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Autonomous Finance Is the Future

by internationalbanker

By Valerie Hernandez, International Banker

It has become increasingly clear in recent times that the world is gradually migrating towards an environment in which machines will do a much greater share of the work. Exactly how this automated future—and as a consequence, the future of humanity—will eventually turn out remains to be seen at this stage. But as customers, one benefit we are hoping to extract from such a future is the opportunity to have more time to do the things we love and to spend less time doing those mundane tasks that will most likely end up in the hands of robots. 

Many of those tasks, it would seem, will fall under the classification of personal finance. And thanks to the progress being made in autonomous finance, such tasks will also become the responsibility of machines and algorithms. By using technology, particularly artificial intelligence (AI) and automation, autonomous finance seeks to alleviate a significant burden from consumers’ shoulders by automating a number of key financial decisions and processes. It encompasses a range of algorithm-based services that can take financial decisions or actions on behalf of consumers.

Of course, the above definition would lead us to conclude that autonomous finance is far from being a new creation. Indeed, some solutions have already made considerable inroads into the mass consciousness, with the likes of robo-advisory now providing algorithm-driven investing decisions on behalf of investors. Whilst they have not taken over the entire investment industry, robo-advisors have nonetheless carved out a distinct niche in the market, serving a broad range of consumers that have long been seeking low-cost, low-hassle investing solutions.

And being among the first crop of successful autonomous-finance applications, robo-advisory serves not only as an ideal predictor of what’s to come but also as an indicator of the existing healthy appetite for algorithm-driven solutions that can save consumers precious time, money and energy, which can be redirected towards other important aspects of their lives. Indeed, as we move forward, autonomous finance looks set to facilitate a comprehensive overhaul of the financial-services industry by integrating technologies into virtually every major consumer-oriented product and service. And as those technologies themselves continue to evolve, along with widening access to online customer data, they will unlock even more sources of value for consumers.

At this stage, we conduct much of our financial affairs through specialist services, such as banking with a high-street lender, investing with a brokerage service, sending payments using an online transfer service and saving through a personal-finance app. Such platforms, however, involve their users taking manual decisions based on their own preferences. The true innovation behind autonomous finance, however, is that even those decisions will be automated without leading to any loss of value. “Autonomous finance is the organic convergence of all the technology innovation we’ve been seeing over the years, from AI to unprecedented access to data, to finally deliver[ing] on self-driving finance,” according to Rachid Molinary, senior vice president of digital strategy and innovation at Spain’s Banco Popular. There is also likely to be further integration among such services so that there will be no need for them to be conducted through separate platforms.

But the appeal of autonomous finance goes well beyond simply improving efficiency and costs for businesses and consumers alike. Much of it also lies in its ability to improve beyond what is currently available, and that means an overall better customer experience with optimal final outcomes. According to a Salesforce survey of nearly 2,800 global leaders from the financial-services sector, the most significant business benefits that are likely to emerge from autonomous financial decision-making are enhanced customer experience, improved customer retention and better customer understanding; while on the customers’ side, they will benefit from improved financial wellbeing, better personalisation, simplified decision-making, more proactive customer service and upgraded access to financial advice.

It was also observed that the top use cases of autonomous finance vary considerably by sector—for retail-banking leaders, automating account transfers is at the top of the priority list, with customer behaviours potentially triggering the frequencies and amounts of transfers depending on such factors as balances and goals. For insurance leaders, however, claims processing represents the top use case for autonomous finance, with a potentially significant reduction in human error from the current manual, resource-intensive process being a particular advantage. And on the wealth-management front, leaders anticipate the optimisation of investments through automated savings, portfolio rebalancing, dividend reinvestment or tax-harvesting strategies as being the most desirable application of autonomous finance. 

“Part of autonomous finance’s appeal is its ability to support individual customer journeys at scale,” the study noted. “Rather than solely being a cost-cutting vehicle, autonomous finance can lead to better end-user outcomes.” This means that eventually, through the growing proliferation of relevant data, the rapid expansion in processing power that burgeoning technologies can access and the advancements being made in AI, automated solutions could end up being the preferred choice for delivering the best financial solutions to customers. Making financial decisions at the right time—whether that be spending, saving or investing—can deliver much improved outcomes through cost reductions, profit maximisation and time savings that can seriously add up over time to much higher living standards. And the fact that these machines will be working 24 hours a day, 365 days a year only further underlines their potential superiority over human capabilities as well as their necessity for adding value. 

But are we ready to hand over our financial lives to a computer yet? It would seem there is still considerable apprehension to do so. Speaking to Forrester in its “What It Means” podcast in October 2020, the research and advisory firm’s principal analyst, Peter Wannemacher, observed that 55 percent of Americans trust an algorithm to provide them with correct driving directions (for example, Google Maps) over another human, whereas interest and trust in automated investment managers—robo-advisors—remains much lower for all generations and segments. “That reflects humans’ concern or caution around something they don’t understand,” he said. That said, he did acknowledge that automated wealth management provides a glimpse of the future that lies ahead for financial services, thus suggesting that adoption numbers will continue to pick up.

Wannemacher also emphasised the importance of trust in underpinning the growth trajectory of autonomous-finance solutions, with younger Millennials and Generation Zers tending to trust such solutions up to four times more than older generations. “Autonomous finance requires a deep sensitivity to the ties between a client’s finances and their personal wellbeing. With that, client trust is essential,” according to Trevor Chuna, the chief technology officer at Sequoia Financial Group. “Autonomous finance is about deepening the existing relationship with the client, not replacing client communication.”

Moving forward, the Salesforce survey makes clear that financial-services industry leaders almost unanimously agree that those that are first to deploy autonomous finance will gain significant competitive advantage and that it will soon be a prerequisite for being a top performer in the industry. But is COVID-19 playing a role in pushing businesses and consumers towards autonomous-finance solutions? It would seem so. Further research from Salesforce—a study entitled “State of the Connected Customer”—found that 68 percent of customers surveyed had heightened expectations of companies’ digital capabilities as a result of the pandemic, but only 23 percent felt that financial-services institutions (FSIs) have handled the crisis to the best of their abilities. What’s more, 59 percent of customers believed that the pandemic had elevated their customer-services standards, but only 27 percent felt that financial-services institutions had provided great service and support. And while 66 percent of respondents expected companies to understand their individual needs, just 27 percent viewed financial-services institutions as being fully customer-centric.

With such gaps transpiring between expectations and reality during the pandemic, there is a growing belief that turning to autonomous solutions can help customers not only during this time of crisis but on a more permanent basis. “There is increased urgency to implement autonomous finance capabilities such as artificial intelligence (AI)-based chatbots, automated online processes to handle higher volumes, and personalized data and offers,” noted Chris Skinner, best-selling author and chair of the European networking forum The Financial Services Club, in November. “Especially in a time of crisis, FSIs need to be able to offer support through the channels its customers prefer. And using autonomous finance tools like AI-enabled chatbots can help fill this gap.”


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