Why banks are betting smart money on AI in bid to stay on top

12 Apr 2018

Image: Ruslan Grumble/Shutterstock

In an industry that is progressing at a blistering speed, finance’s only option to stay on top of the game is with AI, reducing the roles humans have played for centuries.

Unless you’ve been hiding under a rock for the past two years, you would have seen the bedlam surrounding the stratospheric rise of cryptocurrency. This is particularly relevant with bitcoin, going from something at the fringe of fintech to the mainstream as every person and their dog suddenly considered investing in a real unknown quantity.

Future Human

While its long-term existence remains to be seen, the continued interest has shown that traditional banks and the latest start-ups have identified that the old ways of turning up to a branch, or even using an ATM, could be the banking equivalent of watching a movie on VHS.

In its place comes a raft of new technologies, none more so apparent than the one that promises to not only shake up how customers interact with their banks, but how banks fundamentally operate: artificial intelligence (AI).

Bringing AI to the digital shop floor

From an outsider’s perspective, the most obvious sign of AI’s role in the change of banking is part of the overall digitisation of the traditional bank, whereby instead of dealing with physical branches or human tellers, you operate largely online, particularly through mobile.

One company that has propelled itself to the forefront of this new age of mobile banking is the German start-up N26, which recently closed Series C funding worth $160m, making it one of Europe’s fastest-growing banks.

Noticeably, the company said after this funding that it was to pump millions into developing AI into the core of its app. “N26 wants to take this a step further by making the banking experience even smarter and more personalised for customers through the use of AI,” it said.

“N26 believes that AI will allow the bank of the future to become more adaptive to customers’ needs and solve problems in a way that is currently missing among traditional retail banks.”

Of course, why wouldn’t any mobile bank prioritise this as a key investment given that the app is the face of the business?

Firms forced to rethink their interaction with customers

By analysing customer data and transactions, a mobile bank can learn what services to pitch to you, from savings accounts to standing orders.

Yvonne Browne, Accenture’s global future workforce lead of its financial services team, certainly believes this to be the case.

“The diverse needs of customers today are forcing financial services firms to [rethink] how they interact with the customer to gain insights into the best products and services that suit them,” she said in conversation with Siliconrepublic.com.

“AI-enabled tools can help banks identify consumer preferences and empower their workforces to react with insight and emotional intelligence.”

But it isn’t just the newcomers dabbling in the idea of using AI with its customers, as established financial institutions have quickly caught on to the concept of chatbots, which are AI programs that can have basic conversations with customers to answer their queries.

While many work with developers to build their own in-house virtual agent or chatbot, others have turned to more familiar formats. For example, Bank of Montreal in Canada recently announced that it was building chatbots capable of handling customers through social media services such as Facebook Messenger and Twitter.

Right now, this technology – for privacy’s sake – will only point them in the direction of how to access other services but, as the technology develops, it could eventually match that of the traditional customer service rep on the phone.

“The virtual agent is an exciting opportunity for financial services firms and fintechs today, which will become a competitive necessity and expectation for the digital customer,” Browne believes.

“Well-implemented virtual agents can reduce contact centre traffic, fulfil requests at a reduced cost, and increase service hours and language options.”

Role of PSD2

What will likely drive a flourish of AI developments in finance is PSD2, the EU regulation recently implemented that allows for banks to collaborate with third-party start-ups to better use their customers’ data.

At the heart of all good AI and machine learning is access to a wealth of information, so, with this now unlocked for leading AI thinkers outside of finance to play with, the hope is that potential benefits could be passed on to customers.

Having looked extensively at the topic as part of its Banking Tech Vision 2017 report, Accenture and Browne foresee the growth in financial institutions adapting a ‘plug and play’ approach by partnering with fintechs on select propositions.

“Regulatory changes like PSD2 increasingly stimulate financial institutions towards innovation of their frontline services, using technologies such as AI,” Browne said.

Depending on how a bank uses the combination of AI and PSD2, however, it could have a dramatic effect on the way it conducts business with its customers and, indeed, its very existence.

This includes the area of know your customer (KYC) and also the very fabric of the core business, including security, by using AI to detect when transactions are being used by the likes of fraudsters or terrorists.

Securing long-term futures

Digital systems in place since the beginning of the century have been designed to detect peculiar transactions, but so far have taken a blanket approach, whereby every such transaction required human follow-up.

Once a sufficient AI comes on board, however, the likelihood is that a human operator could blitz through dozens of worrisome transactions with an AI assistant significantly quicker than they could alone.

It remains to be seen how the financial institutions will handle the implementation of AI in banking, and how it transfers from them to the customer, according to Browne.

“If banks fail to use digital technology to replicate the banking intimacy of the traditional model, then someone else will do it for them and, in the process, bypass banks altogether,” she said.

“In 2018, we are therefore likely to see the first concerted attempts by banks to secure their own long-term future by using AI to always do the right thing for their customers, regardless of the short-term impact on profit.”

What is certain is that it’s a race to the top for financial services when it comes to AI and, while this could be good news for the customer, it creates a competitive challenge for the banks.

As one financial services executive said to Computer Weekly recently: “Whoever uses artificial intelligence in the best way will win [over the others].”

Colm Gorey was a senior journalist with Silicon Republic