How AI Helps Traditional Banks Compete Against Modern FinTech and Digital Competitors

By Sri Ambati, CEO & Co-founder of H2O.ai

AI is becoming an essential technology for the financial services and banking sector as it can help keep organizations stay a step ahead of ever-evolving challenges in meeting customer demands, such as delivering personalized interactions, expanding financial inclusion and ensuring secure, connected experiences across commerce, payments and banking. Traditional banks, which had once dominated financial services options, are being increasingly disrupted by digital native banks and tech giants, such as Google and Apple, who are now offering more convenient and personalized payment services of their own.

While personalizing the customer journey with AI has become key across sectors including retail and ecommerce, it is now critical for traditional banking institutions that must acquire and retain customers at greater speed and accuracy than ever before. Customers now expect intuitive and intelligent experiences across credit approvals, recommendations for account types and greater transparency in explaining how decisions that impact them are being made. Traditional banks may still have customer trust today, but in order to maintain their competitive advantage against more agile fintech newcomers and technology giants, they must incorporate AI-native experiences for customers.

AI Can Help Traditional Banks Provide Better Experiences for Customers

AI can help traditional banks improve and optimize experiences for customers across a number of use cases. For example, personalization of customer experiences can provide consumers more convenient online options to seek assistance if they are unable to make an in-person trip to a branch. Effective personalization showcases a financial institution’s ability to understand and anticipate customers’ needs in the present and as they evolve over time. As such, traditional brick-and-mortar banking giant, Bank of America, launched a personal AI-based automated help feature, Erica, in 2018 to help streamline processes internally. This allows bank employees to dedicate more focus towards more fulfilling and impactful tasks while simultaneously giving the customer more flexible options to help problem-solve from anywhere, any time, with more efficiency.

Additionally, banks are working with AI providers to rapidly adopt ML to improve offerings in areas such as credit risk and financial crimes, compliance, customer assistance and market risk. Banks are prioritizing catching up to, and staying ahead of, the digital game to personalize customer experience, drive sales for merchants, better predict bills and forecast cash flows for customers to offer more control over their businesses, among other benefits achieved by leveraging AI solutions.

AI’s Role in Assessing Credit Risk and Combating Fraud

AI is also helping traditional financial institutions refine existing credit risk decisioning, making credit scoring more intelligent by expanding the true addressable market and increasing access to the underserved. AI enables financial institutions to more accurately assess risk factors such as tracking fraudulent activities through analysis of highly unusual data points. This helps institutions capture greater market share without needing to change the profile of their risk appetite.

The traditional scorecard method used by banks is based on broad segments leading to denial of credit to consumers without considering their current situation. AI models provide a more granular and individualized approach that gives banks the ability to more accurately assess each borrower, opening opportunities for people with income potential, such as new college graduates, who would have been denied credit under the traditional credit scoring system. Further, AI can be utilized to satisfy regulatory requirements to provide reason codes for credit decisions that explain the key factors in making them.

Explainable AI helps banks demystify more advanced AI capabilities and express results in terms that the industry and consumers are accustomed to receiving and with plain language explanations they can understand. Indeed, AI is better suited to adapt to real time changes in the market than traditional models, allowing institutions to move at the speed of business rather than adjusting six months down the line.

Finally, banks must continue to work to stay ahead of already advanced and increasingly sophisticated fraudsters, while also avoiding the introduction of customer friction that results from blocked transactions, identity verification and more. In today’s global financial ecosystem, solutions must meet customer demand for both safe and seamless transactions. AI and machine learning systems can process transaction requests in real-time and accurately pass legitimate customers through their banking journey within milliseconds. For customers who do become victims of fraud, AI can find fraud patterns and ensure that support teams are able to provide meaningful customer support and resolution.

Harnessing the Power of AI to Remain Competitive in a Shifting Business Landscape

As one of the world’s most demanding, intricate and heavily regulated industries, the financial services sector requires organizations to tackle the biggest data sets and most complex challenges. From operational processes, essential customer offerings such as fraud protection, lending decisions and risk management, imperative aspects of banking can improve and scale with the help of AI and machine learning technology. In a growing digital world where customers demand faster, more accurate and more personalized options, artificial intelligence is becoming even more critical for enabling traditional banks to evolve and deliver the personalized and relevant customer experiences needed to keep pace with modern competitors. Banks already have the data. which is very valuable and fuels their operations today. Augmenting that data with alternative data including data extracted by AI from unstructured sources like images, video, and voice boosts the power of the fuel. AI is the engine using that fuel to power decision making to deliver value for the bank and its clients. The combination of holistic data and AI gives banks a competitive and differentiated advantage in the market.