The Proliferation of AI and Automation in Banking
As investigations into Wells Fargo’s systemic banking fraud continue, new findings show that retail branches were given notice of internal audits a day or three in advance of them taking place. This allowed for managers and employees to scrub, purge and modify documents and data, which, by most firsthand accounts, probably looked something like this.
With new oversights and practices well underway at Wells Fargo, many banks are having a broader discussion of just what guaranteed transparency and compliance looks like beyond just throwing people and money at the situation. Many institutions are asking themselves, especially in the wake of the Wells Fargo mess, “What does the future of controls, compliance and processes look like?” The answer to this question, like so many others in a rapidly changing, operationally strained industry, is increasingly rooted in the adoption of technologies like automation and artificial intelligence (AI).
Last July American Banker reported that BNY Mellon had introduced robotic process automation into its operations in order to lower costs. “We’ve been piloting robotics and machine learning processes to automate work and eliminate repetitive manual tasks,” said BNY Mellon CEO Gerald Hassell said during the bank’s second quarter conference call. “It’s really taking some of the manual mind-numbing exercises out of the process and doing it at a lower cost.”
While this initial deployment had more to with BNY eliminating menial, manual processes, reducing overhead and freeing employees’ time for value-add activities than solving compliance consistency issues, it was nonetheless a bellwether for what was discussed by financial firms during the World Economic Forum at Davos last week.
During a panel on the future of banking, the rise of fintech and the possibility of virtual currencies, John Cryan, CEO of Deutsche Bank talked about the critical role technology will play in the immediate years ahead, as banks strive to reduce costs and execute processes and services in an manner equally efficient to what customers and clients have come to expect. Additionally, he acknowledged the benefit of implementing technology to manage and monitor internal oversight.
“We can use technology to improve our own controls. We can use technology to improve our efficiency and then we can use technology to improve the customer service,” Cryan said.
Deutsche Bank and BNY’s stance on leveraging technology, particularly AI and automation to achieve margin growth is supported by a recent Citibank report. Cited within a Financial Times piece this week, the report states that the banking industry spends $270B, 10 percent of operating costs, on the handling of compliance and regulation, mostly by way of employing people to tackle oversight challenges. Citi also estimates that European and US banks have paid more than $150B in litigation and conduct charges since 2011. No doubt Wells Fargo is feeling the pain of both of those figures, which is why the Citi report sees regulatory technology or “regtech” as a massive opportunity for both banks and platform vendors.
“So much stuff in banks is still paper-based. We are forever being asked to sign things. That is just archaic and with the advent of artificial intelligence and biometric identification it has to change,” said Ronit Ghose, an analyst at Citi and co-author of the report, to Financial Times while in Davos.
And as this conversation and subsequent adoption of automation and AI continues well beyond the borders of Switzerland, as indicated by yet another piece in American Banker, it’s imperative for the industry to view and consider the full arc and impact of such technological platforms. “I think we’re going to see it move from a few narrow functions to across the enterprise,” said Alan McIntyre, managing director for banking at Accenture. “It’s going to become an indispensable technology for banks, rather than an interesting experiment.”
Mark Schwanhausser, director of omnichannel financial services at Javelin Strategy & Research, concurred with an important caveat. “It is a move to automation, but it’s a move to automation that complements the human element,” he said. “You may not want to talk to someone every time you have any financial question; [robotics] can provide you with a lot of daily information you wouldn’t have thought to ask for to begin with. If it just represents an interaction that never would have happened anyway, then it’s not a threat to any employee.”
From manual tasks to regulatory compliance to almost every facet of backroom banking operations, it seems the industry, propelled by a litany of market forces, is poised to take a substantial leap forward with automation and AI, adding fresh value to employees’ workdays, delivering more value to customers and clients’ experiences and returning stronger value to shareholders’ investments.