Price War vs. Technological Breakthrough: What is the Significance of AI for Small and Medium-sized Banks?

In the current complex and ever-changing economic environment and intense industry competition, small and medium-sized banks are facing unprecedented pressure and challenges— Narrowing interest margins, increasing difficulty in risk management, and increasingly diversified and digital customer demands have made traditional operating models difficult to adapt to rapidly changing market needs. Since 2025, the average net interest margin level of listed banks for corporate and retail lending at 1.43% has fallen below the industry’s non-performing loan rate of 1.51%; at the same time, the Matthew effect in the industry has intensified, with 18 state-owned banks occupying nearly 73% of the industry’s net profit with only 0.38% of the total number of institutions in China. The large banks sinking into local regions amid cyclical difficulties has further put small and medium-sized banks in a new predicament: Should they engage in a price war head-on, or seek alternative paths and find differentiated positioning? If seeking differentiated positioning, what should be the anchor point for harmony, and what path should be followed? In this context, technology empowerment has been continuously mentioned, and technological investment has upgraded from a past "optional" to a core breakthrough related to survival and development. At the "Future Banking Conference 2025," several small and medium-sized banks, including local banks from Sichuan, demonstrated that when AI technology is deeply applied in areas such as credit risk control and customer service, regional banks have the potential to break free from the homogenized competition of "competing on interest rates" and "scaling up," exploring differentiated development paths. Wang Xiaolong, Deputy Director of the Economic Committee of the Zhejiang Provincial Political Consultative Conference and former Chairman of Zhejiang Rural Commercial Bank, pointed out at the conference that small and medium-sized banks still face threefold challenges of structural, phased, and technological nature from a macro perspective, and stated that small and medium-sized banks should focus on their regions to build competitive barriers through "differentiated positioning + ecological co-construction." Lü Wenyong, co-founder and CEO of New Hope Financial Technology, emphasized the importance of technology in cycles, pointing out that after the decline of the three major dividends of population, currency, and economy, the technological dividend has become the only breakthrough for the banking industry to navigate through cycles. In Lü Wenyong's view, regional commercial banks do not need to indulge in price wars or pursue interest rates in direct confrontations with large banks; rather, the availability and convenience of digital loan products are more important. "The good characteristics and advantages of regional banks lie in their ability to 'turn quickly like a small boat,' allowing them to flexibly design various scenario projects and create differentiated competition with the standardized products of large commercial banks through differentiated multi-dimensional marketing methods," Lü Wenyong pointed out. Xu Zhihua, CEO of New Hope Financial Technology, shared common misconceptions in the market regarding current retail lending based on function deduction and mathematical modeling. Xu Zhihua pointed out that the risk release of retail lending is inherently "non-uniform," characterized by three features: the approval of customers presents a left-skewed distribution under a single model dimension, bad debts progress linearly from low scores to high scores, and there is a stable and monotonically decreasing relationship between the final bad debt rate of the approved customer group over its entire life cycle and the model score; The final mathematical result derived indicates that over time, the evolution of the cumulative bad debt rate will exhibit characteristics of "slow accumulation of risk in the initial stage, followed by a rapid rise, and ultimately stabilizing." "Risk changes naturally have a rapid growth phase." Xu Zhihua pointed out, "Historically, many banks, upon reaching this phase and seeing monthly risk indicators continuously rising, hastily hit the brakes and paused operations, ultimately missing development opportunities. This is actually an objective law, not a failure of risk management capabilities." In the face of the current cyclical dilemma in the banking industry, New Hope Financial Technology's approach is to integrate resources across the entire process, including data, risk control, operations, systems, and practical consulting, to provide banks with a "short-term implementable, no trial-and-error risk, productivity-enabled" "whole vehicle delivery" solution. The value of technology lies not only in improving efficiency but also in helping small and medium-sized banks deeply understand and follow the objective laws of risk evolution, avoiding misjudgments and missed opportunities during cyclical fluctuations. By leveraging AI-related one-stop solutions, regional banks may quickly acquire market-validated digital capabilities, transforming the flexibility of "small boats can turn quickly" into a unique competitive advantage for building localized ecosystems and creating scenario-based projects. The road ahead may be tough, but the direction is clear. Today's technological breakthroughs are no longer a forward-looking discussion but an inevitable choice for small and medium-sized banks to survive in the current competitive landscape and achieve a new round of growth. Whoever can first convert technological dividends into tangible productivity and competitiveness may accumulate greater potential in the future banking landscape. The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk