From security to customer service, artificial intelligence is changing the way we do banking.

Artificial intelligence, or AI, is technology that makes it possible for machines to learn from experience and to perform tasks that would typically require human intelligence. The use of this technology has become increasingly popular in banks and play a heavy role in FinTech companies, which are companies that aid businesses with financial technology, including technological innovation of payments, and the automation of lending and borrowing.

The intersection of banking and technology, such as artificial intelligence, most prominently appears in fraud management and customer service. But the biggest impact on the sector? Analysts estimate that AI will save the banking industry more than $1 trillion by 2030.

“The banking industry can benefit from using artificial intelligence to combat fraud and to personalize a client’s experience in real time,” said Cathy Cooper, executive vice president and retail banking group manager for Washington Federal. “It could also be used to proactively offer products and services to consumers based on factors that may not be obvious or as simple as demographic segmentation.”

“For example, there’s a strong correlation between owning a dog and buying your first home. Artificial intelligence tools could search for purchases of dog food and use that data to target an offer for a no-fee home loan,” she said. “Being able to use artificial intelligence requires that banks find a way to make their data accessible across siloed platforms, and that can be harder for community banks if they use outside vendors to host services.”

Reducing Fraud

Amy Zirkle, global payments expert and interim CEO of the Electronic Transaction Association, said technology is transforming the payments industry, especially within the realm of AI. Zirkle said artificial intelligence has been making significant contributions to security.

“We really shape the industry in respect to things like mitigating instances of fraud, gathering critical, vital data to assess what is really going on,” Zirkle said. “Technology makes itself available by the good guys and the bad guys, so the fraudsters have realized what technology means. They’ve elevated their game on fraud, and so as a result, the industry has to be more sophisticated to address these challenges two steps ahead.”

Using artificial intelligence allows banks and the rest of the financial services industry to detect suspicious behaviors that could indicate fraud. “If a customer has nine or 10 transactions in New York and then one in Texas, something is going to look suspicious and the capacity of technology to draw us to that suspicious activity is significant and enabled by artificial intelligence,” Zirkle said.

Zirkle also said that while artificial intelligence can detect fraud, it can also be used to prevent it with authentication. For example, needing a thumbprint or facial recognition to use your electronic wallet on your smartphone.

“At the end of the day, it supports significant activities toward risk mitigation, which is about the creation of a healthy payments ecosystem, one that is viable, one that is sustainable, one that customers come to with trust and confidence,” Zirkle said.

Chuck Monroe, head of Wells Fargo Artificial Intelligence Enterprise Solutions, said the bank is implementing the “massive amounts of data presented during Wells Fargo card transactions, along with historical data, to continuously prioritize potential cases where fraud may be taking place, which helps team members stay focused on the cases with the highest risk.”

Artificial intelligence also means less false negatives or false positives. For example, when you’re at checkout and your card declines even though you know you have enough money in your account, this could be a false positive stemming from fraud. Artificial intelligence predictive analytics cut down on those decline rates. “Leveraging artificial intelligence, they can provide automated decisions about a transaction in a matter of milliseconds,” Zirkle said.

Reducing fraud leads to saving money in banking. “Fraud can be very, very expensive, so these heightened levels of sophistication in analytics reduces instances of fraud and helps contribute to reductions in some of the costs that are associated with instances of fraud and data breach,” Zirkle said.

As artificial intelligence helps to provide a more personalized experience for its customers, the up-and-coming technology can also reduce operating costs, Monroe said.

Increasing quality of customer service

Artificial intelligence has an increasingly prevalent role in customer service because it creates a more personalized experience for customers, Zirkle said. Retail banks, a type of bank that offers services to small businesses and the day-to-day consumer, offer what is called an omnichannel experience, which means seeking to provide customers with a seamless shopping experience whether they are online, on the phone or in the physical store.

They are “using every path accessible to engage its customer, consolidate customer data from the bank’s internal and external systems to really and truly ensure a seamless customer experience. The customer feels like they have the specialized and individualized attention they’re looking for from the bank,” Zirkle said.

“Banks have a lot of data,” Monroe said. “With emerging technology like AI, we’re able to more efficiently analyze that data and pull key insights, often in real-time, to deliver personalized guidance to customers in the moment, wherever they are.”

Because banks, such as Wells Fargo, have millions of customers, artificial intelligence will allow it to personalize their guidance, Monroe said. “We’re testing use of AI to help in situations when a customer passes away, which is often an emotionally challenging time for the person handling the estate. Historically, a banker would need to spend a lot of time accessing dozens of documents and systems. By deploying an AI solution, we can free up those bankers to focus on the caller and their needs and let AI systems surface all the right questions to ask and content to review.”

Monroe said there is an expectation that organizations will use the increasing amount of data to know their customers, which includes anticipating their needs and offering them something they value, to make their lives easier. “Over time, our goal is to use AI to help strengthen customer relationships by delivering contextual, hyper-personalized experiences to each and every customer, in the moment, wherever they are. Advice will be specific to the individual – based on where they are and what they need to do,” Monroe said.

Wells Fargo’s future includes artificial intelligence being a part of every aspect of the business and changing the way they work because Monroe believes that “AI is just one component – alongside in-person and contact center support – of providing great customer service.”

Effect on smaller banks

Data and analytics are becoming a key competitive advantage in financial services, which makes it critical to organize now, Monroe said. “For companies of all sizes, there are a number of ways to approach AI, and many times that includes collaborating with FinTechs and other technology providers offering solutions.”

“Smaller merchants are emerging as really robust players,” Zirkle said. “They are, I like to say, small but mighty. It’s trite and overused, but because of technology, smaller players have access to that technology, it is not exclusive to just the big guys, so by utilizing technology, smaller merchants and smaller processors can stand almost comparable to some of the bigger guys in beginning to incorporate and leverage technology such as artificial intelligence.”

Zirkle said technology is becoming more and more accessible to everyone, not just the major players. “It’s a democratization of technology. It’s truly starting to happen,” Zirkle said.

Despite this thinking, smaller banks are adopting AI significantly slower than their larger counterparts, according to the Mercator Advisory Group.

“It is really becoming more accessible to all as they bring and build through in-house expertise, through their own research and development efforts,” Zirkle said. However, not all banks have a research and development function to help them leverage this technology.

“(Smaller banks) can look toward opportunities for collaboration with similarly situated entities who share a common interest and goal in advancing AI use,” Zirkle said. “Late last year, there was an announcement of the creation of a group comprised of several small community and regional banks to examine opportunities to leverage new technologies. The group presented a means for smaller banks to pool their resources with an eye on shared opportunities.”

Zirkle also said a collaboration such as this could reduce the risk involved with implementing new technology when smaller banks don’t have the same budgets as bigger banks, while still taking advantage of new technology.

“It’s true that advancements in financial technologies are changing banking at nearly every level,” said Jeff Schelter, senior vice president of Alliance Bank of Arizona. He also said FinTech upstarts leveraging artificial intelligence are moving in-house or making partnerships with established banks. “Now, we’ll need to see if these new alliances drive more efficient financial platforms and better, more highly tailored banking solutions.”

Effects on Arizona

Schelter said Alliance Bank of Arizona’s customers are going to benefit from this shift to the new technology. While artificial intelligence will improve customer service, it will also lead to “bill paying with a few clicks” and “automated investing” becoming the new normal.   

“Financial technologies and artificial intelligence are quickly evolving, bringing unique value propositions to banks and customers,” Schelter said. “It will be interesting to see how the future of AI continues to fuel the innovation that is reshaping financial products and services within the established banking companies in Arizona. But the question remains at what speed will these advances be implemented and how will customers embrace them.”