Introduction
Artificial Intelligence (AI) is defined as the study and design of intelligent systems that are able to realize processes similar to the human brain – e.g. learning, reasoning and self-correction. The concept of AI implementation in banking is not new. The excitement over the potential of automation, which can be helpful for financial institutions to speed up their work, was already observed in the 1950's. In fact, the financial sector is one of the first domains to drive interest in using artificial intelligence, even before high computing machines were available1.
For various reasons, it turns out that the implementation of AI in the banking sector is not so simple. What makes it more difficult is the complexity of algorithms, data security and regulatory compliance. So most of the solutions being developed end up remaining in the prototype phase or were implemented in a very narrow range.
It's suddenly changing, mostly due to the capabilities and business needs.
The explosive growth of structured and unstructured data, availability of new technologies such as cloud computing and machine learning algorithms, rising pressures brought by new competition, increased regulation and heightened consumer expectations have created a ‘perfect storm’ for the expanded use of artificial intelligence in financial services2.
The application of AI is a fintech trend on its own, and takes many forms, such as reducing fraud and false positives in payments processing, chatbots and a virtual financial wellness coach. Here we would like to focus more on personalized services for bank customers.
Personal Financial Coaching Tools
Since AI makes it possible to identify customer preferences and behavior, the banks have started to use this technology to deliver more personalized services in real-time. This strategy affects the strengthening of the bank-customer relationship and, as a consequence, the building of a competitive advantage for the bank.
One of the top trends in banking – related to AI implementation – is the shift from personal financial management (PFM) tools (including personal money management via open banking) to personal financial coaching (PFC) tools3.
There’s a significant opportunity for financial institutions to educate customers on how their spending impacts their ability to pay their bills, to save money, and to improve their overall financial health; they can help them be able to plan for unexpected emergencies or bills and give them multiple ways to be able to save and meet whatever goals they set for themselves4.
AI provides the opportunity to build such tools, and the potential is huge – according to some recent research, more than 75% of 22-to-49-year-old consumers indicate they are interested in using a virtual financial wellness coach5. This potential is also a field for chatbots and interactive assistant implementations. According to an Open Market survey of more than 1,500 mobile users in the U.S. and the U.K., customers prefer to engage with companies via chatbots and SMS text messaging. The research further found that financial services are the top industry in which consumers would like to receive a better customer experience and engagement opportunities via SMS (49 percent), followed by retail (27 percent) and travel and hospitality (24 percent)6.
What next?
Go ahead. Customers expect banks to understand their needs and deliver personalized services that help them to manage their finances in the most effective way. And AI is the right technology to respond to these expectations.