The digital revolution has already upended banking by making the concept of a local branch nearly irrelevant for many operations: you can onboard new accounts, check account statuses, pay by credit cards, buy and sell assets, and apply for a loan without ever leaving home.
Now Artificial Intelligence (AI) is about to take that disruption a decisive step further.
The opportunity is huge: banking services are used in one way or another by almost everyone, and yet they have been frustratingly user-unfriendly. Branch hours are short, voice menus and user interfaces confounding, personalized service lacking, and service with a smile the exception. And critically, turnaround time for open issues to be resolved by banks is frustratingly long, whether one is making simple inquiries or a more complex request such as ID verification, credit card checks, and loan approvals.
Banks got away with that because the market was strangely non-elastic. Part of that resulted from the logistical difficulty of switching banks. So much of our lives’ arrangements seem connected to a bank that once we were onboarded, banks were able to act a little like monopolies.
That is changing because digitization and AI is simplifying onboarding. Once conversational chats with bots powered by natural-language processing can handle most onboarding, and AI capabilities can prevent fraud as part of the new self-onboarding process, opening a new bank account will take minutes instead of days. This will erode the stickiness of banks.
Everything else will be accelerated too. Voice assistance, email classification, Q&A, biometric identification, and alerting on malicious usage of accounts and credit cards can all employ AI technology to accelerate response time. For more complicated processes, AI can be leveraged to both speed up turnaround time and improve accuracy. Setting up auto payments and applying for a credit card will be simpler when always-responsive AI will be able to handle everything instantly.
The efficiency generated by AI can reduce much of the cost-pressure that had been building on banks since the 2008 financial crisis and enable them to move past cost-reduction toward improving customer experience.
The good news is that not only will everything become faster and more tailored, but those aspects that require a human touch will be more accessible and convenient as well, because humans freed from other low-level, repetitive tasks will have the time to do them.
But there is some bad news as well. As often happens with AI, not everyone understands what is possible, implementation can be elusive, and many fear the consequences of success. For instance, financial services have heavy compliance requirements and regulations that complicate the picture.
The key to navigating this landscape successfully, enabling business growth and innovation, is the approach to data. Data will become an asset for the banks, no less than balance sheets or interest-earning loans: the data banks collect about clients, in particular their buying habits, can be combined with AI to vastly improve service and expand activity through supplemental services based on user data. If a large bill comes in or overdraft accumulates it might offer a loan. Affiliate marketing opportunities could become an option.
Even more exciting is the ability to feed this data into AI systems anonymized – without any IDs, account numbers, names, or addresses. This will smooth the transition to the AI era of banking by ingesting large data sets while also accounting for privacy concerns.
Data enables banks to move away from treating customers in pre-segmented groups and rule-based systems – an approach that approximates needs but rarely offers a perfect match for individuals. With AI, banking services can be specifically tailored for a target group of one. This means that the current model of concentrating on VIP relationships will transition to a far broader customization:
- Onboarding a new account faster and on-line, without the need to visit the branch.
- Improving client personalization in wealth planning or portfolio management.
- Personalized payment plans based on when salaries enter accounts, suggesting the right time to call customers or the best way to reach a customer.
- Fraud detection based on the usage of the individual customer to help decrease false negatives or false positives.
- Specialized offerings of services based on credit card usage, transaction history, salary, even personal interests.
- Applying for loans online in just a few clicks.
- Alerts arriving at whatever level and in any manner the client wants.
The global financial system is constantly evolving. The simple barter arrangement of millennia past gave way to gold and silver coins, then paper money and standard currencies, and in recent decades digital finance was able to virtualize wealth, which can race around the globe in seconds.
The transformations brought by AI deployment in the financial services are amplifying the achievements of the earlier digital era. As AI is deployed throughout banking, the industry will become, in a rare combination, both more efficient and more customer-centric.
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Nurit Cohen Inger is VP, Products at BeyondMinds.