Artificial intelligence has come on by leaps and bounds in recent years and while the more profound aspects of its impact on financial services are due long term, there is plenty of intriguing AI action to look forward to over the current year across banking, such is its rate of advance.

The rapidity with which artificial intelligence has developed into a serious, commercial proposition across many industries in the space of just a few years after decades of failing to deliver, is undeniably remarkable. Its advance is such that already many are predicting it will have a profound impact on business and commerce over the long term, with the financial services industry especially exposed to a radical upheaval.

According to Autonomous, an independent US-based research consultancy focused on fintech, the technology has the potential to cut costs by US$490bn in front office, US$350bn in middle office, US$200bn in back office – 22% or US$1trn in total – across banking, investment management and insurance in the US alone by 2030.

While the future of AI in banking looks very bright, with no doubt extraordinary developments in store going forwards, Russell Bennett, Chief Technology Officer, Fraedom, the payments and expense management specialist, believes there is much to expect near term too, especially in areas such as credit risk management, risk and finance reporting, trading floor operations and security.

AI could also, he believes, be the key to overcoming some of the challenges experienced by banks in 2018, in particular in helping them to strengthen customer relationships, support businesses and provide a better service. “Having said that, these are all areas in which banks would benefit from working with third parties and fintechs, rather than against them. The potential is there for banks over 2019 to really begin leveraging AI and in so doing revolutionise the way they operate.”

Chatbots are hot

Bennett sees three types of AI application impacting the banking sector over the current year. One of these comprises chatbots and virtual assistants. Over recent years the intelligence of these applications has grown dramatically. The capability of chatbots, for example, has progressed from only completing very basic tasks, such as answering FAQs, to being capable of initiating actions of their own.

Indeed, according to a study by UK-based Juniper Research, their capabilities have grown so much that by 2022, chatbots and virtual assistants (which can emulate human interaction to perform particular tasks, like customer service) are expected to save companies US$8bn per year. Their increasing sophistication is expected to go hand-in-hand with an increase in their uptake, with Gartner, the US-based research and advisory firm, suggesting that by 2020 consumers will manage 85% of their total business interactions with banks through fintech chatbots.

Bennett believes advances in chatbot technology will allow banks to streamline their operations, reduce service costs, improve their customers’ experience and use their different channels to serve more people, more quickly.

In the UK, voice banking has been in use since 2016 when it was first introduced by Santander. Since then a large variety of global banks have adopted this technology in one way or another and as AI continues to develop, so will the capabilities of virtual assistant-based voice banking, Bennett says. He points in particular to the prediction by Mariano Belinsky, Managing Partner of Santander InnoVenture, the bank’s venture capital arm, that the next progression for virtual assistants will be the integration of advanced natural language processing capabilities. Such a development will provide context and meaning to user inputs and enable AI to come up with the best response. “Developments in this technology will enable it to overcome natural communication barriers and better understand the user’s intent, thereby improving customer service and limiting the need for queries to be rerouted to humans,” says Bennett.

Mending fences

A major challenge for banks since the financial crisis has been to win back the trust and confidence of customers. Bennett is clear about the work that still needs to be done in repairing this relationship: “Last year we saw a noticeable disconnect between banks and their smaller customers, with a Fraedom survey of SMEs in the UK and US revealing that less than 20% of SME owners thought that banks they had dealt with over the past year fully understood their needs as a business. This is frightening realisation given the impact SMEs have on the health of the economy and account for 99% of private sector businesses.”

Bennett however believes it is possible to solve this problem through the use of intelligent automation. “For financial institutions, using automated data collection behind the scenes on an ongoing basis can ultimately ensure their relationship managers are better equipped with in-depth knowledge about their customers; hence best positioned to support their business and provide a better service. It will also strengthen their offering and position in a competitive industry.”

Nowhere to hide

Bennett also expects to see further rapid progress being made in applying AI technologies to risk management, security and compliance. These areas will benefit especially from AI systems being able to continuously learn from data they are supplied with, refining their decision-making processes over time: “That is one of the key differences between AI and other, more traditional technological solutions. Cyber-security is a hot topic for the financial services sector; regulatory compliance is another. AI can add real value in both of these areas. Machine learning (ML) platforms can be coded to identify user patterns and detect anomalous network behaviour, something that’s increasingly essential as cyber-attacks are often disguised with inconspicuous data or code.

“For financial organisations that embrace AI, it has the potential to revolutionise the way they operate, support the development of more innovative products and services; and help mend their fractured relationship with the customer. Over the past five years, technology has been a disruptor and an innovator. Technology is increasingly helping shape customers’ wants, needs and expectations and with a new raft of regulation encouraging the use of technology in banking, there’s nowhere left for anyone to hide. The technology revolution is in full swing and for banks, it’s very much adapt or die.”