Artificial Intelligence: FIs’ Friend Or Foe?

Artificial intelligence (AI) doesn’t walk and talk like C3P0 of “Star Wars” (many would say: “Thank God”). It doesn’t mask murderous intentions with a calming voice like HAL of “2001: A Space Odyssey.” It’s not the manically depressed, paranoid android Marvin of “Hitchhiker’s Guide to the Galaxy.” It’s not a beautiful but cunning killer like Ava of “Ex Machina.”

Spoiler alert: Real life AI is nothing like a Hollywood robot — too smart for its own good, poised to take over the world and exterminate all humans. Most of our readers know better than to think of it that way. However, this dramatic connotation is still very real in the minds of many average consumers. AI is going to need some serious PR before the public opens its arms and hearts to the idea.

The funny thing is, people are already relying on AI in many ways, and that dependence is likely to grow over the next five years whether or not they like it, or even know it.

Kasey Kaplan, co-founder of Urban FT, predicts that AI in banking will go the same way as mobile apps: Today, the big banks with big budgets are leading the charge, but a few years down the road, the capabilities offered by AI will simply be expected parts of the banking relationship and customer service experience. Financial institutions (FIs) that don’t leverage it, said Kaplan, will find themselves at a significant disadvantage.

In a recent interview with Karen Webster, Kaplan said that the core of AI in banking is to facilitate better, faster, more informed decision-making for the end user to improve their experience (and boost their lifetime value to the FI). When AI is branded as “efficiency” or “convenience” as opposed to “artificial intelligence,” the barrier to adoption will likely drop, said Kaplan.

Webster agreed that the idea of giving up control is what’s so off-putting to many people when they think about AI. People imagine zero human intervention, Webster said, but what’s really happening is that the AI is taking over routine, mechanized tasks to drive efficiency and inform human decisions.

Kaplan said that AI solutions should reduce friction compared to processes and applications that are currently in place, just as each new iteration of computer and telephone has done. When it does that, he said, adoption will follow.

Use Cases

Today, there are many areas in consumer business, financial services and payments that are fraught with friction, human involvement and user data to process — So. Much. Data. The human mind just can’t keep up anymore, said Kaplan. To best serve the customer, therefore, FIs would be wise to hand off some of the heavy data-lifting to a partner that’s better suited to it — namely, AI.

Indeed, today’s data-saturated environment offers an ideal climate for AI. Twenty or 30 years ago, said Kaplan, there wasn’t really enough data for AI to flourish, and what existed was not readily accessible. It was small data sets preserved on floppy disks and CD-ROMs.

Today, with smartphones alone generating so much user data, and with APIs to simplify sharing and access, the data world is finally ready for a tool as powerful as AI.

Kaplan gave a few examples of where this is true. For instance, AI can detect fraudulent activity with much greater speed and accuracy than the human eye by watching for known fraud patterns and behaviors to flag suspicious transactions.

Another use case is application processing. When customers apply for a credit card or loan, that application can take weeks to process, said Kaplan. That’s not good customer service. Today, asking a customer to wait that long for anything is just plain rude — and unnecessary, since AI could run that entire process in real time.

Chatbots, as another example, can answer many customer FAQs, saving banks and their employees from responding to repetitive questions — therefore driving productivity and freeing up those employees to handle inquiries that require more of a human touch.

In addition, Kaplan said, a chatbot may be a robot, but those automated conversations help customers make informed decisions, thus improving their experience and keeping the FI sticky.

The Ripple Effect

Webster noted that all of the above add up to significant productivity savings — $61 billion over the next two years, she said. What will banks do with all that liberated capital?

Kaplan said that larger FIs will probably invest it in further research and development to continue improving the customer service and end user experience. But, he said, it’s the smaller ones that stand to benefit most from implementing artificial intelligence.

Small- to mid-sized banks and FIs can’t always compete at the same level as large ones when it comes to offerings such as mobile and technology solutions, Kaplan explained. Freeing up capital could change that, he said, enabling smaller institutions — which are known for their closer, more personal relationships with customers — to engage with those customers in more meaningful ways.

Kaplan explained that small and medium FIs tend to be more reliant on payment processors and core providers for solutions, so one of two things will happen: Either banks will put the pressure on providers to get with the technological times, or they will turn to FinTechs for those modern solutions.

What they absolutely must not do, Kaplan said, is forego the modern solutions. If costs and turnaround times stay high while other institutions continue to move faster and less expensively, customers won’t hesitate to jump ship and bank with a competitor instead.

Keeping Up With the Kalanicks

No longer are competitors just other banks and FIs. There are non-banks rolling out their own payment cards with far more compelling incentives to adopt. Take Uber, for instance, which is introducing its own credit card embedded in its mobile app. When tech companies roll out convenient financial products with good incentives, said Kaplan, it draws away from the FI user base.

Webster noted that traditional FIs are at serious risk of becoming invisible. As payments grow more and more digital, the brand on the credit card is becoming less and less important to the average user.

Customers are no longer whipping out the plastic and seeing that logo every time they pay for something. Meaningful information can be accessed digitally. If banks don’t serve up some strong branding and give customers a good reason to stay, Webster said, then they won’t.

For what it’s worth, though, Kaplan doesn’t think tech companies will squeeze banks out. They will simply force them to adapt.

“Banks need to exist and will continue to need to exist because they’re where consumers store their money,” Kaplan said.

One thing banks have that tech companies don’t, according to Webster? Consumer trust — and that’s a more important factor than ever, with so many major data breaches making headlines this year.

Generally speaking, Webster said, consumers want their bank to look out for them; they expect it. AI, then, may have a place in customer relationships, assuring users that their accounts, Social Security numbers and other personal data are safe, or alerting them of unusual account activity.

Kaplan agreed that that’s exactly the sort of AI solution FIs must introduce to stay on top in the realm of core banking relationships.

“If you’re doing the same thing you were doing 20 years ago and not adopting any of the new technologies,” Kaplan cautioned, “you’re not going to be competitive and you’re going to lose market share. As technology evolves, banks need to be at the forefront.”