By Alexander Jones, International Banker
As the global banking system continues to increase its exposure to ground-breaking technologies such as artificial intelligence (AI), the entire concept of what constitutes a bank continues to change dramatically. And with cognitive banking amongst the industry trends making the most use of such technologies, the bank of the future is set to bear little resemblance to what we see today.
Cognitive banking typically leverages AI to deliver superior solutions across the entire length and breadth of a bank’s operations. Perhaps most commonly—or at least most visibly—such solutions are being deployed in customer-facing scenarios, typically as a way to satisfy the continuously evolving needs and preferences of banking customers. Indeed, the digital age has greatly accelerated the rise of the baseline level of service that customers now expect from their banks. And the onset of the coronavirus pandemic has only further thrown up challenges for banks in their pursuits of maximising the customer experience. In practice, this has meant rapidly developing advanced solutions, for which the latest information technology (IT) infrastructure—rather than legacy systems—has become paramount and for which cognitive banking is being given a solid platform for further development.
In practice, cognitive banking is likely to involve predictive analytics, whereby the substantial volume of customer data to which banks potentially have access is used to build predictive machine-learning and deep-learning models and identify meaningful relationships. These models are then improved upon as more data is fed into the algorithms and other relevant technologies such as natural language processing (NLP) are applied. Banks then use the models’ results to provide more tailor-made solutions to customers and improve upon the solutions, advice and recommendations previously offered.
Ultimately, such a process applies consistently evolving cognitive intelligence such that optimal solutions are efficiently provided to customers to maximise their overall banking experiences. In doing so, banks can delve deeper into individual customer needs and preferences and thus usher in new paradigms for customer experience. Data is used to make better decisions for each customer, queries are answered more quickly and accurately, and products and services are more fine-tuned and delivered to the customer without delay. And the more relevant data fed into the system, the more opportunities banks have to learn and improve their cognitive-banking capabilities. Every interaction with a customer represents a new data point from which banks can learn and improve. And with cognitive technologies enabling continuous, 24/7 communication channels with customers, the process of evolution can be rapid, with services being constantly refined to serve customers better.
“With digital natives and other generations increasingly demanding personalized services to manage their finances, banks must find new ways to serve and engage customers or risk becoming invisible,” Capco consultant Vidisha Sharma wrote in the consulting firm’s 2019 paper “Cognitive Computing in Banking”. “We believe that financial institutions wanting to gain competitive advantage will be dependent on the ability to use cognitive solutions to aid decision making, execute transactions and collaborate with customers, as well as provide enhanced, personalized and differentiated experience. Cognitive banking is set to change customer service as we know it today.”
Capco sees four key areas in which cognitive banking could have the most profound impact on financial services:
- Personal banking: Customers gain virtual assistants that are almost completely cognisant of all their banking data and can thus tailor the bank’s services more intricately to suit each individual’s banking needs. The automated service is also quicker and more capable than humans, with questions about account balances, transactions history and spending habits being answered almost instantly. Notifications can also be quickly sent to customers should they have overspent or experienced a change in their credit scores, or even to provide new banking-product recommendations.
- Wealth management: Chatbots can mimic the interactions of a wealth manager more quickly and more accurately than human advisors, the obvious example being robo-advisory. Cognitive solutions can also make customers aware of higher-value investments than would otherwise be the case and ultimately help them make more informed wealth-management decisions.
- Call-centre operations: A cognitive bank’s call centre will predict and understand a customer’s life events and proactively offer the most suitable and effective services. Through authorised information gleaned from the customer’s social-media accounts and recorded preferences, the advice and overall experience for the customer can be greatly enhanced.
- Lending: With cognitive solutions aiding the personalisation process for each customer, banks can make more informed decisions about whether someone qualifies for a loan. The technology can also help the bank avoid potential loan defaults well in advance. Ultimately, it means customers will receive loan services that are more aligned with their respective levels of creditworthiness.
Among the key players facilitating the shift towards cognitive banking is Personetics, a global provider of data-driven personalization and customer-engagement solutions for the financial-services industry, which serves more than 65 million bank customers worldwide. It has partnered with the Royal Bank of Canada (RBC) since 2016 to launch a range of cognitive-banking applications under the NOMI brand (a play on the phrase know me), all of which utilise Personetics’s proprietary Engage AI platform to deliver greater value for the bank’s customers.
NOMI currently comprises four key services: Insights, which provides near real-time personalized financial data; Find & Save, an automated savings function; Budget, a budgeting tool driven by Insights; and Ask NOMI, a text- and voice-based chatbot. As Personetics itself highlights, the solutions have helped RBC realise some impressive gains, including:
- A 17-to-20-percent year-over-year growth in mobile-banking utilization from 2015 to 2019,
- NOMI customer attrition of 2 percent versus the industry standard of 7 to 8 percent,
- High NPSs (net promoter scores) from customers who engage with NOMI; time in-app increased by one-third,
- 750,000 customers and 1.2 million smart budgets established in under one year, which is approximately equivalent to a 20-percent penetration of digital checking compared with traditional public-finance-management budgets that achieve a 2-to-5-percent adoption rate,
- The Find & Save app opened 250,000 new savings accounts and is the top savings-account originator. Customers are saving on average $225 per month.
IBM is also heavily involved in the cognitive-banking space. According to the tech giant, cognitive banks that infuse AI throughout all their operations and processes are the future of banking. “Every established bank has transformed their processes, but there is a limit to how far they can go with their existing technology,” Simon Ward, IBM’s lead partner in the global Thought Machine practice, told business publication Raconteur last November. “Before COVID-19, established banks were thinking about how they could get to anything near the agility and customer experience of their neo rivals. The pandemic has intensified the desire for transformation and cost-efficiency. Previously, a small number of banks were thinking about radical transformation, now many more of them are and they’re speeding up.” Ward also said that AI can be used to monitor regulatory changes that will then be relayed to make the appropriate changes to bank’s processes, while cognitive banks will also use biometrics in client onboarding to improve the efficiency of the authentication process.
Indeed, the tech giant itself is helping its clients become cognitive banks in three distinct ways: firstly, through a secure financial-services cloud that allows banks to access cloud technology while ensuring their data remains secure; secondly, through the company’s substantial depth and breadth of expertise, which it can use to facilitate such banking transformations; and finally, IBM has partnered with a number of other companies that develop key cloud-based software applications that can further assist banks in their transformations.
In moving to a consistently evolving, evidence-based culture for customer service from one that relies solely on historical interactions, the overall experience customers enjoy from their banks can be wholly improved upon, as can the internal efficiency and risk-management capabilities of the banks themselves. As finance-industry IT-services and software-engineering provider GFT Technologies acknowledged in 2019, “This new model stands in stark contrast with traditional bank processing models based on preconfigured rules and parameters—and this is the reason why we believe in the game-changing potential of cognitive banking.”