In June 2007, Apple launched the iconic iPhone, decisively pushing the world into a ‘mobile-first’ era. What followed was a mad dash among all consumer industries, including banks, to get into the precious real estate which had every user hooked for hours.
10 years later, a similar halo of excitement surrounds the oft heard and frequently abused term, ‘Artificial Intelligence’. That this technology, along with its partners ‘Machine Learning’ and ‘Automation’, would unleash a bigger revolution than smartphones is almost a given. The possibilities are endless; but what will it mean for organizations to use AI and transform their offerings? Specifically, what would ‘AI-first’ banking look like?
There are banks like Capital One who have gone ‘Voice-First’ by integrating with Amazon Echo. All you need to transfer money to your sister is wake up Alexa and tell her to do exactly that! Ergo, your Capital One account will be debited and money wired to your sister.
WeChat, a popular messaging platform in China, provides instant micro loans to its customers without any human involvement. The insurance arm of Alibaba group uses neural networks trained on images of cars involved in accidents to calculate settlement amounts. Anyone involved in a car crash only has to take a few photos of the damage and upload on the mobile app. The AI driven backend system has the ability to settle 2 claims per second. There are Digital Only Banks, with zero branches, in most geographies of the world that perform automated onboarding and KYC through artificially intelligent audio, video and image recognition.
Banks have started experimenting with certain other use-cases too. Chatbots and Robo Advisors are two of the currently leading AI innovations. Just last year, there were more than 30,000 payment chatbots integrated with Facebook! Innovative banks now allow users to transfer money, check balances, answer queries and make loan applications via Facebook and Twitter.
As of August 2017, Robo Advisors had more than 400 billion US dollars of assets under management. All decisions regarding buying, selling and the percentage of capital allocations for these mutual funds were made by algorithm driven robots. They are not doing badly either; by 2020 AUM controlled by them is expected to reach 8 trillion US dollars!
Some futuristic AI driven use-cases include your fridge using its own wallet to order food, your digital assistant applying for a micro loan, a robot completing a factory visit to assess a plant and machinery loan and self-driven ATM vans which you can order to your doorstep for cash.
For the large corporate enterprise the shift in the banking experience has begun with automated loan applications and derivatives structured and monitored by algorithms. The reduction in time and paper work would be the biggest gain at the enterprise level. It would not be surprising if in the future a bank just employed a robot to cater to all the needs of its corporate customer, right from providing interest rate quotes, transferring loan funds, providing on demand financing, doing factory visits to even leading negotiations!
While ‘mobile-first’ was a revolution led by a single device, ‘AI-first’ in banking would be a more holistic experience driven by home speakers, perky digital assistants, voice & touch apps and IoT wallets for the consumer. Even with the movement to voice, the touch based smartphone will exist as a supplementary device. It is a certainty that back end banking infrastructure would move to cloud and be managed by third party vendors.
Because with AI, banks as we know them will disappear. In a generation’s time, there is a possibility that branches, which are huge overheads and a drain on the balance sheet, may completely disappear or be turned into museums. Banks will be invisible and will exist as a service embedded in the products and services we consume.
The question is: Are today’s banks ready for the transformation? If one were to scan the landscape, the biggest investments in AI are being made by technology giants like Google, Facebook, Amazon and Intel. The leadership in AI comes at a price; billions are being spent right now in making acquisitions and developing capabilities; but the payoff cuts across sectors. Once AI capabilities are developed, they can be deployed across various sectors, banking just being one of them. An enterprise like Facebook or Google can offer banking services to rival the best banks at much lower costs and with exponentially higher processing speed.
The technology giants of China like Baidu, Tencent and Alibaba have understood this and already offer a host of financial services automated through the use of AI in the back end.
At this stage, deep-learning-neural-network drive the interest in AI. This is primarily due to limited expertise and massive data requirements. But as the interest in AI grows, the technology would be more widely available. ‘AI-first’ would become ‘AI-Only’ then, as automation would do a far better job than humans in most of the roles.
Traditional banking organizations are facing their ‘Kodak moment’. They need to develop and invest in an ‘AI-first’ strategy right away. Technology giants of Silicon Valley and China already have a huge lead. The time to innovate has shrunk rapidly in the past few years. By the time the world moves to ‘AI-Only’, many of today’s financial behemoths would either have transformed or become obsolete. The time to make the choice is now.