Artificial Intelligence in Banking: You Ain’t Seen Nothing Yet

by Tim Sloane 0

 This article in International Business Times really doesn’t go far enough. Natural language interfaces based on machine learning will change how banks interact with consumers and how they service customers. As machine learning consumes all the information banks have, from regulatory, policy, and transactional data, they will be able to interact with those consumers that want a fast answer without typing. Little of this is pointed out in this article:

“Massive data sets, large computers and very advanced algorithms to churn through the numbers are allowing technology to do amazing things. And this is just the beginning. We are standing on the verge of an exponential increase in AI’s use, especially in banks and other financial-services companies.

One recent survey suggests that AI will be the primary way in which banks interact with their customers within three years. Forward-thinking institutions are already launching more sophisticated chatbots. These include Swedbank’s Nina, which deals with more than 30,000 queries per month, while RBS is testing Luvo, a bot with a “warm and human-like personality”, according to the bank.

These new-generation chatbots can deal with straightforward banking questions, freeing up staff to deal with more complex queries. Our experience at Temenos is that customers don’t mind using a bot – and may not even know they are doing so – until something goes wrong.

That is when banks need to have the right systems in place to ensure humans take over as quickly and seamlessly as possible. We know that, once a customer has been disappointed by a chatbot, they won’t use that channel again. So if a chatbot is unable to understand a customer’s query, or is unable to deal with it, bank staff must be ready to step in.

Chatbots can provide great cost savings, but AI can be embedded deeper still into banks. It is already being used to help prevent online fraud. You may not know it, but bots in the background of your banking apps are analyzing your banking transactions for everything from how well you spell to how fast you swipe, and flagging up anything out of the ordinary as potentially fraudulent.

The same technology can be used to analyze spending and earning patterns to allow the bank to customize products. Many banks already use data to tell customers when they are about to go into overdraft. Smarter banks will use that intelligence to offer them options to deal with it – there may be money in a savings account that could be moved to avoid an expensive overdraft charge, for example, or the bank could pre-approve a loan.

In future, bank bots could run our finances 24/7, constantly monitoring and optimizing the interest rates we pay and the financial services we use. Using AI, banks will be able to learn our preferences and understand our attitudes to risk. It is possible that, before long, they may be able to complete financial transactions for us too – although that is clearly a step that would be fraught with ethical and regulatory concerns.

The advent of new regulations, such as the new European Payments Directive (PSD2), is likely to accelerate the advance of AI. The changes mean that, with customer permission, banks will have to allow outside firms access to account data. Third-party providers, including creators of specialist financial technology, will be able to offer products directly based on the data held by banks. Customers, meanwhile, will be able to access all of their account information, from any bank, from one place.”

The article then focuses in on issues associated with regulators, even though only a few applications for machine learning really touch on regulated areas:

“Before this happens, however, regulators, banks and their fintech partners will have to address some inescapable ethical questions that lie at the heart of AI. How much control over our money are we happy to hand over to a set of algorithms – no matter how well they promise to ‘learn’ our preferences? And what issues will be raised if mysterious black boxes start to deny some people insurance cover or mortgages because the computer says no? How fair and transparent can we expect this brave new world of banking to be?

At present, regulators will not allow algorithms to make serious financial decisions without human agency, and that seems unlikely to change in the near future. However, some people in the industry believe that customers will be willing to part with their data for the sake of convenience and price. So it’s possible that one day we will all be happy to allow the bots to bank on our behalf.

Even with strict regulation in place, banking in the era of AI will look very different than it does today. The migration of services from bank branches to mobile platforms, the availability of loans and insurance at the click of a button (or an app), the increasing accuracy of credit risk thanks to improved analytics – all mean that the banks that get it right first will be the ones to gain the most from the march of the robots.

One thing is certain: today’s clunky chatbots will be short-lived. In their place will be tomorrow’s sleek, financial optimising machines. We will wonder how we ever managed without them.”

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

Read the full story here

Featured Content