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THE EVOLVING ROLE OF ARTIFICIAL INTELLIGENCE AND DATA ANALYTICS IN THE BANKING INDUSTRY

Rupa Ramamurthy, Executive Vice President of Banking Operations at Teleperformance India, discusses how embracing data and analytics has become a business priority for the banking industry.

Over the past few years, the financial services industry has made huge strides in adopting new technologies, like artificial intelligence (AI) and data analytics, into its workflow. In fact, the IHS Markit’s ‘Artificial Intelligence in Banking’ report estimates the global AI market will reach $300 billion by 2030[1]. This wide adoption of AI-driven automated solutions has been largely driven by the link between the strategic adoption of such solutions in the banking sector and the results – strategic cost-savings, enhanced operational efficiency, and higher engagement rates with customers and prospects.

Leveraging AI for the Front-Office

Industries across the board are undergoing an AI-enabled digital transformation, to provide a more seamless customer experience, fit for the new generation of hyper-connected consumers. A shift in customer behaviour has redirected interest towards challenger companies, rendering legacy organisations less relevant in today’s radically different, post-pandemic landscape. This is particularly true in the case of financial services, where consumers have come to rely upon banks that allow smooth authentication, provide swift and easy transactions with 24/7 access to their funds, and drive personalised services. Banking is ahead of other industries, in respect of the deployment of AI to lift and automate the customer experience model, with one in five UK consumers now using challenger banks[2].

Certain customer-facing applications of AI are on a staggering growth curve across banking operations, accelerated by the need for instant, online responses. For example, chatbots – being used to support front office operatives and instantly manage and respond to inbound customer queries – are now set to account for 85 per cent of all customer service interactions for financial institutions by 2021[3]. Assisted intelligence solutions, such as click-to-chat technologies, make it possible for banks to streamline the end-to-end customer journey, in a more cost-effective and consistent manner than is possible by a customer service agent.

By implementing analytical technologies, financial institutions can gain a deeper understanding of customer needs to devise customised interactions and offers. As data sources mount, banks can continuously improve resolution times without the need for staff intervention, and achieve 30 per cent higher sales conversion rates as a result[4].

 

Reduction in costs
In the back-office, AI-powered tools are being used to complement the work of human agents by completing the tasks typically prone to human error – thereby minimising operating costs. In fact, it is expected that by 2023, $447 billion will be saved in costs, through the increased adoption of AI by financial institutions.

The automation of processes such as mortgage applications, account openings, and remittances services has become commonplace, as banks seek to drive down costs and increase productivity by limiting customer agent mistakes. Even in 2020, human error remains one of the leading causes of data breaches for financial institutions. As AI is adept at handling unstructured data, error rates can be significantly reduced, as well as the significant cost of resolving them.

 

Fraud Detection
The banking industry is extremely vulnerable to threats posed by fraudsters. Therefore, fraud detection and mitigation have become a top priority for all financial institutions. AI now plays a leading role in decreasing rates of false positives, by reducing the number of missed alerts signalled by transaction monitoring systems – preventing fraudulent attempts and reducing payments fraud.

Through machine learning, AI is able to interpret trend based-insights, making it possible to determine whether a transaction is fraudulent or not – in fact 63 per cent of financial institutions say AI is capable of preventing fraud before it happens[5]. Automated programmes are capable of carrying out security checks accurately, helping to keep customers’ accounts and the financial ecosystem safe. As digital identities become increasingly important, the role of banks is expanding to help customers safely verify their identities with Multi-Factor Authentication (MFA).

 

Using Data for Good
Whilst personalised user experiences can make the customer feel their providers understand their needs, financial organisations should use data insights to make responsible recommendations. By tracking customer’s spending and purchase history, AI can help customers make more informed and appropriate decisions, and to not encourage people to take on debts they cannot repay.


Post-Pandemic Banking

The post-pandemic marketplace will continue to see AI flourish as a business differentiator. As a multi-faceted technology, AI has transformed traditional banking models and given way to a new breed of challenger banks, setting new standards for customer experience. Financial organisations are leaning on the technology to strengthen their algorithms, defend against fraud, and premeditate and address customer needs – with the ultimate business objective to cement their reputation as a reliable and resilient partner.

[1] https://news.ihsmarkit.com/prviewer/release_only/slug/technology-global-business-value-artificial-intelligence-banking-reach-300-billion-203
[2] https://www.fintechmagazine.com/fintech/why-one-five-uk-consumers-are-now-using-challenger-banks
[3] https://www.inc.com/rebecca-hinds/by-2020-youre-more-likely-to-have-a-conversation-with-this-than-with-your-spouse.html
[4] https://www.gartner.com/en/newsroom/press-releases/2018-02-19-gartner-says-25-percent-of-customer-service-operations-will-use-virtual-customer-assistants-by-2020
[5] https://www.cybersecurityintelligence.com/blog/artificial-and-augmented-intelligence-is-re-making-banking-4728.html

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Banking

SEIZING THE OPEN BANKING OPPORTUNITY

Nick Maynard is a Lead Analyst at Juniper Research

 

Open Banking has made significant progress in 2020, having recently launched across much of Europe and now starting to emerge in other markets too. And there are two primary reasons why Open Banking is disrupting the banking industry so much:

  • Banks have begun to discover the real competitive advantage of a more open approach to banking. Offering a superior Open Banking experience to customers can be a compelling differentiator from other competitors as part of a wider digital app experience. Open Banking also creates a level playing field in markets where regulatory intervention has led to Open Banking deployment. As all banks are required to deploy APIs in this scenario, the situation is the same and does not put any one particular bank at a disadvantage.
  • Legislation – for example, in October 2015, the European Parliament adopted PSD2 (the revised Payment Services Directive). By early 2020, major banks in the EU had adopted Open APIs. There have however been many cases of late deployments of APIs and problems with the availability of APIs.

 

Nick Maynard

The Disruption Factor

Open Banking is a major disruptive factor for banks. The reason for this being that it opens up account data to both AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Providers), which can attempt to carve out a role in the banking area.

  • AISPs: These new vendors are able to access transaction data and balance information, as well as related information. This has, in particular, led to the rise of vendors such as Emma, Yolt and Connected Money. These vendors combine information from multiple sources, adding value to the user.
  • PISPs: In this case, the vendors are able to leverage Open Banking API connections to initiate payments directly from the bank accounts in question. This means that these players are able to bypass traditional payment methods, such as cards. Vendors such as American Express and PayPal have already launched solutions that have taken full advantage of this action.

 

PSD2 Changes

Generally, the implementation of the new PSD2 European regulation for electronic payment services effectively reduces the entry barriers for new digital players. It also opens up banks to the potential for competition, enabled by their own APIs. This allows these players to compete with existing services in fields currently offered by the banks. In the case of AISPs, it is possible that third-party applications could displace the role of the apps from incumbent players, which would dilute the bank’s relationship with their users.

As with any fundamental change to markets in the banking area, there is the potential to bring a number of both opportunities and challenges to consider with Open Banking.

Open Banking Opportunities & Challenges to Consider

Source: Juniper Research

Banks and other parties that are looking to become involved in the Open Banking ecosystem must weigh these opportunities and challenges carefully. Open Banking certainly needs a more collaborative approach than traditional banking models, which will require significant effort to make them successful.

 

The Forecast for Open Banking

The total number of Open Banking users is set to double between 2019 and 2021, reaching 40 million in 2021 from 18 million in 2019. The ongoing Coronavirus pandemic is increasing the need for consumers to have the clarity of combining their accounts and gaining insight on their financial health, and also boosting momentum in the adoption of Open Banking.

This extraordinary growth is being driven by Europe, where the regulator-led approach to Open Banking has created a standardised market, with low barriers to entry. This contrasts with markets like the US, where a lack of central regulatory intervention is limiting growth potential.

 

Open Banking – Delivering Opportunities and Threats

It is worth noting that Open Banking can be both a threat and an opportunity for traditional banks. While Open Banking exposes user information and access to potential competitors, this threat has the potential to affect all players in the market equally. Consequently, established banks must create innovative Open Banking services that will provide benefits for the user, while also attracting customers from less innovative competitors.

Payments will be critical to the emerging Open Banking ecosystem; accounting for over $9 billion in transaction value in 2024. However, payments in this ecosystem are at a particularly early stage. While eCommerce is dominated by card networks, there is the potential that this role will be eroded over time by ‘direct from account’ payments. Consequently, card networks should look to offer Open Banking-enabled payment services, in order to offset the risk of future disruption.

Open Banking Users in 2021 (m), Split by 8 Key Regions: 40 Million

Source: Juniper Research

 

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Banking

2021: THE NEW-NORMAL LIFECYCLE FOR BANKING

Laura Crozier, Global Director of Industry Solutions, Financial Services at Software AG

 

It would be impossible to talk about predictions for the banking industry in 2021 without mentioning the cataclysmic impact that 2020 and the pandemic has had on people, businesses and countries.

Unlike with the global financial crisis, banks have been able to step up as “good guys” this time around, rebuilding their reputations as well as accelerating digital transformation. One of the main outcomes is increasingly smart, efficient online payments.

In 2020, the banking industry innovated like never before. This is the new normal. Overall, customers and society will be the beneficiaries from the changing industry. Here are my predictions:

 

Reputations are reborn

Banks across the globe pulled out the stops to integrate and adapt systems and processes to help customers during the pandemic. They offered accommodations in loans, assisted governments with the distribution of financial relief, and supported consumers by upping contactless spending limits and virtual deposits.

In 2021, banks will risk losing that rosy glow as economic circumstances drive them to deal with non-performing loans, mortgage foreclosures, layoffs etc. But, beyond their role in society as providers of capital and liquidity, banks will invest to sustain their reputations as trusted and good corporate citizens and use their power to persuade their customers and providers to adopt higher environmental and ethical standards. This will be in the areas of bank carbon-neutrality, sustainable financing, serving the unbanked, diversity and gender equality (as the number of women running a major global bank will double from one (Jane Fraser at Citi) to two). It’s a start.

 

Coming of age in the way of working

Back in Q1, when bank employees cranked up their laptops on their dining room tables, banks that were strategically undertaking business transformation accelerated their efforts. Those that were tactical, or on the fence, now understand with painful clarity that this work must be undertaken strategically.

Cracks in process and the way of working and their resulting risks can be crippling. Especially from a back-office perspective, it is not enough to rely on “organisational memory” and collegial proximity for work to get done right. Advanced banks pushed the boundaries of remote work, and the proof of concept was successful. So, they’re doubling down on developing digital twins and moving to the cloud. They’re adopting the hybrid office/WFH approach to reduce health risks and reduce cost permanently. The watercooler will never be the same.

 

The death of cash

Ok, maybe the rumours of the death of cash are a bit exaggerated since there will always be the need for cash (and, to some extent checks; the USA, for example, cannot seem to live without them). But the pandemic has permanently changed the way that consumers and small businesses bank, and the demotion of cash has been accelerated by a decade by the pandemic. For example, the Norwegian central bank said that cash payments in that country have plummeted to just 4% of transactions since March.

Implications? It will be critical to continue evolving payments to be smart, safe and flexible to compete in new world, in both retail and commercial banking. Also, the permanent change in the mix of channels will see banks’ face-to-face engagement with customers fade. Branches aren’t going to go away entirely, but they will be reserved for high value activities – by appointment only. To compensate, the personal touch has to be delivered digitally and intelligently.

The role of the bank as a “financial wellness partner” is being born. Banks will use customers’ data, not just to personalise and differentiate banking experiences, but to make recommendations for products and services beyond traditional banking from across their ecosystem to serve their customers well. Just as customers own their cash (physical or digital), in the future they will demand that they own their data (and can share it with whom they choose). Then retail and commercial clients will share their data in return for value.

 

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