AI notquite 01

The UK’s financial services sector appears to be as monolithic as the buildings that house the global banks, insurers and investors in London’s City and Canary Wharf. The industry is by any measure an imposing edifice: in 2017, it employed well over one million people and contributed £119bn to the UK economy – or if you prefer, 6.5% of the country’s total economic output, according to data from Parliamentary Research Briefing.

But behind all that smoky glass and steel, companies are preparing for significant amounts of change. Whatever effect Brexit has on financial services brands operating in the UK, observers say the future of the sector is one that will combine the sharpest human minds with the best that Artificial Intelligence (AI) has to offer.

AI has arrived in financial services, even if you might not quite have noticed yet – or rather, already take for granted technology such as chatbots that pop up to offer help and advice on digital banking websites.

But many stakeholders believe we shouldn’t get carried away with the current pace at which AI applications are arriving or the benefits for customers and employees. Firas Khnaisser, Head of Decisioning at Standard Life and also Chair of the Direct Marketing Association Scotland, believes, “When you look at actual – compared to perceived – applications, the current use of AI in financial services is low.”

He adds, “A lot of solutions are touted as AI, either because there is a lack of understanding about what AI actually is, or because using the latest buzzword seems to attract sufficient investment, or both. However, the opportunities are immense and the people getting their heads around how AI can help customers, and in turn businesses, will build real competitive advantage for the future.”

Building the black box

Stephen Browning is Challenge Director – Next Generation Services at Innovate UK, part of government-backed agency UK Research and Innovation, which coordinates and invests in research and development across a range of sectors. He also thinks there’s a need for a more realistic take on the financial sector’s progress towards an AI-driven future: “In most cases, when people talk about AI, it’s really machine learning. We are still in a developmental phase and the capabilities of this technology are quite narrow at present.”

Narrow they might be, but such services are starting to spring up. Browning points to telematics. In layman’s terms, this is a type of “black-box technology” that, in this instance, is a boon to insurers as it can monitor motorists’ driving habits and vehicle performance. Data is collected and can be fed back to both insurers and service centers. As a result, it’s likely that future insurance premiums will be set individually, based on risk factors described by the driving data, rather than the deductions of an actuary.

While potential benefits of AI for consumers are starting to filter through, it’s less clear how positive the effects on employees in financial services will be. Estimates of job losses – or indeed new jobs created – differ wildly across various government reports and sector consultations.

Browning takes a positive view. “The reality is that technologies classed as AI today have zero intelligence,” he says. “We don’t even have a pathway to getting a genuinely intelligent machine. I don’t think these technologies will wholesale put people out of work. They will substantially deal with specific tasks people do rather than replacing whole jobs.”

Automation for your people

Bob Stark, Commercial Director at pensions specialist Portafina, also forecasts certain employees’ roles within the sector may change, but for the better. Automation could take away some of the menial parts of their jobs, allowing them to focus their efforts on adding value to their organizations. He states, “You can use automation to remove a lot of donkey work from processes, freeing up employee time to do more interesting things. That does rely on management having the foresight to plan ahead and train staff to be able to make the best use of their time.”

Planning will be critical, agrees Khnaisser, as the financial services workforce gets to grips with the burgeoning role of technology, and as humans and machines start to learn to work side by side rather than one being used as a tool by the other. “The real challenge is, how do we support employees in the right way to be able to upskill them into new roles that are being created, using the experience they have obtained from years of working within the industry?” And don’t expect this to be a quick process. “It’s an exciting start but it will take some time before organizations come to grips with AI’s capability and its potential applications,” Khnaisser adds.

Judging by the amount of investment going into the technology, it will be an inexorable process. According to business analyst Tractica, investment in AI within financial services will exceed US$4.5 bn by 2025. But understanding how to use that capital to design products and services that are of real value to customers, while also shaping the roles of employees who are tasked to deliver them, will be a huge challenge.

On the one hand, Khnaisser believes, “It’s pivotal that organizations consider the [customer] problem they are trying to solve and how AI actually helps solve it.”

On the other hand, an “inside-out” approach to developing services could prove a better focus, says Browning. “It’s hard to predict the effect of technology, but if we look back at how it has affected markets across industries, there’s a lot of evidence to say that in price-driven sectors – such as insurance – by offering new products you bring prices down and customer demand goes up. That price elasticity can be driven by the company.”

The extent to which systems should be automated is another quandary facing management teams. The answer will likely, as ever, be determined by resource, especially the budgets companies are willing to commit in the early stages of this change. Will the big banks throw money at AI in a bid to outmaneuver the fintechs that are snapping at their heels? And what’s the role of Small Medium Enterprises (SMEs) in driving the tech revolution?

As part of a smaller organization, Stark comments, “You have to be realistic in that you aren’t Google, so the smart thing to do is leverage the technology that is now available from larger players who are experts in this field. The elements you can bring to the party are your knowledge of your own sector, clients and internal processes.”

He adds, “We [at Portafina] use technology heavily to bring efficiencies needed to provide a full advice service to clients who have smaller amounts to invest than most independent financial advisers would consider. We have a ten-strong systems team and we keep them busy.”

Ensuring employees stay busy is the key factor running through the pros and cons of an automated future in financial services. Browning concludes: “We haven’t really begun to consider the subtleties of human interpretation of technology. Instead of AI, perhaps we should talk about intelligent augmentation, which I think better describes how people and algorithms could combine to deliver improved results.”

Photo Credit: Richard Jaimes via Unsplash