ARTIFICIAL INTELLIGENCE AND BANKING

Five things to know

By Craig Manning

This March, as conversation around ChatGPT and other generative artificial intelligence (AI) technologies heated up, Forbes highlighted four industries that were particularly likely to see significant disruption from AI.

At the top of the list? Banking and finance.

Per Forbes, 56% of banks “claim they’ve implemented (AI) technology into their business domains like management,” while 52% say they’ve embraced it for purposes of revenue generation.

As these cutting-edge technologies infiltrate the banking sector, the question becomes less of who is using AI and more about its impacts. Specifically, is AI going to be immediately eliminating jobs in the finance space? Or will banks use it more to gain new efficiencies and customer service advantages?

To find out, the TCBN sat down with a pair of local experts in banking technology: Jack Martin, chief innovation officer for 4Front Credit Union; and Norm Plumstead, president and CEO of Honor Bank, both of whom shared five key points about AI and banking.

1. AI isn’t taking banking jobs – yet

While much of the talk around AI right now is about which jobs it will eliminate the fastest, Martin said the goal right now – at least for 4Front – has nothing to do with trimming the workforce.

“The reality is, our greatest asset is always going to be our people,” he said, adding there are no strategic plans to replace team members with AI.

Instead, Martin sees AI as a way to make life easier and more productive for finance workers by eliminating menial parts of their jobs.

“We have a lot of repetitive processes in banking, and robotic process automation (RPA) technology that has been around for a little while now helping us automate those processes,” he said. “If that type of technology is there and is going to reduce errors and take less time to implement, of course, we’re going to go after that.”

Martin says he always looks at AI not so much as a way to eliminate workers, but as a tool to help free up time for deeper capabilities.

“What are the really important things that our people need to focus on? Is that a task that has to be done every single day? Or is it something else that’s evolving strategically and bringing new capability to our members that we didn’t currently have?” he said. “If we can free up our employees to focus on the latter, that would be phenomenal.”

2. Fraud detection is getting better, thanks to artificial intelligence

Per Plumstead, perhaps the biggest advantage banks are gaining thanks to recent leaps forward in AI technology is an improvement in fraud detection capabilities.

“AI can definitely help mitigate and decrease risk of fraud,” he explained.

Plumstead says Honor Bank uses a version of this technology right now, but that there are many other iterations to come, possibly detecting anomalous spending patterns that a customer may have, which can tip the bank off to the possibility that the customer’s account was hacked or taken over.

“AI can look at large data sets and pull out key details, and then alert a banker who can then reach out to the customer and potentially head off fraud before it affects them,” he said.

Martin says that the technology can help Honor Bank’s customers potentially avoid the proliferating “bad actors” that crawl the web.

“There are so many scams that are happening, and we have a lot of members that fall prey to these sophisticated attacks, and then we have to work with them to try to recover funds,” he said. “So, if there’s a way that we could help people in any way, shape, or form to prevent those types of frauds and scams from happening, that’s a huge win.”

3. AI could help make loan approval processes fairer, more inclusive, and more equitable

Another win for AI in finance, Martin said, is the potential for the technology to not only increase the numbers of approved loans, but also bring about a fairer process for deciding who has the credit worthiness to be approved for a loan.

“It’ll be a completely different algorithm that will decide who to lend to,” he said.

Evolutions in those algorithms, Martin continued, are already happening, with fintech and credit reporting agencies tweaking their algorithms in ways that “allow us to learn deeper and help those that are truly in need,” he said.

The idea, ultimately, is to have AI-driven algorithms that can take a much more nuanced look at people’s financial histories than has traditionally been possible. Such an approach would not only help banks better manage the risks of lending, but would make loans and credit lines more accessible to more people at lower interest rates.

Some experts, for instance, say the technology could help reduce gender, race, and ethnicity bias in lending. Others suggest that AI could make it easier for banks to extend credit to unbanked individuals, largely by using alternative types of data to assess credit worthiness.

4. AI adoption is going to be slower than many people assume

Most banks are already using AI technology in some capacities, and many are looking at high-potential areas for improvement, such as the examples of fraud prevention and lending approval. However, while the technology presents numerous appealing facets to financial institutions, Plumstead warned that adoption will likely be slower in most areas than many people – customers included – might assume.

One challenge, Plumstead noted, is the number of AI tools that are hitting the market right now – both specifically geared toward financial institutions and for broader use. Because banks have a responsibility to protect customer information, accounts, finances, and more, any decision to implement a new tool can’t be made without considerations about any risks or unintended consequences that tool might pose.

Even ChatGPT, the writing AI, is something Honor Bank has tiptoed around because of the complicated risk-reward proposition it brings.

“We’re putting controls in place to not allow staff to access things like ChatGPT and Bard until we can have a coherent strategy around how to use it,” he said, “but at the same time, we as a management team have been discussing how we could leverage tools like ChatGPT to make our lives a little bit easier. So, we are very much paying attention to all this technology, but it’s still really at the opening innings of how it’s going to affect the finance industry.”

As for tools more specific to banking – including AI-driven loan approval mechanisms – Plumstead said there are risks there because of the “black box” problem with AI.

“Regulators and examiners – as well as just the general public – expect and should expect that there is a coherent, defensible reason for a loan decision, whether it’s to approve a loan or to deny a loan, and right now, it is virtually impossible to look inside the decisioning process of an AI system and for it to tell you why it came up with that answer,” he said.

If an AI system doesn’t have that kind of check and balance and it can’t explain why it came up with the answer, “then lenders won’t use and shouldn’t use AI to make those decisions,” Plumstead said.

5. The guiding light right now is the customer experience

Ultimately, Martin said that decisions around the adoption of AI technologies in finance are going to be made based on the answer to a single question: Would this technology have a positive impact on the overall customer experience?

“At 4Front, our strategy (with AI) is all-around the member and the member experience,” Martin said.

For that reason, one of the credit union’s biggest new AI investments this year will be the addition of a natural language processing technology to the 4Front call center. The tech, Martin said, will replace legacy interactive voice response units the institution has used for years to direct phone traffic. It will be one of the first and most noticeable impacts 4Front members will see from the credit union’s AI adoption because of the elimination of robots and waiting on the phone for a customer service representative

“Instead, the natural language processing will automatically start interacting with you, and it will actually be able to solve like 80-90% of the questions that our members have when they call in,” he said. “So that’s something that’s happening right now with 4Front, and it’s really all about improving that member experience.”

Sean McCardel is not your average real estate agent. When there’s a shortage of inventory...he just builds more!

Sean brings unparalleled knowledge to the table for his real estate clients through his builder background. He’s able to navigate buyers and sellers through the process using relevant contractor knowledge that adds value to every transaction. No one knows the true value of home like a builder does.

2ND GENERATION REAL ESTATE EXPERT DEDICATED, FULL-SERVICE REALTOR TAILOR-MADE, PERSONAL CUSTOMER SERVICE