Luis Rodriguez, Chief Product & Innovation Officer at Strands explores how financial institutions can overcome the barriers in AI deployment and capitalise on its true potential
The idea that machines have the potential to make better decisions than us humans is nothing new. The recent explosion of available data, coupled with advances in technology has elevated AI’s commercial credibility, which, unsurprisingly, the financial services industry is keen to take advantage of.
Many banks have already begun their AI journey, albeit with relatively narrow applications. At the front-end, chatbots have started to replace humans in digital customer interactions, for example. Internally, the industry is investing heavily in AI-enabled solutions to enhance automated threat intelligence and prevention, and fraud analysis and mitigation.
Despite these steps, however, considerable challenges remain before AI’s real potential can be unleashed.
Data, data everywhere
Much of this potential lies in unlocking the value hidden in the vast amounts of data, by translating it into individualized products and services for consumers. To do so requires financial institutions to break-down silos, strategically evaluate existing and new data sources, and create a world-class governance model to prevent ‘black box’ AI.
The ‘black box’ problem is a key challenge. This describes the instance when no one can explain how data has been processed to achieve a specific outcome. This is particularly pertinent to financial services, when such outcomes impact the lives of customers. As AI is deployed in credit scoring, mortgage applications and lending practices, for example, banks and other lenders must be able to evidence the rationale behind their decision making.
They must also avoid the pitfalls of data bias and discrimination. Data sets can harbour hidden biases, just like the humans whose algorithms create them. If banks lose even partial sight of how their AI solutions are arriving at decisions, how can they guarantee impartiality in the process?
Should such instances occur, accountability will remain with the bank’s people, so the development of ethical policies that can steer the implementation of decision-making AI solutions is becoming increasingly important. Banks that champion transparency here will be the first to succeed.
Outside of financial services, AI has been powering increasingly seamless and customised consumer experiences for years, raising the stakes for what consumers expect from other services. Historically, banks have enjoyed the uncontested loyalty of their customers, thanks to their reputations for trust and security. But the drivers of loyalty are changing quickly. The new generation of digital challengers continue to gather momentum and are luring customers to their ranks by delivering new user experiences that are powered, at least in part, by AI. Banks now need to think carefully about how they respond. Leveraging behavioural economics to enable the deep personalisation of their banking services is one avenue under widespread consideration.
Despite concerns around the data privacy, a study by Accenture* found that 60% of consumers would be willing to share personal data, such as location data and lifestyle information, with financial service providers if it resulted in lower pricing on products, or delivered other benefits, such as faster turnaround on loan approvals.
But just because consumers are willing to hand over data, doesn’t mean it’s right for the bank to use it. Where should the line be drawn? As data converges, it will be easier to create individual consumer profiles and assemble a tailored offering, dependent on each consumers’ circumstances. But should FIs really have this level of access into a consumer’s personal life? And, what about those who dont want to share these details? Will they be penalised?
Human skills still needed for AI success
Digital transformation has not yet changed the fact that businesses are still built, managed and kept alive by people and, reassuringly, the true potential of AI cannot (yet) be realised without us. That said, serious investment in AI skills at banks is needed if they are to make proper use of its commercial potential. Many banks, particularly resource stretched tier two and tier three institutions may need to look to collaborative partnerships with specialist fintechs if they are to keep pace with AI’s development.
What about the regulators?
Right now, there is no specific regulation or legislation to govern the use of AI. As with any emerging technology, regulators apply existing frameworks to ensure that any firm engaging with technology has the right risk controls in place. It’s likely that regulation will adapt to address the new issues surrounding AI, but no-one can be sure exactly how that will play out, or at what speed. Financial institutions should think ahead here, and try to forecast how future regulation may impact their AI services. Collaborating with other institutions to create a general framework and set of guidelines could elevate future regulatory impact. Firms should also look at implementing AI processes internally to remain compliant throughout their operations.
Making sense of AI for FIs requires a collaborative industry effort. To explore this topic further, Strands, in collaboration with global industry association, Mobey Forum and ESADE, is hosting an event from 27 – 29 November to bring together players from across the ecosystem. Titled, AI In Financial Services: Unleashing the Potential, it will cover five key themes related to AI: ethics; infrastructure; personalisation; regulations and legislation, and the challenges with data. Speakers include Elena Alfaro, Global Head of Data and Open Innovation, BBVA, Jason Mars, CEO, Clinc, and Oriol Pujol, Vice President, University of Barcelona.
HOW TO MANAGE YOUR CASH FLOW IN UNCERTAIN TIMES
While the world is constantly changing, probably at a faster pace now than ever before, businesses need to manage cash flow and costs to drive success in uncertain times, says Matthew Thorpe, partner at Haines Watts Essex.
Managing people and expenses
There are certain costs that you just can’t avoid as a business – to keep your operation running seamlessly, but scrutinise the detail and cut down on any non-essential expenses. Check things like your SaaS subscriptions and look out for costs that auto-renew and if you do cancel, remember to also cancel your direct debits too.
You might want to put a freeze on hiring new people, but ensure that other roles and responsibilities are clearly and efficiently assigned across your team. The Coronavirus Job Retention Scheme (CJRS) has been introduced by the Government to help UK employers access support to continue paying part of their employees’ salary to avoid redundancies. Affected employees are classed as “furloughed workers”.
Once furloughed, the employee cannot work or they will not qualify for the scheme. For businesses that perhaps need to go further, there may be some roles they don’t need any more, but businesses should work sensitively with people to manage this.
Cash is king
In uncertain times, owner managers will need to keep operations going to ensure financial stability. You should look to manage debt more efficiently by negotiating extended payment terms with creditors. You could also renegotiate loans for longer repayment terms to give yourself a lower monthly payment, helping the business to set some cash aside each month.
As a business owner, you need to create a cash flow projection and update this regularly if you are to improve things. You can do this using financial information to create a picture of how the business will look in the next 12 months. The forecast needs to show revenue sources and expenses, which will show the ups and downs of business income and can be used to make sure that enough finance is in place.
While banks and other finance providers recognise that the cashflow of a business may be disrupted by the impact of Covid-19, they are still going to want to see that you are viable and continue to trade in these uncertain times. Make sure your business is organised and don’t let disorganisation cause unnecessary issues. You can evidence this by having detailed forecasts; current order books and projections (as best as possible).
Having instantly accessible, accurate financial information allows you to plan effectively, spot issues before they become problems and manage your money in the most efficient and rewarding way.
Software is now incredibly user-friendly and accessible from anywhere. For a business owner embracing the technology, this means:
- Invoicing can be done instantly when a job is complete, emailed to the customer with an easy to use link to a payment platform.
- Comparison websites can automatically monitor and help maintain lowest cost for things such as light & heat, insurance etc.
- Technology can be used in place of face-to-face meetings. It can also enable them to adapt production lines to different demands.
All of these things and more, used properly, can make managing your business finances quicker, easier and often cheaper. You will also be able to bring clarity to where your business stands and prepare for the next steps.
HOW FINANCIAL SERVICES CAN GET TO GRIPS WITH RISING SUPPLY CHAIN RISK
By Alex Saric, smart procurement expert, Ivalua
UK businesses have never been more dependent on their suppliers to help them deliver goods and services to their customers. Be it retail, manufacturing or financial services, suppliers have a vital role to play when it comes to innovation and meeting customer expectations. However, as supply chains become increasingly global, businesses are potentially exposing themselves to more risk than ever before.
This is especially true in financial services. Whether it’s the impact of geopolitical events like Brexit or global tariff wars, supply shortages, security or the businesses impact on the environment, an organisation’s failure to identify and mitigate risk could see millions wiped off its share price, and its corporate reputation left in tatters. Risk can present itself anywhere and at any time, so financial services firms must be ready to address it. However, many simply don’t have the ability to evaluate suppliers for risk factors, leaving them wide open to business operations being hindered, or being slapped with financial penalties.
More suppliers, increasing risk
One reason why financial services firms aren’t able to evaluate suppliers is the breadth and scale of today’s supply chains. For example, French oil company Total said in in a recent human rights briefing paper that they work with over 150,000 direct suppliers worldwide. This is just one example of how large and varied the roster of partners has become. Research from Ivalua has found that financial services businesses on average are working with around 3,600 suppliers annually, which is evenly split between UK-based and international partners. That number is expected to rise, with 60% expecting the number of suppliers they work with to rise.
The expanding nature of suppliers is only going to expose financial services firms to more potential risk than ever before, yet 78% say they face challenges gaining complete visibility into suppliers and their activities.
A lack of supplier visibility leaves businesses unable to identify and mitigate against supply chain risk. In fact, almost three-quarters (73%) of financial services firms have experienced some type of risk during the last 12 months. These include; supplier failure (43%), environmental impact, such as pollution or waste (35%) and supply shortages (45%). Supply shortages can be among the most damaging to a business, as seen by both the KFC chicken shortage which closed stores, and the summer 2018 CO2 shortage which caused companies such as Heineken and Coca-Cola to pause production, impacting supply across Europe during the World Cup.
Businesses unprepared for the worst
One way financial services firms can better prepare for risk is to ensure they know what to plan for to reduce the impact. However, whilst some say they have a contingency plan in place to deal with risk, many of them are unprepared. Financial services firms admitted to not having comprehensive and deployed contingency plans in place to prepare the supply chain for risk such as; natural disasters (68%), supply shortages (67%), geopolitical changes (65%), environmental impact (63%), supplier failure (62%) and modern slavery (50%).
In order to effectively prepare for these types of risks, it’s vital that financial services businesses fully understand their suppliers, their business environment, global variations in regulations, geopolitics, and a host of other factors. But for many, there are multiple challenges when it comes to gaining this understanding. A prevailing factor is an inability to gain visibility into all suppliers and activity because supplier management data is stored in multiple locations and formats, making insights difficult to access. This leaves teams unable to review supplier activity and assess compliance.
Making supplier management smarter
It’s imperative that financial services businesses are able to respond or prepare for supply chain risk. Clearly, much more needs to be done to ensure they have complete visibility of suppliers, especially in an era where regulators can levy heavy fines for GDPR breaches and scandals spread in minutes over social media. These types of risks can be reduced in the future if procurement teams have a 360-degree view of suppliers which will help with contingency planning and risk management.
For example, in the instance of supply shortages, plans could be put in place that identify alternative suppliers to ensure any shortages do not impact end users. This type of supplier collaboration is paramount when it comes to managing and mitigating against supplier shortages. When it comes to regulations, financial services firms can’t allow a lack of visibility to limit their ability to ensure all suppliers are compliant.
To do this, teams must take a smarter approach to procurement that gives complete visibility into suppliers throughout the supply chain. This will allow financial services firms to identify and plan for risk, reducing the potential damage, and ensuring they are working with and awarding business to low-risk suppliers. Supply chain risk is rapidly becoming an overarching concern for financial services firms, but by providing the ability to assess suppliers, they will have all the insights they need to mitigate the impact on business operations.
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