How AI is reshaping financial services
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Artificial intelligence (AI) is rapidly changing the way financial services institutions attract and retain their customers, and it will necessitate new models of collaboration amongst competitors, according to a new report by the World Economic Forum and Deloitte.
The report, “The New Physics of Financial Services,” explores how AI will transform the realities of financial institutions by radically changing front- and back-office operations, creating major shifts in the structure and regulation of financial markets, and raising critical challenges for society to resolve.
Deloitte New Zealand Partner and Banking Sector Lead Marco Ciobo says that by now many have seen the impressive demos of AI assistants calling a restaurant or hair salon to make an appointment. And in New Zealand we are seeing a number of banks launching, or planning to launch, AI customer service offerings. But this is just the tip of the iceberg.
The report identifies four core findings that explore how AI is radically transforming the front- and back-office operations of financial institutions:
Cost centres to profit centres – AI enabled back-office functions will allow financial institutions to turn their centres of excellence into services while pushing them to outsource most other capabilities.
As financial institutions move towards a back-office as-a-service model, these processes will continuously learn and improve using data from its collective users. This both accelerates the rate at which capabilities improve while necessitating competitors to become consumers of that capability to avoid falling behind.
A new battlefield for customer loyalty – Past methods of differentiation for financial institutions—such as cost, speed and access—are eroding.
AI is giving rise to a new set of competitive factors on which financial institutions can distinguish themselves to customers. For example, the ability of institutions to optimise financial outcomes by tailoring, recommending and advising customers will allow them to compete on the value offered.
The ability to engage users and access data through ongoing and integrated interactions beyond financial services will allow them to better retain customers. And curating ecosystems by bringing together data from multi-dimensional networks that include consumers, corporate clients and third parties will allow financial institutions to offer differentiated advice and improve performance.
Self-driving finance – Financial advice, part of every product, is often generic and impersonal. It also tends to be overly reliant on subjective advice from different customer service agents. A self-driving vision of finance could transform the delivery of financial advice, centring customer experiences around AI.
In this vision, individuals will increasingly interact primarily with a single platform or agent who will provide recommendations about the types of products they should engage with and advisory services around those products.
AI enables this vision in three key ways: empowered platforms which can compare and switch between products and providers; increasingly personalised advice based on data; and continuous optimisation through algorithms which will automate most routine customer decisions.
Collective solutions for shared problems – While AI presents increased opportunities for competition, it also presents a strong mechanism to collaborate as the value of shared datasets is tremendous.
There is great potential for cross-institutional collaboration on issues such as fraud prevention and anti-money laundering controls, which are often run inefficiently and ineffectively today.
Collaborative solutions built on shared datasets will radically increase the accuracy, timeliness, and performance of non-competitive functions, creating mutual efficiencies in operations and improving the safety of the financial system.