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Why AI is so important to banking and risk culture

by Lewis Panther | 10 May 2018
Artificial intelligence is the next big bang in banking, with the whole future of the industry at stake. 500 Why AI is so important to banking and risk culture FINSIA InFinance

Scaremongers worry it will lead to a bonfire of the bankers and tens of thousands of job losses in the sector.

Others with a less domesday outlook say AI will be good for an industry that has been fighting to regain the customer trust that has been eroded since the global financial crisis.

There are those who see exciting, boom time benefits of a greater automation. One study coming out of this year’s World Economic Forum in Davos, Switzerland, predicted costs cut as a proportion of revenues of 15 per cent — coming at a cost of millions of white collar jobs around the world.

Yet two-thirds of executives say AI is crucial to their ability to compete in the coming years with billions of dollars pumped into digital automation.

But will we see huge swathes of redundancies in the finance sector here in Australia? And how will customers trust what can only be described as a tarnished industry? 

Each and every day news of a new start-up offering better deals on home loans or credit spreads around social media. But will they survive? Or will the banks get their act together to fight them off?

It might sound like a tricky zeitgeist, as complicated as the algorithms designed to sort through the huge amounts of data they analyse and learn from. 

But the truth is AI is already here and vital to very aspect of the banking industry, from customers to young pretenders and their start-ups to the C-suite and brokers plying their trade providing good stewardship of savings and investments.

At the head of the list of those set to benefit in a post-Royal Commission world are customers. 

Phone apps, online banking and voice recognition cybersecurity are in everyday use with most banks. Experts believe those institutions that don’t have them will soon find themselves losing customers to businesses that are ahead of the automation curve.

But it is the trust deficit that FINSIA sees as being at the front and centre of keeping customers happy — as well as keeping them. Full stop.

One Australian company at the forefront of the AI revolution is already rolling out its product to businesses here. 

Blackhall & Pearl’s regtech specialist Harry Toukalas says a tool used to X-ray the inner workings of organisations can actually raise red flags before employees start behaving badly and thwart the kind of behaviour revealed on an almost daily basis at the Royal Commission.

He said: “We can get early warning signals that allows you to get in front of a problem.

“What our tool does is identify who the key influencers are in the organisation.”

That’s important, he says, because it’s not always those at the top of an organisation who are pulling the ethical strings — which is why financial firms can fall foul of regulators.

He said: “Half the time when people do the wrong thing isn’t when they are deliberately trying to do the wrong thing.

“It’s because they don’t know what the right thing is at this particular point in time, given the particular board or CEO’s thinking.

“The culture of the organisation can be very different today than in a year’s time when different people occupy those roles.”

It’s also the case that employees underneath the leadership radar are also influential when it comes to behaviour of colleagues.

This is where the B&P sophisticated AI — developed in conjunction with the Massachusetts Institute of Technology — comes into play. 

Mr Toukalas says: “We have an automatic process to extract the data to find out who is influential.

“It’s a simple process with a lot of science and a lot of algorithmic grunt behind it.”

But as Mr Toukalas is keen to point out, AI isn’t only about stopping wrongdoing. 

AI is behind many of the start-up companies that are vying for banks’ business, claiming to offer everything from better rates to quicker home loans.

The science behind their ability to offer such deals has been developed by the same data crunching techniques that stop the bad behaviour talked about earlier.

AI adapts through progressive learning algorithms to let the data do the programming. It learns. It’s the same reason why the superpowers in the AI world — Google and Amazon — know exactly when to send an advert for a new car, surfboard, BBQ or a new portable heater.

Twitter founder Jack Dorsey is the prime example of taking the technology of social media and AI and plugging into the world of banking with Square.

His message that the company is there to do the job of the banks is clear, when you read the front page mission statement, which says: “We started with a little white card reader but haven’t stopped there. 

“Our new reader helps our sellers accept chip cards and NFC payments, our Cash app lets people send money instantly and we’re building easy tools for customers, too.

“We’re empowering the electrician to send invoices, setting up the food truck with a delivery option, helping the clothing boutique pay its employees and giving the coffee chain capital for a second, third and fourth location.”

There are challengers closer to home too.

Just this month, Australia’s first digital-only bank Volt announced plans to capture a slice of the country’s mortgage market from the banks.

Co-founders Steve Weston and Luke Bunbury revealed plans to use facial recognition so that accounts could be opened more quickly. Yet the neobank is still working on aspects of its business so that it can offer price comparison tools.

It is also up against an increasing enthusiasm from Australia’s big four to get in on the act.

NAB’s Andrew Thorburn is driving forward with plans to invest billions in new digital technology.

An estimated $4.5bn has been earmarked over the next three years to compete with the glut of online start-ups offering loans.

Otherwise, he warned, “we will get outcompeted by others — like fintech players, with simpler banking platforms and simpler products who can still comply with all the laws they need to.”

Ironically, it’s a skills shortage that will be the problem. After saying it needed 2000 new staff with digital skills, less than 100 have been hired so far.

Interested on learning more about AI and risk culture? Join FINSIA at our signature event series Future of Finance - AI: A game changer for your career.

 

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