AI is transforming the financial services industry and customers are loving it
Getting a bank loan seems like a straightforward process. You go into a bank, arrange the paperwork, and wait for the decision. If the loan is approved, you get the money and buy your dream house, blissfully unaware of how complex this process really is. Without you even realising it, banks use cloud computing, robotic process automation, the Internet of Things, and many other technologies to get you as a client. Machines analyse each part of your life to decide whether you’re trustworthy. Each year, financial institutions spend around $85 billion on digital technologies, with AI and machine learning forming the backbone of the modern financial system.
‘Internal processes’ like stock trading, fraud detection, loan and insurance underwriting, and many others are all made possible by AI. Financial institutions are now increasingly also using AI to communicate with customers, recommend products, replace usernames and passwords, automate accounting, and even analyse social media. However, around 67 per cent of financial institutions’ investments in digital technology are wasted, according to Tiger Tyagarajan, the CEO and president of Genpact. To solve this, financial companies must be smart when implementing AI. Vast amounts of data should produce concrete insights, and AI chatbots should ideally become more human-like in their interactions with clients. Employees relieved from repetitive tasks should be assigned to more creative, value-added jobs. And finally, the application of AI shouldn’t be seen as a merely technical task, but as a transformative force. Those who fail to adapt will lose and see their customers poached by tech-savvy competitors.
Information is the fuel, and AI the engine of the financial system
Take portfolio managers, for instance, who lost clients to AI. Ten years ago, only big companies could afford portfolio allocation software. But things changed with the advent of affordable robo-advisors such as Betterment and Wealthfront. These digital platforms powered by AI and machine learning help even ordinary citizens to invest money and achieve their financial goals. On a grander scale, AI is used to automate trading in financial markets. So-called algorithmic trading uses a set of predefined rules to make millions of trades each day. It buys and sells equities, foreign exchange, and commodities. AI is also heavily used in fraud detection. Companies such as Paypal deploy it to spot anomalies and block undesirable customers. And when it comes to loans and insurance, machine learning algorithms analyse data points such as age, job, income, and marital status to determine whether banks and insurance companies should take you as their client.
But financial companies are pushing even further with new applications of AI in their operations. Security systems based on usernames and passwords are being discarded in favour of anomaly detection and biometric data. Hedge funds want AI to analyse not only stock prices but daily news and social media chatter as well, while banks and insurance companies want an Amazon-like product recommendation system. The most promising application of AI in finance at the moment, however, is in customer service.
Customers demand transparency, corporate executives disagree
How much did I spend on food in the last ten days? How much money did I have in my bank account two months ago? To answer these questions, you have to log into your online banking account and do some research. But AI chatbots, such as the ones developed by Kasisto, can give you the answers in a matter of seconds. And consumers are happy, as 69 per cent of them “were satisfied with their AI-enabled interactions”, according to Capgemini’s report. They’d be even happier if AI had more human-like qualities such as intellect or empathy, and they’d prefer to have more insight into when and how their data is used to feed algorithms.
Unsurprisingly, only one third of corporate executives consider transparency a necessity. What’s worse, less than ten per cent of financial institutions consider customer pain points when developing AI services. Instead, they prioritise profit. But that approach can easily backfire as research shows that wealthy clients appreciate AI-based customer service – and they’re unwilling to put up with banks that use sloppy AI tools. Capgemini urges financial institutions to listen to their customers; to use AI to transform the company, harvest data in a transparent way, build human-like chatbots, and relieve employees from repetitive tasks. These steps will lead to more productive companies, as experts such as Bernard Marr argue.
Accountants might lose jobs as AI takes over
Marr envisages a future in which financial market players such as accountants have automated most of their operations. He notes that even now, AI-powered systems can process invoices and “learn the accounting codes”. Furthermore, machines can check the credit scores of new suppliers and track their prices. Even the audit process can be digitalised, while AI can review and approve expenses. It could even read receipts and alert humans of possible fraud. But what happens to the employees that will ultimately be replaced by this technology? Although some of them would lose their jobs, AI will relieve many others of monotonous tasks and enable them to work in a more productive way, Marr concludes.
The winners of an increasingly competitive market
People often take for granted the convenience of the modern financial system. They forget how AI protects them from fraud and helps them to invest money. And as we become spoiled by technology, financial institutions are pushing the boundaries. They use AI to change the way we interact with banks, select financial products, and log into our banking accounts. While the digital revolution of the financial services industry unfolds, however, customers increasingly demand greater transparency and human-like AI systems. And companies that make customer satisfaction their top priority will be the winners of this increasingly competitive financial market.