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Those who talk tech talk going for AI

Artificial intelligence could completely disrupt—in a good way—banking operations within three years

Bank tech trends can make your head spin. So regularly longtime Tech Exchange Editor John Ginovsky does his best to “make sense of it all.” Bank tech trends can make your head spin. So regularly longtime Tech Exchange Editor John Ginovsky does his best to “make sense of it all.”

Businesses in general recognize the critical need to believe in, and invest in, disruptive, innovative technologies. Yet many are plagued by inertia and indecision.

Many banks certainly suffer from this pair of troubles. However, it also seems that the banking industry, as a whole, is breaking out of tech ennui in a very particular way—by adopting artificial intelligence applications.

Leaders widening their lead

On the downer side, a survey sponsored by Dell EMC and conducted by Enterprise Strategy Group collected responses from 1,000 executives at a variety of large global companies. It found that 71% agreed they will not be competitive without IT transformation, but 95% said they are falling behind a small, elite set of competitors who actually are accelerating their business goals through IT transformation.

Adam DeMattia, director of research at Enterprise Strategy Group, provides this decidedly negative observation:

“Legacy IT is largely unprepared to meet the requirements of the new digital business:

• “Application cycle times measured in months, if not years.

• “Siloed infrastructure that prohibits organizations from viewing their data holistically.

• “Performance bottlenecks that impact end-user experience in a world that demands constant availability and response times.

• “Rigid architectures that force organizations to make forklift upgrades as requirements change.

• “And traditional provision processes in which IT is often seen as a barrier rather than an enabler for the business.”

He adds that “organizations must resolve this conflict between digital transformation goals and today’s IT reality if the business is to meet its ultimate objectives.”

On a slightly more upbeat but still sobering bent, a Grant Thornton LLP survey of more than 1,000 U.S. business executives, including some in the financial services sector, parsed the difference between “leader” companies—those with sustained earnings and revenue growth—and “follower” companies—those with flat earnings and revenues.

A key finding is that 72% of “leader” companies are laser-focused on strengthening relationships with their strategic customers.

“Building deeper relationships through a world-class customer experience is a top priority for leading companies,” says Nichole Jordan, national managing partner of Markets, Clients, and Industry for Grant Thornton LLP.

Significantly, the survey found that 73% of “leader” companies plan to use automation to improve process efficiency.

Which leads to even more indications of progress, especially for banks. An EY Global Banking survey found that 60% of banks internationally are investing in new customer-facing technologies. At the same time, the survey stresses the need for ever-more aggressive adoption of new technologies, especially those that improve the customer experience.

“Banks realize that they cannot wait for a return to normalcy to achieve meaningful profitability. The industry must innovate to grow or optimize their business,” says Dai Bedford, EY Global Banking and Capital Markets Advisory Leader.

Adds Bill Schlich, another EY Global Banking and Capital Markets Leader: “Banks will need to move beyond incremental adjustments, effectively implementing and executing company-wide innovation, even in an uncertain global environment.”

Oracle, in its financial services blog, reinforces this sense of imperative, and takes it a step further.

“Beyond the drive from regulatory authorities, we also see fundamental shifts in technology affecting the banking landscape,” says Oracle’s Tushar Chitra. “State-of-the-art applications of internet of things, blockchain, and artificial intelligence such as machine learning have the potential to change how banks operate and deliver products and services. Unleashing these technologies early in the adoption cycle inside a banking setup can yield good results, provided banking executives are receptive to innovation.”

Innovation’s not everyone’s favorite song

There is that first mention of “artificial intelligence.” But first, what about that caveat about executives needing to be receptive to innovation?

It doesn’t look good, at least for businesses as a whole.

Robert Half and The Creative Group surveyed 2,500 CIOs and 400 advertising and marketing executives across U.S. industries. Only 17% of CIOs and 10% of the advertising and marketing executives said their companies are early adopters of technology. Yet nearly all tech executives and three fourths of creative executives agreed it’s at least somewhat important for leaders in their department to try out technical innovations.

But banks seem to like AI music

Which makes the specific and demonstrably disruptive upcoming technology of artificial intelligence, and its embrace by the banking industry, quite significant. At least three recent independent observations link banks and AI adoption closely and favorably.

Accenture drew on an analysis of its banking advisory board, interviews with technology and industry experts, and a survey of more than 600 bankers, about the significance of AI.

More than three quarters of bankers believe that AI will enable simpler user interfaces that will help banks create a more human-like customer experience. Four out of five respondents believe AI will revolutionize the way banks gather information and interact with customers, and 76% believe that within three years, banks will deploy AI as their primary method for interacting with customers.

More than that, 80% expect AI to accelerate technology adoption through the organization, providing their employees with the tools and resources to better serve consumers. AI will provide the means to gain data analysis and insights, increase productivity, and provide cost-benefit savings, according to Accenture.

“Bankers believe that participating in ecosystems will provide a variety of benefits, including improved customer satisfaction, increased speed and agility in developing solutions, and access to new customers,” says Alan McIntyre, senior managing director at Accenture. “However, they will also need to develop a strategy to protect their brand positioning and to deepen their own relationships with customers.”

On a more anecdotal but still significant level, Celent’s Zilvinas Bareisis describes in a blog the emerging innovation attributes of the entrants to its recent Model Bank competition. High on this list were various AI applications banks are already using and presumably are proud of. These include:

• Driving a virtual agent capable to have a written exchange with the customer through a chatbot, or to even hold a verbal conversation on the phone.

• Powering a robot to support customer engagement in brick-and-mortar branches.

• Deploying behind the scenes as a tool to help customer service agents.

• Helping determine the best marketing offer for the customer.

Back to the land of surveys. Tata Consultancy Services polled 835 executives across 13 global industry sectors, and found that 84% of companies see the use of AI as essential to competitiveness.

The respondents listed these potential uses for AI:

• Guiding customer service representatives to more quickly resolve customer problems and anticipate future purchases.

• Quickly and securely reconciling mass overnight transactions for financial institutions.

• Giving time back to human resources professionals by managing the time-consuming onboarding processes for new hires.

“As companies begin to gain a better understanding of AI’s applications for business, they will realize the significant impact of this transformative force,” says K Ananth Krishnan, chief technology officer of TCS.

Will banks order AI from Amazon?

To be sure, the third-party partners and vendors that cater to financial services are not far behind in offering AI products and services. In mid-April, Amazon Web Services Inc. announced that it will make available its Amazon Lex AI services to all customers.

It’s a fairly big deal. This brings already tested and deployed technology—it’s what’s behind the by-now-familiar Amazon Alexa units—straight to whoever would want to apply it. This includes deep-learning algorithms, automatic speech recognition, and natural-language understanding. Last year, Capital One became an early adopter of the technology, as did Liberty Mutual Insurance.

The way this works is, the customer provides Amazon a list of sample phrases that describe a user’s intent, along with the corresponding information Amazon Lex needs to ask to fulfill the intent. The software then builds a machine learning model that parses the speech or text input from the user, understands the intent behind the conversation, and manages the rest.

Another example. TransUnion recently launched its Innovation Lab specifically to accelerate lenders’ growth with real-time data access and analytical expertise. Implicit in the description of what’s offered are applications clearly related to advanced machine learning.

So, while many companies talk the tech talk yet are hesitant to walk the tech walk, at least in one area banks seem to be on the verge of pioneering and changing their whole paradigm—artificial intelligence.

Momentum seems to be building, but the question is, can that momentum be sustained?

Accenture’s McIntyre puts this in perspective:

“AI-enabled tools can help banks identify consumer preferences and empower their workforces to react with insight and emotional intelligence, which is essential for the development of meaningful consumer relationships.

“The challenge will be how quickly banks can implement these new technologies, many of which are not compatible with their existing IT infrastructure.”

Sources used for this article include:

America’s Fastest-Growing Companies Forecast Rapid Expansion Yet Lack Technology Expertise To Keep Pace

Artificial Intelligence To Have Dramatic Impact On Business By 2020, According To Tata Consultancy Services Global Trend Study

AWS Makes Amazon Lex Available To All Customers

Balancing Performance Against Growth: 60% Of Banks Plan To Invest In New Technologies As Market Challenges Persist

Banks Must Dive In And Ride The Digital Wave

Companies Cautious About New Technology, Research Shows

Emerging Innovation In Banking

Bankers Believe Artificial Intelligence Is Key to Creating A More-Human Customer Experience, According To Accenture Report

New Research: Only 5% Of Large Companies Prepared To Meet IT Requirements Of The New Digital Business

TransUnion Launches Innovation Lab To Accelerate Lenders’ Growth With Real-Time Data Access And Analytical Expertise

John Ginovsky

John Ginovsky is a contributing editor of Banking Exchange and editor of the publication’s Tech Exchange e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each Tech Exchange issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and for ABA Banking Journal and was managing editor and staff reporter for ABA’s Bankers News. Email him at [email protected].

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