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Will Artificial Intelligence change Financial Industry?

Every year Bankdatas Business Strategy Committee and Executive Group seeks inspiration on what is hot topics in digitalization and emergent technology to support the growth in the Financial Industry. This year the committee visited "Singularity University" conference "Exponential Finance" in New York.  One of the many topics at the conference was Artificial Intelligence.

What is AI?
We all have the conceptual understanding of AI from movies like “I Robot” and other popular visions of artificial intelligence trying to imitate the human brain and behavior. The fact is that artificial intelligence is already an integrated part of our daily life – not in the form of a physical robot – but as the driving computer in Tesla cars, the picture recognition program on your IPhone or the language processing chat function when you contact a helpdesk.

Artificial Intelligence covers several subtopics like

  • analytics on massive amounts of structured and unstructured data
  • neural networks imitating the human brains ability to deduct, learn, reflect and alter hypothesis – also called deep learning.
  • natural language processing were the semantic rules are translated into a program enabling the computer to interact in a dialog with a human agent.

So why is AI the hot topic now?
Well – the technique has been available for years – but recently the price for conducting massive amount of data processing and pattern recognition has dropped rapidly. The calculation power has risen rapidly. The availability of digitalized data is enormous with the ability to transform pictures, documents, sensor data and social network data. 

For artificial intelligence – this is the perfect storm – and it has created the environment that enables us to harvest the possibilities and thereby change our daily life.

This is called the fourth industrial revolution – and it will have a huge impact on all industries (For a more comprehensive study of this, you should read “The Second Machine Age”).

Will Artificial Intelligence transform the Financial Industry?
There is a vast set of opportunities in AI supporting the growth of our business – and it will change the marketplace and the banks as we know it today.

Face recognition technology paired with advanced analytics can enable the branch employee to approach the customer in the branch with a personal welcome and relevant economical counselling. From the moment, the customer enters the bank he is identified by the computer and the employee receives relevant updated information about the customer and possible leads on products to sell.

Customers contacting the Bank by phone or mail could just as easily be handled by an artificial agent instead of a human agent.

Today it is possible to predict when a customer is considering leaving the bank – by making a pattern recognition program on the behavior of the customers that left the bank in the past.  

Chatbots will also be used to advise customers. The customer can ask questions that the robot can answer. Now, this will not be advanced advice, but simpler things the customer will immediately be guided in. It will be continuously improved. It was not recommended to invest in this area yet, as the concept needs maturing.

Credit management is largely about predicting the likelihood that customers can and will repay loans. Some of our Bankdata banks already have reasonably advanced models for predicting the likelihood that customers will be in need, also called rating. Looking forward, the models will become even more sophisticated and make use of even more data from our social network. Soon, it could be a possibility that your credit rating is decided based on the people you relate to on Facebook, LinkedIn and so on.

Another area with great potential is the stock market – could It be possible that in a near future that the bank with the best automatic trade creation analytic program can win the market?

The change in society and economy caused by AI will affect the banks
One aspect of AI is how our industry can harvest the possibilities of customer interaction and advanced algorithms to streamline the business as mentioned above.

Another aspect is how banks are affected by changes in the surrounding community because of AI.

There could be many possible effects, but I would just like to mention a couple of interesting considerations from the conference.

Self-driving cars
In the future, self-driving cars will be dominant. Already in the year 2025, it is expected that self-driving cars will be a common part of the traffic. It is expected to have the following impact on our society:

  • - 1% Loses work as drivers in bus, truck, taxi etc.
  • - 2% Decline in GDP due to the reduced sale of cars caused by shared transportation.
  • - 3% Decline in GDP because of a significant decrease in traffic accidents with dead and injured injuries

How will it affect the banks' financing of these assets? New players like Tesla and Google are trying to disrupt with new business models on shared car economy. Instead of owning a car – you have access to a car.

What will it mean for house pricing that the access to a car is easy and cheap – will it make it more attractive to live in the countryside – when your transportation time can be used to distance work – because you don’t have to drive the car.

Summary
Artificial Intelligence is already an integrated part of our industry and the potential is huge.

The perfect storm of accessible data, machine power and algorithms makes AI a hot topic.

In the future, we will have access to goods – not owning them. How will this effect economy?

- The value of assets will fall - there will be falling demand and cheaper production

- It will be cheaper to produce - increasing automation and falling energy prices

On the other hand, there will be increasing decentralization and visualization.

What the above will mean to the banks can be difficult to predict. However, there are indications that there will continue to be deflation trends with consequent effects on continued low interest rates and growth in the economy.

Conclusion
Today the environment is present to enabling the breakthrough for AI. Computer power is huge and still increasing. Digitizing data from sensors and other data sources means that there is a huge potential of unused data. The use of statistics and algorithms opens for decoding new knowledge.

Many jobs will in the years to come be affected by AI. Some say up to 25 percent of all jobs, already in 2019.

Will this mean unemployment, another division of work or simply just other exciting work areas to explore – only time can tell.

Human curiosity and the pursuit of new goals have always initiated new areas of work.

by Otto Bjerg Pedersen, deputy manager, Bankdata