Today's discussions about the nature, impact, and regulation of artificial intelligence (AI) often obscure the direct, on-the-ground applications of the technology. In this article, Finextra explores five different ways financial institutions can leverage AI to better serve their customers.
5 Use Cases
As the saying goes Secret sauce The beauty of AI is its ability to sort through vast amounts of data, find patterns, and use what it learns to predict customer needs. But it's not just about pushing products and inflating profit margins. Banks will find that AI eases the burden of providing service, advice, and information.
Therefore, the greatest strength of Artificial Intelligence is marking key moments in the customer journey with predictive, relevant, helpful and personalized support until their desires are fulfilled.
Here are five examples of how AI is being used in personalization.
1. Overdraft Management
According to The Guardian, “British banks have two million customers who are permanently overdrafted.” The onset of the cost of living crisis has only exacerbated the financial challenges for the average worker.
In this light, the adoption of AI to help customers avoid overdraft fees is a move that cannot be overestimated. By tracking the points at which customers typically overdraft (for example, the points at which utility companies make monthly automatic deductions), an AI mechanism can notify the bank of this, which can then forward an automated, personalized notice to the customer, who can then choose the option to move cash and avoid overdraft fees.
Options within this use case might even include offering bespoke budgeting tools to help customers streamline their cash flow until payday.
2. Savings Goals
In addition to helping with budgeting, banks may want to use AI for personalized savings structures.
For example, if a customer says they're saving for a down payment on a home, AI technology can identify negative spending patterns that are preventing them from accumulating discretionary cash and flag retail options or deals to reduce spending month-to-month. This could result in a personalized savings plan based on their financial goals and the time frame they need to reach them.
To encourage customers to participate in the savings process, a technique called AI-enhanced gamification (applying common elements of gameplay, such as points-earning and competition, to other areas) is increasingly being adopted. For example, Monzo “uses gamification to provide insights into spending habits and offers different challenges and goals to help users take control of their finances.”
3. Personalized communications
The most well-known application of AI in driving personalization of financial services is customer interaction. Chatbots, virtual assistants, AI, etc.
Like a conciergeThe result is the same: customers have direct contact with their bank around the clock and receive precise, customized support.
Financial institutions also benefit: customer inquiries are prioritized, reducing the strain on physical call centers. Lloyds TSB reported a 300% increase in lead generation due to AI-enabled in-app messaging with customers.
A popular example of personalized AI communication is Bank of America's virtual assistant, “Erica,” which is accessible through the mobile banking app and helps end users make the most of their funds.
4. Credit Scoring and Lending
Gone are the days of stiff credit scoring models that rely on limited data sets like income levels. Artificial intelligence is heralding a new, shiny, and fair era of lending services. It incorporates considerations such as “social media interactions, internet usage, and past transactions” to determine whether someone is creditworthy, says the European Financial Review. “This improves credit ratings and allows financial institutions to offer loans to a wider range of candidates.”
5. Customized Investment Guidance
Artificial intelligence also has the potential to provide personalized investment recommendations, as opposed to the older approach of grouping clients by risk tolerance.
AI is able to suggest highly relevant investment options to clients through detailed analysis of their individual behavior, interests, budgets and motivations. What's more, the technology is unique in that it refines subsequent proposals depending on how the original proposal is received. Perhaps the investor in question is interested in supporting ESG projects; the tool picks up on this and provides access to that market.
Customized investment guidance is a constantly evolving interplay between AI and clients that will strengthen institutions’ relationships with their foundations and lead to easier mobilization of private capital.
Personalization will be important in 2024 and beyond
In an article on the topic for Finextra, Alex Jimenez, managing principal of EPAM's financial services consulting practice, said that given the capabilities of AI, personalized customer experiences are the future: “Even if banks don't have a lot of data on individuals, it won't be long before the industry is able to offer this level of personalization. Following the example of the likes of Amazon, Apple, and Google, who excel at personalized experiences, banks will need to learn how to brand their services and more effectively present themselves as truly customer-centric.”
