Artificial Intelligence (AI) or Machine Learning (ML) are perhaps the most often used terms in technology discussions globally today. There is not a single technology company that doesn’t have the roadmap for an AI push. On the other hand, it’s a good news for the technology users. One of the key industry sectors making absolutely killer use of AI is Banking. The most remarkable contribution of AI/ML in banking can be seen in democratisation/universalisation of services. According to a recent EY study, banks are focussing on using technology to become innovation-lead firms that act as partners with their customers than just a transaction-based bank.
Adoption of AI in banks has gained momentum in last 3-4 years. While it all began with the adoption of basic AI/ML to simplify the existing processes with a slightly intelligent automation but with the maturity of technology, the day is not far when every customer will have bespoke solutions based on its history if transactions. The best part is that AI is not just about virtual assistant-based customer interactions or resolving the customer issues through a chat bot. It has gone much beyond it including detecting and preventing frauds and money laundering.
Below are some examples that will showcase how banks world over are betting on the promise of AI/ML.
America’s top bank JPMorgan Chase sees AI as a promising technology and last year it introduced a Contract Intelligence (COiN) program. COiN runs on machine learning system that’s powered by a new private cloud network. It not only reduces the time taken to review documents, but also manages to help the bank decrease the number of loan-servicing mistakes – the mistakes that were prone to human error in interpreting 12,000 new wholesale contracts every year. Automation is now a growing part of JP Morgan’s $9.6 billion technology budget and AI is a focus area.
This year HSBC decided to integrate AI technology from Quantexa – a UK-based start-up – into its systems. The technology allows the bank to spot potential money laundering activity by analysing internal, publicly available, and transactional data within a customer’s wider network. The bank and start-up will work together to better detect potentially illegal activity in its broader context, helping the bank fulfil its regulatory responsibilities and provide better understanding of the overall risk.
Earlier this year, Financial Times did a survey of 30 leading banks using AI and which revealed that industry is excited about the prospects of a technology that can help cut costs and boost returns. As quoted in FT, a bank even predicted that 50-70 per cent of jobs could be replaced. Such data points towards very challenging but interesting times ahead.
Earlier this year, the Bank of America launched its AI-powered virtual assistant erica and in less than 3 months it had 1 million users. Beginning with Rhode Island in Mar 2018, erica was made available in eight more states in April 2018, and subsequently was opened to all of its 25 million mobile app customers in June this year. This innovation demonstrates bank’s continued focus on enhancing its digital capabilities as part of its high-tech, high-touch client experience.
ING, a global financial company of Dutch origin, last year rolled out an in-house AI tool Katana to help traders decide what price to quote when a client wants to buy or sell a bond. Katana learns from the history of hundreds of thousands of trades and translates this into a prediction or suggested decision for the trader. The initial results demonstrated a faster and more accurate pricing decisions and a concomitant 25% reduction in trading costs.
According to a FICO Survey 70% of banks in APAC region will use AI in collections and recovery by 2019.
Reports say that Bank of Tokyo-Mitsubishi UFJ is building a new financing model for fledgling businesses that uses AI to assess their credit prospects based on data not found in financial statements. The bank is slated to invest US$950,000 in a Tokyo-based AI developer ExaWizards which will design the new screening model. The technology should be ready by fiscal 2019. The AI system will analyse such data as the stability of the startup’s top customers and suppliers as well as the company’s record of paying expenses like salaries and rent on time.
Singapore’s OCBC Bank has done pilots with two Fintech companies that leverage AI to bolster its internal controls to safeguard the interests of customers and shareholders. The AI solutions augment bank’s competency in the detection of trading anomalies during the audit of trading activities. So much so that the bank has also launched its own AI Unit. With an initial investment of $10M over three years, OCBC Bank adopts an ‘AI-first’ strategy in developing digital capabilities. The AI unit sits within OCBC Bank’s Fintech and Innovation Group, The Open Vault at OCBC (TOV), and is named AI Lab@TOV.
SBI Card, India’s second largest credit card issuer, earlier this year announced the launch of ‘ELA’ (Electronic Live Assistant), a virtual assistant for customer support and services. Driven by AI and Machine Learning, it is designed to enhance customer experience by providing relevant and instant responses to customer queries.
Earlier this year NatWest, a major retail and commercial bank in the UK, has announced that it’s in advanced testing of an AI-powered ‘digital human’, which could, in future, be used as an additional way for customers to get answers to basic banking queries. Named as Cora, it can answer 200 basic banking queries and now over 100,000 conversations a month. NatWest have been building the Cora digital human using technology provided by New Zealand-based company Soul Machines. Soul Machines uses biologically inspired models of the human brain and neural networks to create a virtual nervous system for their digital humans that can detect human emotion and react verbally as well as physically, through facial expressions.
Interestingly, China Construction Bank (CCB), the second largest lender by assets, opened a bank branch Shanghai in April this year, run by pure technology including facial recognition (FR), artificial intelligent (AI) and virtual reality (VR). Touted as the first for the Chinese banking industry, the CCB says it has already installed 1,600 smart machines at its 360 branches in the city to ramp up its appeal to tech-savvy customers and trim staff costs.
Another UK-based bank Barclays is experimenting with AI in its own ways. It has singed up to work with AI company Simudyne Technology, which focuses on using AI to create models of various situations a bank could be put in, including models that account for human mistakes and run simulations, as a means of lowering risk and reducing error. The bank is looking to leverage the technology in its trading, lending, and risk management divisions.
This year in July, Standard Chartered bank announced that as part of its continued efforts to lead the way in the global fight against financial crime, and through its use of RegTech, it has partnered with Silent Eight to deliver cutting edge capabilities to its Financial Crime Compliance (FCC) teams. FCC’s strategy is to continually invest to be at the forefront of the ever-changing financial crime landscape. Silent Eight is a Singapore based RegTech that specialises in using artificial intelligence to combat financial crime.
Besides using AI just as a technology for bettering customer experience and other usages, many banks are also investing in AI/ML companies and promoting them. For example, French bank BNP Paribas has led a US$ 30 million funding round in AI outfit Digital Reasoning. Digital Reasoning’s AI platform parses unstructured communications data to add context to human conversations, spotlighting compliance failings and potential fraudulent behaviour and delivering insights on future client interactions.
America-based Citi Ventures has made an investment in the AI software company Anaconda. According to reports, the investment provides more insight into how Citigroup is using AI across the company. The software is popular with younger generations, which is an important group to attract.
According to Bain & Company there will be a saving of around $1.1 trillion through the usage of AI in banks. On the other hand, Accenture estimates that AI will add $1.2 trillion in value to the financial industry by 2035. In the U.S. banking sector, 1.2 million employees have already been exposed to AI in the front, middle and back offices, with almost 3/4th of workers in the front office using AI (even if they don’t know it).
46% of large FinTech companies consider AI to be one of the most-relevant emerging technologies to invest in within the next one year, as per the PwC Global FinTech Report 2017.
The above mentioned examples are just a few cases that have successfully gone live. There will certainly be many others, which are leading the way in intelligent usage of AI in the banking industry.
Image courtesy: IT Peer Network – Intel