HAMMERING HOME AI

Hamm ering home

There’s a risk that artificial intelligence becomes the solution looking for a problem. Undoubtedly a hero technology and an indispensable part of the digital transformation toolkit, Alex King nevertheless suggests the bank of the future needs to wield it wisely

From the post-war science fiction of Isaac Asimov to the present-day wizardry of Silicon Valley, artificial intelligence (AI) has, for the best part of a century, captured humanity’s collective imagination.

But it’s only now that AI has ascended to what US research firm Gartner would describe as its long-awaited ‘plateau of productivity’.

AI is being rolled out, booted up and plugged into tech stacks worldwide – another ‘new normal’ to get our heads around this year. And, as so often happens with technological milestones, the debate rumbles into new territory, abandoning questions of ‘when?’ for the far more pressing ‘how?’.

A survey of more than 400 global banking executives, released in June by the Economist Intelligence Unit and Temenos, found that 77 per cent of respondents see AI as a key differentiator between winners and losers among banks. Get AI implementation right and banks are likely to prosper; engage with AI at the wrong time, or in the wrong way, and they will lose out to firms that made wiser, more far-sighted bets. The stakes, as we accustom ourselves to a post-AI-acceptance landscape, are incredibly high.

Adding a further dimension to the debate are those digital-native fintechs and rapidly-digitising banks that have concluded, as Deloitte did last year, that banking customers ‘still prefer the human touch’. These financial institutions (FIs) are wavering on AI and its implementation just as the means to achieve near-total automation have finally emerged.

Bringing some lucidity to the debate is Starling Bank’s Jason Maude, quoted in Banking Circle’s forthcoming white paper on the future of banks’ digital infrastructure. “Anyone who gets excited about AI,” he says, “is like someone that will get excited about hammers. AI can be a solution to a problem, but you need to make sure you have the right problem.”

Maude is referencing the cognitive bias termed ‘Maslow’s Hammer’ – if the only tool you have available is a hammer, everything starts to look like a nail. The problem is, some of the foremost thinkers to apply AI to banking processes have publicly stated that AI is applicable across the board: a magical panacea for forward-thinking financial institutions.

Having worked with university professors to produce her epochal book Decoding AI In Financial Services, Clara Durodié, founder and chair of Cognitive Finance, is one of those confident that AI has industry-wide use cases. “We’ve identified that every single business process in every single business model in financial services can be automated intelligently using some form of AI,” she declared at January’s Paris Fintech Forum.

“That’s very impressive,” she added. “That’s anything from customer engagement to sales and marketing, to functional finance, like accounting, through to IT as well as legal functions. All of these are business processes that can use AI.”

Given the breadth of the current implementation of AI in the financial industry, it’s hard to disagree with Durodié. Nasdaq has integrated AI in its fraud prevention and data analysis processes, while Goldman Sachs released research showing how the labour of six traders

could be replaced by a single AI developer. banks is significantly simplified, scrubbing exclusive of one another but, rather, Neobanks and software-as-a-service (SaaS) front-end friction for consumers. And represent two different approaches merchants are now well-accustomed that’s just one example. o the same problem. UX and UI to deploying technologies under the It’s no wonder, then, that AI was the hot innovations in the 2020s will be driven umbrella of AI – applying machine topic at this year’s Paris Fintech Forum, by AI, and AI in the value chain will learning and natural language processing unanimously declared the most important directly influence how developers design (NLP) to, for instance, authentication technology to get right in the 2020s. the delivery of next-generation products – all Cloud-based and painless to Cognitive Finance’s Durodié reminded and services to banking customers. integrate into open architecture through the Paris audience that AI is a years-long The low-hanging fruit for AI application programming interfaces strategic realignment, involving continual implementation may well be in the (APIs). Increasingly, these kinds of investment and infrastructural preparation. back end. This technology is highly services are being offered over “In our work with decision-makers, replicable and it’s coming out of infrastructure-supporting platforms we try to steer them away from thinking the labs of SaaS providers with dozens from third parties such as Trulioo about the next two years; we tend to of banks on their books, which levels in identity verification and Finastra in advise our clients with a five to 10-year the playing field for all those with a fraud control. Reconciliations SaaS horizon,” she said. “Why is this important? plug-in-and-play digital infrastructure. provider SmartStream is betting the Because the future is an AI-first financial According to last year’s WatersTechnology house on its own proprietary AI, its chief services industry. We take a report, 70 per cent of FIs rely on external technology officer Andreas Burner five-to-10-year horizon and we help providers for their AI integration, declaring that AI will eventually mean them understand the infrastructure which means that leveraging this kind ‘technology will be self-aware. It will and the prerequisites they need to hit of AI, though important, isn’t what will work on data without ever having seen that AI-first place.” set banks apart. the data – like we, as humans, do’. This is big-picture, strategic thinking Simon Paris, CEO at Finastra, hits

And so let’s return to Maslow’s Hammer. – but what about the nail on the head when he Retro-fitting banks’ digital infrastructure with AI for all back-end, back-office the here and now? When asked “ Anyone who gets excited about says: “Technology is very rarely a unique differentiator, but how you functions is being sold as a no-brainer by this year by AI is like someone leverage it is.” SaaS firms. That’s because cost reduction Banking Circle that will get excited Ricky Knox, CEO at the digital-first through automation represents what their top about hammers challenger bank Tandem, is in a win-win scenario for financial services providers and consumers alike: they both enjoy a better “ We’ve identified that every single Jason Maude, Starling Bank agreement: “I don’t think that our competitive advantage, in anything beyond the shortest term, is product at a lower cost. Most banks business process in technology,” he admits. already recognise that potential. every single business Competitive advantage, in the long Last year, a WatersTechnology report model in financial term, looks likely to stem instead from found that 75 per cent of surveyed services can be a technology-agnostic recognition financial institutions (FIs) regard automated intelligently of consumer expectations, and not AI as particularly beneficial for using some form of AI the rapid-fire handling/mishandling two parts of their business: cost reduction and data analytics. A case in point, Rabobank’s chief Clara Durodié, Cognitive Finance of AI. Consumers demand services that automation makes possible. But, with the greatest respect to digital transformation officer, Bart HSBC’s Pepper, that doesn’t mean they Leurs, describes how AI-facilitated challenge was, want to shake it by the hand. data analysis has benefited his 58 per cent of FIs An effective example of a consumerTier 1 bank. “In anti-money of all stripes cited led, AI-augmented business model is the laundering and know your customer ‘creating a user UK’s new SME bank, Recognise. Jason (KYC), for example, by having proper experience Oakley, the firm’s founder and CEO, data and really good algorithms, (UX) and user explains how his bank is cutting through we’re able to find fraud, which we’d interface (UI) that the moment’s technological navel-gazing otherwise never be able to find with works for a wide to provide human value to UK SMEs, manual, human work,” he says. range of customer based on data analysis served up by AI.

Leurs’ comments validate the types’ as their number one. The second “Since the financial crisis, the SME decades-old promise that AI won’t just was ‘the role of AI and related technologies segment of banking customers has perform better than humans; with the in the value chain’. That presented a been orphaned,” says Oakley, “left right data, it can do jobs humans cannot challenge to 50 per cent of all respondents without community-based relationships possibly do. With better, more reliable and 70 per cent of retail banks. and forced into call centres. There isn’t and more instantaneous KYC checks, for As any broad-minded technologist that real understanding, that bespoking, example, the onboarding process for will tell you, these two concerns are not that intimacy.

“At Recognise, we want to know our that leads to analysis and decision-making client, know about their business and be in those fields better than humans.” accessible directly, on the telephone, over According to the granular breakdown of Microsoft Teams, Google Hangouts or data contained in the Banking Circle white whatever. For that to happen, at scale, we paper, striking an acceptable need to use the best of technology to get digital-to-human balance is the precise to understand the client, their story and challenge that’s felt most acutely by fintech their business, their background and their providers. Such firms are concerned with aspirations and where they’re looking to how human interaction fits in with their take that business.” predominantly digital systems. Situated

In retail banking, the same hybrid closest to the power of AI – and most aware human/AI rule applies, as Tandem’s Knox of its superhuman capabilities – fintechs in explains. “Banks can no longer afford to particular appear to be struggling to provide one-to-one customer service – the model doesn’t work,” he says. “There are AI has forced technologies, such as AI, which in and of banking executives to themselves are going to transform the experience we have of interacting with your reconsider the positions bank, and I’d argue that, if used effectively, of humans acting like they’ll massively improve and extend the range of services the bank can provide.” robots within their

A sound customer retention strategy firms. Meanwhile, for banks of the future, then, might be the fusion of AI’s power with the consumers appear capacity of mere mortals for delivering to be pushing back computer-generated advice. In saved hours of human productivity alone, Gartner against robots predicts AI-augmentation will recover acting like humans 6.2 billion hours by 2021. And that has powerful implications. Outside of financial “ Where information asymmetry exists conceive of human roles in the banks of the future. Citi’s Gulru Atak, who services, more effective today… machines heads up Innovation for cancer diagnosis is the can process data that treasury and trade solutions go-to example of how leads to analysis and as part of Citi’s Institutional AI-augmentation ought to decision-making Clients Group, sees no work. Research papers have better than humans contradiction in proven that AI is more Brett King, ‘hyper-personalisation’ effective than a human Moven Bank being the ultimate goal of doctor at determining a AI. In fact, she’s convinced cancer diagnosis, but is of its humanising uses. incredibly insensitive when “I think AI will fuel it comes to delivering the a delightful, personalised news. As such, there’s still client experience,” she says. an important place for “Show me that you know oncologists in hospitals – for me is something that our now. Technology guru Brett clients tell us all the time King, executive chairman at – AI enables us to do that.” Moven, anticipates this Wells Fargo’s head of relationship with AI will pervade through a innovation, Lisa Frazier, also belongs to this number of sectors, including banking. school of reasoning. “We see the future of AI

“We need to think about human in being a coach for financial health, in real information asymmetry,” he argues. “The time, to help the customer make their reason you go to a lawyer, a banker or a tax decisions with the best information that advisor is that they know more about that they have,” she argues. “That’s what AI is topic than you do. What we’re finding, in really about. It’s an exciting area, because areas where information asymmetry exists you start to see the creativity in humans today, is that machines can process data coming together with machines and doing things we never thought were possible.” Wealth management, investment advice, personal financial health assessments – the verticals through which AI can trickle insights to banking customers are numerous. And, as banking-as-a-platform becomes increasingly feasible, the quality of customer service, and the quality of the analysis backing that up, will be the key differentiator in customer acquisition and retention.

On this front, though, the leverage of AI towards personalised advice is understood as a longer term objective. The Temenos report asked those surveyed to rank their tech investment priorities for 2020 and for 2025. ‘Hyper-personalisation’ was deemed a priority for 15 per cent of respondents in 2020 – rising to 24 per cent in 2025.

ONCE-IN-A-LIFETIME MOMENT Banks are already in transition. AI has forced banking executives to reconsider the positions of humans acting like robots within their firms. Meanwhile, consumers appear to be pushing back against robots acting like humans when it comes to important financial decisions. Upon AI’s plateau of productivity, a great realignment of roles and responsibilities is already taking place within banks.

Durodié sums up the predicament they are in. “Early on, we invested in human capital and very little in technology,” she explains. “Now, we find that we cannot be sustainable as a business if we don’t invest in technology. What is the immediate impact? We need to level off somehow: we need to retrain the people we’ve got, and some people will lose their jobs.”

In terms of balance and effectiveness, then, it seems that assigning robots the robotic jobs and humans the human jobs – and having them work together and to their strengths – is the path forward.

It’s worth reminding ourselves, though, that if AI is today’s high-tech tool that banks are excited to get their hands on, a hammer is useless without a human to wield it.

Durodié may be blunt about the short-term employment prospects of those caught up in the transition but she has a point when she says that it’s incumbent on everyone in financial services to ‘use AI and all emerging technologies to enrich their careers’. “It’s a once-in-a-lifetime opportunity, and I would encourage everyone to get onboard and educate themselves.”