The Future Of Banks – Could AI Disrupt Them?

The Future Of Banks – Could AI Disrupt Them?

Technological progress influences all walks of life and finance doesn’t make an exception. Though traditionally more conservative than other sectors, finance manages to keep up with innovations.

Artificial Intelligence to Take Over The Banking Sector
Unbabel Raises $23 Million For Translation
Top 3 Small Business Technology Trends Of 2017

Technological progress influences all walks of life and finance doesn’t make an exception. Though traditionally more conservative than other sectors, finance manages to keep up with innovations. Having that in mind, it should come as surprise to no one that customers prefer online services rather than going to bank offices. Since 1995, 50% of all local bank branches were closed, due to technology. One survey even suggests that 40% of the American population have not visited their banks for six months or more in recent years because of online banking services.

User experience is the main factor that is to define the success of banks’ adaptation to the online world. So far, financial institutions’ platforms are outshone by fintech startups and IT companies. The introduction of chatbots, machine learning, AI, and blockchain is about to happen. And while everyone praises these technologies and the positives they will deliver, few question the risks of relying on them.

The disadvantages of blockchain and chatbots

If an innovation does not make people’s lives easier, it is useless. Period. So let us first look at what the hype is all about. According to analysts, the implementation of DLT will significantly reduce the costs of infrastructure. Some say blockchain can save banks up to $20 billion a year. If these statements prove to be true, undoubtedly banks should go for blockchains.  But what if customers don’t like them?

This will not be beneficial for either side because when technologies are difficult to use or cause bad user experience, customers will leave, hence no profit for the organization. We all demand fast transactions, but they cannot happen using blockchain yet. The bitcoin system, for example, can process only seven transactions per second, while Visa can handle 24. The distributed ledger technology is not yet ripe enough to go mainstream.

The pros and cons of chatbots? Some estimate that they can save $0.7 per interaction. Does that mean banks should put their money on them? Well, not exactly. The better part of customers are used to graphic interface and many of them might not fall for chats. Word Blinds, seniors will find them difficult to use, for instance. Banks should first think how they can better UX and then go for major changes. AI chatbots serve great via messengers and social networks. And blockchain’s “smart contracts” already make complex transactions less painful. It just goes to show that technologies should be applied appropriately and on time.

The future of open banking

Open banking is publicly discussed and it is already in the process of adoption in the European Union. Legislations suggest all banks in the EU have to diversify their services through API for third-party market players. The main idea is to make access for licensed financial services to customers’ data more easily obtained. Furthermore, this may lead to the creation of a whole new market offering financial services. Fintech companies using API will make customers less dependable on specific banks. At the same time, users will be able to switch between products and banks just with a few clicks.

The introduction of API will not demolish the banking industry, however. Banks can still win new clients, even ones from far away locations, thus increasing their profit. Furthermore, with the technological revolution they might diversify the products offered as well. Nevertheless, this is only possible with a customer-oriented interface. One that is easy to use and not confusing. Banks with the best interface will quickly surpass others. That is why it is important they cooperate with fintechs and ITs.

What if the FinTech revolution never happens?

Startups are the leaders of change in the world of finance. Let us take a look haw changes actually happen. Fintech startups brag about their product every time they have the opportunity, creating a hype about it. And it is not unusual the expectations often exceed the potential of the product and its applications. There is no guarantee that locally successful product would ever be as beneficial around the globe. Whenever a bank is to implement new technology, they should ask themselves whether this technology would work well on their scale; would it be beneficial to customers and is it secure enough.

Tools like Big Data, Predictive Analytics, Artificial Intelligence and Machine Learning can automatically offer or respond to loan applications, insurances, or even suggest tourist destinations, based on previous searches. They affect both personalized user experience as well as bank services.

Convenience makes the world go round, nowadays. Therefore, if a software is inconvenient it is going nowhere because the competition is heavy in this sector. Financial organizations should carefully evaluate the advantages and disadvantages of innovation before jumping on the next “hot” thing.