence on tap: AI capabilities are embedded across workflows and decision-making.
- Work chart versus org chart: Teams form around outcomes, not departments.
- Agent–boss mindset: Every employee manages and collaborates with AI agents.
With these principles in mind, banks can advance their innovation efforts without waiting for perfect conditions. Most banks are already well positioned to make quick strides.
The Frontier Firm in banking: Three-phase AI transformation journey
THE ROI of AI in financial Services
The journey to becoming a Frontier Firm plays out in three phases, each phase representing a deeper integration of AI into business operations. Organizations may operate in multiple phases at the same time, depending on function and maturity.
Phase 1: Human with assistant
In this phase, the goal is to empower employees with AI agents such as copilots and digital assistants that help improve productivity, generate efficiencies, and reduce drudgery.
Early innovation with generative AI in banking was limited, focused primarily on internal needs and designed to evaluate the technology and its impacts. These initial use cases quickly demonstrated both the immediate value and long-term potential of AI.
For many banks, an especially powerful productivity driver has been the adoption of Microsoft 365 Copilot, which embeds generative AI into everyday apps like Word, Excel, PowerPoint, Outlook, and Teams. In the UK, for example, with Copilot, Hargreaves Lansdown reduced the time required to record customer meeting notes from an average of four hours to just one. In Australia, Copilot helped Bank of Queensland cut the time required to produce drafts of internal manuals by 99%, marketing content by 88%, and human resource documents by 75%.
Complementing Microsoft 365 Copilot are a set of role-based agents that support specific job functions, one of which is Microsoft Copilot for Finance. Designed to help streamline operations and make faster decisions, Copilot for Finance connects with financial systems such as Dynamics 365 Finance ERP and even third-party platforms. At Microsoft, it delivered 22% in cost savings on reconciliation tasks for our corporate Treasury organization, doing in 10 minutes what previously took more than an hour.
A key lesson here is that integrating AI into familiar productivity tools and daily workflows promotes quick adoption, as opposed to introducing new applications or interfaces. To amplify the impact, Copilot solutions can be enhanced to seamlessly work with a bank’s internal data and key partner connectors. For example, Wells Fargo built an agent for 35,000 bankers across 4,000 branches to help its employees find information to better assist customers. As a result, 75% of searches now happen through the agent, and query response times have gone from 10 minutes to just 30 seconds.3
Elsewhere, Barclays deployed Copilot to 15,000 users, and the results soon led to an expansion to 100,000 employees worldwide, incorporating the bank’s broad ecosystem of collaboration tools, portals and online resources. Likewise, using Azure OpenAI Service and Azure AI Search, Swiss bank UBS developed a set of “Smart Assistants” to help client advisors deliver more personalized insights by synthesizing 60,000 documents, plus a Legal AI Assistant (LAIA) that transforms how teams search a repository of 26 million multilingual legal documents.
An important counterpart to embedded copilots is an emerging class of personal agents within the Microsoft 365 Copilot suite, which can tackle deeper, domain-specific tasks. The Researcher Agent delivers in-depth insights by synthesizing internal and market data to support functions like strategic planning, compliance, and competitive analysis. The Analyst Agent works like a virtual data scientist, transforming raw data into forecasts, customer behavior visualizations, and automated reports.
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Phase 2: Human–agent teams
In the second phase, AI agents take on specific tasks under human direction. Employees delegate tasks to them, review outputs, and intervene only for exceptions.
Some banks are now developing powerful agents to assist employees across a broad range of key tasks such as reconciling transactions, performing KYC checks, or conducting background verifications. Agents can also, help manage onboarding journeys, verify documents, and deliver training. The net effect is to free employees to focus on higher-value work at a greater scale.
For example, Dutch ABN AMRO Bank replaced its legacy chatbots with two new AI-powered assistants, Anna and Abby, that autonomously manage employee and customer conversations using Azure AI Language for intent recognition. Employees delegate routine tasks to the agents, which escalate to humans only for exceptions. This reduced drop-off rates, improved Dutch language accuracy by 7%, and now supports more than 3.5 million conversations annually.
Beyond customer service, banks are deploying agents to streamline complex, high-volume processes. In mortgage lending, agents can automate document verification, income validation, and regulatory checks—reducing cycle times and improving transparency. This helps lessen or eliminate bottlenecks caused by manual dependencies, accelerating approvals and improving customer satisfaction.
AI innovation in financial services is moving to a more powerful agent-based model in which AI serves as a collaborative tool. Financial services provider Virgin Money built a new contact center agent called Redi that triages customer inquiries, executes predefined journeys, and seamlessly escalates sensitive exceptions, such as bereavements, to human agents. Designed with input from customer center staff to emulate live interactions, Redi embodies the idea of “human-in-the-loop” governance, where AI handles the bulk of execution, but employees retain control over edge cases. Staff now view Redi as “another colleague” that supports them by triaging tasks and enabling them to focus on empathy and relationship-building.
Phase 3: Human-led, agent-operated
In this advanced phase, AI agents do more than assist or collaborate, they own and execute complete business processes. Humans provide direction, oversight, and exception handling, but day-to-day operations are managed by agents.
Agentic systems can reason, plan, and act independently to achieve goals. For example, an agent that can shop for clothing, plan a vacation, or buy groceries based on a consumer’s preferences and limits. This is the vision behind a new AI-powered platform that enables agents to “find and buy” on behalf of users.4 Features such as tokenized digital credentials, which confirm that an agent is authorized to act on a consumer’s behalf, foreshadow new ways agentic AI can deliver seamless, secure, and personalized experiences, and create new value.
Agentic AI-powered commerce and payments are driving a new suite of tools being developed by PayPal, designed to help developers build AI agents that can transact, manage invoices, and track shipments using PayPal’s APIs.5 As part of a unified platform for commerce, these tools let agents autonomously execute end-to-end commerce workflows using natural language.
Many banks are exploring innovation in agentic AI with scenarios spanning a broad range of business services, including advisory and customer service support; channels, like kiosks, online, social, and contact center; and operations, such as trading, payments, treasury, and more.
A key enabler of the Microsoft vision is the unique role of Microsoft’s global partner ecosystem, which encompasses an unparalleled range of independent software vendors (ISVs), global systems integrators (GSIs), and advisory firms. Our partners are building domain-specific Copilots, workflow agents, and Environmental, Social, and Governance (ESG) dashboards and regulatory compliance tools embedded within Microsoft AI, Microsoft 365, and Microsoft Azure. By incorporating agents into everyday tools and workflows, they are enabling the advanced real-time decision making, personalized customer engagement, and intelligent operations that make human-led, agent-operated AI a reality for banks.
The key role of governance in advanced AI
The promise of the Frontier Firm is to reimagine banking in ways that advance competitiveness and customer value. This can only happen with effective governance frameworks, which help ensure that all AI is developed and deployed safely and responsibly.
AI must be trustworthy, auditable, and aligned with corporate governance frameworks, so businesses can utilize its power without losing control. While many providers focus narrowly on compliance, Microsoft embeds governance into every layer of our AI stack, grounded in Responsible AI principles—fairness, reliability, privacy, inclusiveness, transparency, and accountability—and operationalized through centralized councils, cross-functional oversight, and tooling like Microsoft Purview.
For banks, this means AI systems that are not only compliant but also auditable, explainable, and aligned with regulatory expectations. We deliver governance at scale with a blueprint for responsible transformation and safeguards that protect customers, reputations, and regulatory standing.
Concurrently, a secure foundation is also critical. As your employees and customers interact with AI services, it is emerging as a new attack surface that requires world-class protection. Microsoft provides a comprehensive security platform, Microsoft Security Copilot with Microsoft Sentinel, which is fully integrated into our AI platform.
Learn more and explore Agentic AI
Helping banks chart their unique, comprehensive journey to becoming a Frontier Firm is central to our work at Microsoft. We build long-term relationships with customers, technology partners, data providers, and industry stakeholders to help banks create new value and customer relationships.
We have developed a five-step maturity journey and a set of foundational elements for any bank to become a Frontier Firm. To explore how your organization can move forward, start by engaging with your Microsoft representative or service provider.
- Visit Microsoft for financial services to learn more about how Microsoft empowers financial services organizations to achieve more.
- To see how leaders in financial services are successfully using AI to transform complexity into opportunity, read our e-book, AI Leaders in Financial Services.
- To learn how to use AI in banking to enhance customer experiences, empower employees, and strengthen risk and compliance, read our e-book, AI and Automation in Financial Services.
- Learn more about using Copilot in Financial Services and download the Financial Services scenarios kit.
1 Forbes, The Future of AI in Financial Services, October 3, 2024
2 KPMG, Intelligent banking report, February 2025
3Microsoft Work Trend Index Annual Report – 2025: The year the Frontier Firm is born, April 23, 2025
4 Visa, Find and Buy with AI, Visa unveils new era of commerce, April 30, 2025
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Source: Microsoft Industry Blog