This article was published in The Edge Malaysia Weekly from 17 June 2024 to 23 June 2024.
The increasing use of artificial intelligence (AI) in the banking industry is a good thing and will bring benefits, but it could also unintentionally lead to financial exclusion if lenders are not careful, says Susan Rice.
He is a veteran British banker who served as a non-executive director of the Bank of England during the 2008-09 global financial crisis and currently chairs the Global Steering Group of the Global Ethical Finance Initiative.
“AI means collecting and analysing huge amounts of data. It allows banks to look at risk in ways that previously took a long time. [but] “With AI, they can do things more easily now. It has its risks but it also has its benefits,” she said in an interview with The Edge on the sidelines of the Global Forum on Islamic Economics and Finance, held recently in Kuala Lumpur, where she was one of the speakers.
“The benefit is that banks can manage risk more effectively – they understand the risks, so they can take them and support individuals and businesses in a more tailored way.”
“The downside is that this analysis is always done by sophisticated algorithms, and it's becoming increasingly clear that an algorithm is only as good as the person who created it. And that of course means that the algorithms are biased. They are biased in terms of categories of people, geography, background… and it's all hidden in the digital world, so you can't see it,” she says.
She suggests that the invisible biases of algorithms can lead to the economic exclusion of certain people.
“There is concern that AI will open up banking and make it more accessible to people. I have done a huge amount of research on financial inclusion and I believe AI will play an important role in financial inclusion. However, [on the other hand]but it also has another role in excluding.
“Because do you really fit into a particular category? Probably not. You're very unique. In the old days, a banker would sit down and talk to you and make a judgement about you. I think there's a really important place for that kind of interaction,” she added.
Asked if he was saying banks would need to maintain human interaction with customers, Rice replied: “Yes, very much so. And while at some point there may be more human interaction, AI will drive a lot of the transactions.”
It all comes down to how much a bank cares about people as individuals, she says: “I believe people are important, so banks need to be able to understand individuals and businesses on an individual basis.”
Start with the customer
Rice is a strong believer in building a business around the customer's needs, not the other way around.
“It may sound strange but I feel this very strongly. It comes from having lived through the 2008/09 financial crisis and having seen other problems. Bankers deal with numbers. Numbers are not real things, they are abstract, a way of reflecting what is going on in society. But for bankers, sometimes it is about making things work in terms of numbers – the way things work in many businesses, but especially in banking. That's why it's really important, especially for banks, to start with the customer.”
She further explains: “Many banks might say, 'We serve the customer,' and that's fine, but they often start by saying, 'Here's a new product. Here's how it works. Here's the market. We've done the analysis. Here's how much profit we can make. Now let's figure out how to sell it.' In their mind, that's serve the customer.”
“Start with the customer, start with their needs: What do they want? [things] “You judge it just by the numbers. You have to judge it both by the numbers and by society. This is a difficult thing for banks to do, but I think it's the most important thing they can do.”
Rice noted that as the use of AI increases, banks will tend to rely on the numbers it generates as a starting point.
“It’s all about, ‘Let’s see what the numbers say.’ But actually I think the most important thing for banks to do, and the most challenging, is to say, ‘Let’s go out and see what our customers are telling us, then let’s see what the numbers are telling us, and then let’s see how they all fit together.’ That’s intellectually very challenging, but it’s also much more rewarding,” she says.
Rice said that even with the increasing use of AI in banking, it's important for humans to make decisions.
“Human decisions matter. [but] What we're doing is delegating that decision-making to the world of AI. This is a really tough space. But good bankers understand that they need to be at the top of their game. They need to make that world work for them and in line with their objectives and goals.
“What I worry about sometimes is that the most senior bankers in an organisation may understand it, but everyone else who works there has a job to do, they do their job, [ends up forgetting] About the larger context.
“So one of the things banks have to do more effectively going forward is focus on helping employees understand the context of their work and the impact of their decisions. It doesn't necessarily come naturally, so they need to help employees understand that,” she says.
Ms Rice has had a distinguished career in finance as the former Chief Executive and Chairman of Lloyds TSB Scotland, the first woman to head a European payments bank, before going on to become Managing Director of Lloyds Banking Group, and is also the founding Chair of the Chartered Banker: Professional Standards Board.
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