Michael Worledge, Head of Financial Services, Harris Interactive
As another banking giant announces plans to introduce artificial intelligence (AI), questions are being raised about what this means for the future of financial services.
The technology has already been hailed as a solution to money laundering, fraud and even terrorist activity, as well as boosting revenue, and cutting costs. In fact, cost savings created by AI efficiencies are expected to reach $1 trillion by 2030.
But banks aren’t just implementing AI to enhance security and efficacy; some are also trialling the use of AI as “robo-advisers” for direct use with consumers.
So, are we about to enter a new era of autonomous banking?
Not quite. But there are signs that AI is resulting in changes across the global financial services industry that could improve service quality, with bots making their way into many areas from trading to transfers. As long, that is, as banks ensure experiences exceed human capabilities and earn the vital seal of customer approval. The ultimate test will be: can the consumer tell if they are being served by a bot? Ethically though, it is important that consumers are informed.
Let’s take a look at the top five current use cases and what the future holds for AI in finance.
- AI to improve the customer experience and personalisation
Rather than conversing with a call centre on the other side of the world, customers could soon be talking to chatbots or virtual assistants who automatically engage in conversations while managing their transactions. From fingerprint to voice recognition, AI could build a more interactive and personalised experience. There are obvious security risks with these new types of technologies, but these have been weighed up against the benefits of a seamless customer experience.
Gartner predicts that by 2020, chatbots will be responsible for more than 85% of customer interactions. And there seem to be inroads in this direction, with Bank of America introducing Erica – a chatbot that can send notifications to customers with their bank balance, suggesting ways to save money as well as pay bills.
- AI to help tackle financial crime
HSBC has reported that it plans to introduce bots to spot money laundering, fraud and terrorist activity. It will screen the vast amounts of data it holds on customers and transactions, and compare it against publicly held data to highlight suspicious activity. Banks spend £5 billion a year to combat this type of crime, and it is hoped AI technology will reduce this in real-time.
- Advanced data analytics means improved AI efficiency
Machine learning – computer science that uses statistical techniques to give computers the ability to learn – can easily consume and process large amounts of data at an accelerated rate. Financial services can benefit from this type of AI through improved efficiency, seeing results in increased customer satisfaction, faster process delivery, and more targeted marketing.
JPMorgan Chase, for example, recently introduced a platform to extract data points from legal documents. What once took the bank 360,000 hours to analyse now takes seconds. Similarly, Germanbank, Commerzbank, is exploring ways for AI to write analyst reports.
- AI to make money transfers
For a while now, Barclays Bank has been in the development stage for an AI system where users talk to a device which will give them the information they need for important transactions. Ultimately, users would be able to talk to a robot computer system in order to make money transfers.
- Bots on the trading floor
AI could be moving on to the trading floors of investment banks soon. Last year, UBS announced that AI systems would help traders perform better – this was after the bank worked closely with staff to see which processes they carried out that could be automated.
How will AI become an established part of financial services?
Today’s consumers are no strangers to digitisation or smart assistants, but for consumers to hand over control of their financial assets to a bot is a big leap of faith. Therefore, before bots become established in the industry, financial institutions must put in the groundwork to establish trust and confidence with their consumers.
Providing high-quality experiences that offer real individual value is a step in the right direction. To make sure this type of technological advancement is in the clients’ as well as the banks’ best interests, it is important that financial institutions are transparent when and how AI is being used, and what customers will get in return.
Taking time to garner customer opinions and feelings around the use of AI, co-create optimal propositions and build stronger brand confidence among consumers is the way forward. Banks must therefore ensure that a customer’s experience with a bot is at least on par with a human interaction or surpasses it.
With the banking industry undergoing one of its biggest ever transformations -thanks to new technology and changing consumer attitudes to data and tech – there is little doubt that AI will change the financial services industry. A recent report based on a survey of 400 global banking executives found that 22% believe AI will improve the user experience by increased personalisation. But intelligent tech must be handled with care.
Financial institutions need to ensure they respect customer needs as well as their privacy and data. If they are able to apply AI sensitively they will save money and time, and boost returns, as well as see a rise in customer satisfaction and long-term brand loyalty.
ECB stays put but warns about surge in infections
By Balazs Koranyi and Francesco Canepa
FRANKFURT (Reuters) – The European Central Bank warned on Thursday that a new surge in COVID-19 infections poses risks to the euro zone’s recovery and reaffirmed its pledge to keep borrowing costs low to help the economy through the pandemic.
Having extended stimulus well into next year with a massive support package in December, ECB policymakers kept policy unchanged on Thursday, keen to let governments take over the task of keeping the euro zone economy afloat until normal business activity can resume.
But they warned about a new rise in infections and the ensuing restrictions to economic activity, saying they were prepared to provide even more support to the economy if needed.
“The renewed surge in coronavirus (COVID-19) infections and the restrictive and prolonged containment measures imposed in many euro area countries are disrupting economic activity,” ECB President Christine Lagarde said in her opening statement.
Fresh lockdowns, a slow start to vaccinations across the 19 countries that use the euro, and the currency’s strength will increase headwinds for exporters, challenging the ECB’s forecasts of a robust recovery starting in the second quarter.
Lagarde saluted the start of vaccinations as “an important milestone” despite “some difficulty” and said the latest data was still in line with the ECB’s forecasts.
She conceded that the strong euro, which hit a 2-1/2 year high against the dollar earlier this month, was putting a dampener on inflation and reaffirmed that the ECB would continue to monitor the exchange rate.
The euro has dropped 1% on a trade-weighted basis since the start of the year, but is up nearly 7% over the last 12 months. Against the U.S. dollar, that number rises to over 10%.
Opening the door for more stimulus if needed, Lagarde confirmed the ECB would continue buying bonds until “it judges that the coronavirus crisis phase is over”.
Lagarde also kept a closely watched reference to “downside” risks facing the euro zone economy, which has been a reliable indicator that the ECB saw policy easing as more likely than tightening.
But she signalled those risks were less acute, in part thanks to the recent Brexit deal.
“The news about the prospects for the global economy, the agreement on future EU-UK relations and the start of vaccination campaigns is encouraging,” Lagarde said. “But the ongoing pandemic and its implications for economic and financial conditions continue to be sources of downside risk.”
Lagarde conceded that the immediate future was challenging but argued that should not impact the longer term.
“Once the impact of the pandemic fades, a recovery in demand, supported by accommodative fiscal and monetary policies, will put upward pressure on inflation over the medium term,” Lagarde said.
Benign market indicators support Lagarde’s argument. Stocks are rising, interest rates are steady and government borrowing costs are trending lower, despite some political drama in Italy.
There is also around 1 trillion euros of untapped funds in the Pandemic Emergency Purchase Programme (PEPP) to back up her pledge to keep borrowing costs at record lows.
The ECB has indicated it may not even need it to use it all.
“If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full,” Lagarde said.
Recent economic history also favours the ECB. When most of the economy reopened last summer, activity rebounded more quickly than expected, indicating that firms were more resilient than had been feared.
Uncomfortably low inflation is set to remain a thorn in the ECB’s side for years to come, however, even if surging oil demand helps put upward pressure on prices in 2021.
With Thursday’s decision, the ECB’s benchmark deposit rate remained at minus 0.5% while the overall quota for bond purchases under PEPP was maintained at 1.85 trillion euros.
(Editing by Catherine Evans)
Bank of Japan lifts next year’s growth forecast, saves ammunition as virus risks linger
By Leika Kihara and Tetsushi Kajimoto
TOKYO (Reuters) – The Bank of Japan kept monetary policy steady on Thursday and upgraded its economic forecast for next fiscal year, but warned of escalating risks to the outlook as new coronavirus emergency measures threatened to derail a fragile recovery.
BOJ Governor Haruhiko Kuroda said the board also discussed the bank’s review of its policy tools due in March, though dropped few hints on what the outcome could be.
“Our review won’t focus just on addressing the side-effects of our policy. We need to make it more effective and agile,” Kuroda told a news conference.
As widely expected, the BOJ maintained its targets under yield curve control (YCC) at -0.1% for short-term interest rates and around 0% for 10-year bond yields.
In fresh quarterly projections, the BOJ upgraded next fiscal year’s growth forecast to a 3.9% expansion from a 3.6% gain seen three months ago based on hopes the government’s huge spending package will soften the blow from the pandemic.
But it offered a bleaker view on consumption, warning that services spending will remain under “strong downward pressure” due to fresh state of emergency measures taken this month.
“Japan’s economy is picking up as a trend,” the BOJ said in the report, offering a slightly more nuanced view than last month when it said growth was “picking up.”
While Kuroda reiterated the BOJ’s readiness to ramp up stimulus further, he voiced hope robust exports and expected roll-outs of vaccines will brighten prospects for a recovery.
“I don’t think the risk of Japan sliding back into deflation is high,” he said, signalling the BOJ has offered sufficient stimulus for now to ease the blow from COVID-19.
NO EXIT EYED
Many analysts had expected the BOJ to hold fire ahead of a policy review in March, which aims to make its tools sustainable as Japan braces for a prolonged battle with COVID-19.
Sources have told Reuters the BOJ will discuss ways to scale back its massive purchases of exchange-traded funds (ETF) and loosen its grip on YCC to breathe life back into markets numbed by years of heavy-handed intervention.
Kuroda said the BOJ may look at such options at the review, but stressed a decision will depend on the findings of its scrutiny into the effects and costs of YCC.
He also made clear any steps the BOJ would take will not lead to a withdrawal of stimulus.
“It’s too early to exit from our massive monetary easing programme at this point,” Kuroda said. “Western economies have been deploying monetary easing steps for a decade, and none of them are mulling an exit now.”
(Reporting by Leika Kihara and Tetsushi Kajimoto; additional reporting by Kaori Kaneko; Editing by Simon Cameron-Moore & Shri Navaratnam)
World Bank, IMF agree to hold April meetings online due to COVID-19 risks
WASHINGTON (Reuters) – The International Monetary Fund and the World Bank have agreed to hold their spring meetings, planned for April 5-11, online instead of in person due to continued concerns about the coronavirus pandemic, they said in joint statement.
The meetings usually bring some 10,000 government officials, journalists, business people and civil society representatives from across the world to a tightly-packed two-block area of Washington that houses their headquarters.
This will be the third of the institutions’ semiannual meetings to be held virtually due to the pandemic.
(Reporting by Andrea Shalal; Editing by Chris Rees
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