Reshaping banks and financial institutions to compete and thrive in the digital age

cognitive-bank

Everyday AI At Work Blog Series

A banking license is no longer a guarantee to print money.  After years of ultra-low interest rates, increasing demands from regulatory and compliance, and cost-cutting measures, yields are not returning meaningful results.

The ever present 24 hour banking scene, and the convenience of out of branch servicing, has led to the anonymous and unaccountable network services center model that has a tangibly negative impact on client satisfaction. This model has also increased the public awareness of service standards, and service impact, while not increasing yields or customer growth. Being the incumbent players in the world of financial commerce, the banking industry has long established processes and procedures that have enabled efficiencies and structure within the established industry. But new players are not burdened by this legacy and are embarking on disruptive technology that offers niche services targeted at high volume highly profitable services.

Small wonder then that customers are increasingly turning to services offered by financial technology companies to fulfill their commoditized service needs.

International funds transfer is a case in point. While banks cleave to the long-established SWIFT process, with its unpredictable delays and lack of transparency to the customer, fintech players offer fast and reliable service at as little as 10 percent of the cost of conventional international bank transfers. The inevitable conclusion that customers make is that they are charged higher fees to cover the all-inclusive services offered by a full function bank serviced by its individual and collective inefficiency.

Bold steps needed

Bankers are aware of these problems, and the boards are asserting pressure on the business units to turn this around.

Results from a recent global survey of 2,009 C-suite executives in banking and financial services carried out by IBM’s Institute of Business Value show a fairly clear consensus about the challenges. 64 percent of those surveyed felt their bank’s overall operational efficiency had remained the same or declined over the last three years. The top three strategic objectives were cited by more than half the respondents: improve operational efficiency (58 percent), improve customer satisfaction and engagement (51 percent), and grow revenues (50 percent).

Given the current circumstances it is clear that incremental change is not going to be sufficient. The industry needs to take a non-traditional position, to achieve the desired level of operational performance and business result, by embracing the potential that fintech disruption provides.

Blockchain revolution

To continue our international transfer example: rather than individual banks spending time and resources on improving their transactional back-end processes to make SWITFT transfers work faster and cheaper, the entire funds transfer ecosystem needs to be reviewed. The obvious foundation for a replacement ecosystem would be based on an irrefutable shared ledger network (aka Blockchain).

The power of a Blockchain network is already proven in a more conventional field of financial services with China UnionPay recently completing a successful pilot in collaboration with IBM that leveraged the technology to share loyalty bonus points between banks, enabling consumers to pool points from their various credit cards in less than a minute.

Fixing the transaction layer is, however, only half the battle; the service layer also needs a complete makeover.

Cognitive transformation

The emerging suite of cognitive computing technologies – such as artificial intelligence, natural language processing and machine learning – provide a toolkit with the potential to completely transform banking services. Cognitive tools are starting to appear on the financial services radar and a few leaders are already deploying them.

For example, The Royal Bank of Scotland has just gone live with Luvo, a webchat service that leverages IBM Watson Conversation, a cloud-based cognitive service, to enhance customer experience. Luvo is initially expected to handle about 10 percent of webchat queries, answering simple questions in a split second while directing customers to a human to answer more complex questions.

By enabling systems to process and act on data in a human-like manner fast and accurate cognitive solutions can transform how financial service organizations think, act and operate. By applying four basic cognitive principles – learn and improve; build speed and scale; collate human intelligence; and interact in a natural way – banks can exploit the benefits of available data to generate a range of transformational operational and business outcomes.

Banking’s treasure trove

Of course cognitive technologies are going to become widely available but their impact will depend on access to data, which is the banking industry’s strategic advantage. Tapping the huge quantities of dormant bank-owned data, much of it unstructured, is essential to offering the individualized engagement that customers demand. Cognitive capabilities are the key to unlocking this treasure trove and getting back to the point where banks understand as much about their relationships with their customers as customers know about their relationships with their banks.

By Mimi Poon, Director, Banking and Financial Markets, IBM China/Hong Kong Limited

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