AI: Leading the way in open banking
By: Flavia Mocan
Tags: NLP, Machine Learning, Artificial Intelligence, Fintech, Computer Science

In the past few years the term “artificial intelligence” gained more recognition as it infiltrated itself in the collective mind. Humans became relatively used to this idea of computer-intelligence and its applications, as we enjoy personal assistants, such as Siri or Alexa, we’re used to chatbots and we rely on Google to anticipate the next words when writing a document or an email. By now, we are not even surprised that Netflix is customizing its services, that it manages to predict our specific preferences and presents us different thumbnails of movies/series according to past choices. But there is much more to AI and its applications than we realize.

But what exactly is AI?

Artificial Intelligence is the ability of a computer system to comprehend data, learn patterns and respond accordingly to different situations, issues and questions. Thanks to AI, machines can interact with us, humans, and with the environment, in a natural manner. It’s safe to say that it is the most complex field in computer science we've seen so far, one that utilizes a mix of machine learning like deep learning and NLP (neuro-linguistic programming) with the goal of interpreting data and achieving certain tasks.

Still, AI’s applications expand far more than we realise, from aviation—the commonly-known auto-pilot—to agriculture, education, medicine, hospitality, marketing, e-commerce and almost any domain of activity we can think of. But our attention is on one industry that is in full bloom, one that we can actually observe closely during its changes and everyday evolution—open banking.

Benefits of using AI in open banking

According to Deloitte’s report, the open banking industry has a number of competitive advantages. Through the implementation of AI applications, they’d have access to valuable insights that were never before available and especially, so easy to access. Some of these insights that could change the game are:

Customer insights. A wider view of customers' profiles can be extremely helpful in the long-term because it will reveal useful data about their spending habits, behavior, budget limits, or location. These details can not only help when it comes to cross-selling, but it's especially valuable for client risk profiling. Not to mention the fact that the more you know about the target audience, the better you'll be able to serve them, which means you'll increase the chances of exceeding their expectations and boosting client retention.

A wider view of customers' profiles can be extremely helpful in the long-term because it will reveal useful data about their spending habits, behavior, budget limits, or location. These details can not only help when it comes to cross-selling, but it's especially valuable for client risk profiling. Not to mention the fact that the more you know about the target audience, the better you'll be able to serve them, which means you'll increase the chances of exceeding their expectations and boosting client retention. Rate of attrition. A better understanding of churn : one of the biggest advantages is knowing before any decision is made, that your client is considering moving on with a competitor. People are driven by acquisition drivers. In banking, some of the most important are—comparison of fees and rates, variety of services, protection of information, existence of a mobile app to ease processes, provider’s reputation and convenience of enrollment. AI gives access to the specific reason one person decides to switch to a different provider. Therefore, you can take advantage of the information and act accordingly, possibly in due time.

A better understanding of : one of the biggest advantages is knowing before any decision is made, that your client is considering moving on with a competitor. People are driven by acquisition drivers. In banking, some of the most important are—comparison of fees and rates, variety of services, protection of information, existence of a mobile app to ease processes, provider’s reputation and convenience of enrollment. AI gives access to the specific reason one person decides to switch to a different provider. Therefore, you can take advantage of the information and act accordingly, possibly in due time. Market insights . Precious data about the part of the market owned by your competitors—such as product rates and fees experience from competitors, FinTechs and banks. This data enables a much more rapid benchmark of the market.

. Precious data about the part of the market owned by your competitors—such as product rates and fees experience from competitors, FinTechs and banks. This data enables a much more rapid benchmark of the market. Understanding the “pipeline”. This refers to the customers that have gone through your offer, assessed the possibilities and decided to move on with another product or service. By getting insight into their reason why, you can rethink your customer acquisition models and avoid going through the “lost pipeline”.

Disrupting old patterns

During the 2018 World Economic Forum, leaders of the industry have composed an exhaustive paper that addresses directly the effects of AI in the financial ecosystem. In this piece of documentation, the traditional financial services are compared to existing ones, and therefore the dominant institutions of the past put next to the future, the disruptive technologies that change the way we perceive traditional banking.

If in the past the focus was on scale of assets, mass production, exclusivity of relationships, high switching costs and dependence of human ingenuity, now the perspective is shifting completely. Integrating AI into the financial systems provokes a switch to scale of data. This is mainly because as Deloitte put it, AI drives operational efficiency, economies of scale alone will not sustain cost advantages. In this case, the focus moves to a more tailored experience. If, in the more traditional ways, the consumer had to fit into a prescribed criteria to access certain services or perform certain actions, now AI facilitates a personalized, human-like interaction and favors the scale distribution of highly personalized products.

Moreover, instead of the exclusive relationships that were longed for between customers and different markets and investors, in a digitalized era of communication, AI is also helping in optimizing the best fit between all parties involved. At the same time, switching between providers implied financial costs, as high as it made people give up the idea. Whilst now, AI driven services offer huge benefits—this being the main reason the non-traditional institutions have better customer retention.

And lastly, traditional services required more labour and the hands of working people. On one side, this is a benefit from the job creation perspective, but on the other hand, it does not promote growing and persevering. While on the contrary, AI is promoting an interplay of strengths between humans and technology which leaves enough room for advancement on both ends.

What does the future hold?

AI is driving the industry forward into a so-called “self driven finance” stage, in which, with the help of artificial intelligence, consumers receive personalized advice on how to manage their finances, save up more money and become more responsible. These suggestions come based on patterns and data well beyond the traditional transaction history that regular advisors use.

Looking at all the data available regarding the subject of AI in the financial game, we can safely say that banks need to incorporate AI into their strategies in order to have the capability of creating competitive products and services. In an ever changing world and industry, adaptability in the face of disruptive technology and newcomers is indeed key.