BANKING TRANSFORMED: CX IMPROVEMENTS FOR ACHIEVING GROWTH

PROTAGONIST

TRANSCRIPTION

Benefits of Automation & AI in Banking

In this episode, we will talk about how customer experience is completely transforming the banking, financial services and insurance sectors.  A full-scale revolution that helps companies achieve better customer loyalty, attract new customers and maintain a high standard of customer service in all their interactions. Automation has significantly transformed companies in banking and financial services. According to Mckinsey, automation can handle up to 25% of tasks in banks, freeing up employees to concentrate on more critical activities. Moreover, financial institutions that adopt centralized AI models often transition from testing to full implementation more swiftly. In fact, around 70% achieve this milestone. compared to only 30% with decentralized models. 
This strategic use of automation not only cuts costs by more than a third, but also enhance competitiveness and operational efficiency. But how does it affect customer experience? And how this topic will become one of the main challenges for banks during the next years?

MIGUEL: Hi, Michael, thanks for being here. I want to go straight to the first question. How has automation and AI improved customer experience in this sector? And what are the main benefits and challenges of it? Are there any specific trends or innovation in automation that companies are adopting to stay competitive? 

MICHAEL NEUBERG: A great question, Miguel. So, AI will clearly have a huge positive impact and is already having an impact, but I think it will accelerate over the next months and years for sure. So, when talking about main trends or innovations that we're currently seeing, I think let's highlight five of them. 

Number one would be in my eyes, chatbots and virtual assistants. We will see things like, for example, DKB Germany, who's currently implementing a new version of that. 

Number two, would be fraud detection. I think fraud is a key topic, especially after the crisis that we have seen and the innovations, and as well the move of technology. So, HSBC, Bank of America, they are having clear cases at the moment already with that regards. 

Number three would be credit risk evaluation and automated underwriting. For example, from a banking perspective, that would be Santander as an example. 

Number four, in my eyes, is personalized financial advice. I think this is a clear topic coming stronger and stronger that we can see. And then, more from a company perspective for sure, the effects with regard to automation and back office processing. So, it’s about how can AI be used and is it used to automate back office processing, to increase efficiencies and other things.

I think that leads us to the benefits that you asked for. One thing is from a customer perspective for sure, the enhanced customer service 24/7 around the globe. I think that's what customers expect even more: faster processing times, faster response times. That's the thing which everyone of us as well expects from all services or products that we acquire. 

More personalized customer experience, so more tailored services; we will see that as well. On the other hand, what I mentioned already, operational efficiency and cost reduction from a company perspective. I think that's crucial as well to get much more efficient from different angles, either being at the current war of talents that we have, or the pressure on prices and costs from the BFSI companies.

You also asked about challenges, for sure that comes along with that. So data privacy concerns are definitely one of them, but as well, the integration with the legacy systems in the BFSI industries, especially with the clear incumbents, we have huge and old legacy systems that need to interact and cope with the new processes and technologies.

We have initial costs. We have clear regulatory governance. I think as well as AI, we will see more governance coming; the first regulations are out, but more are to come. And for sure as well, a jobs topic. Because what we see, this is a transformation which we are in. It's not about only about technology, it's about organization process and cultural change. So we will see a change in service processes, which as well requires different skills. This is definitely a topic that is a challenge as well for several organizations. 

"It's not only about technology, it's about organization process and cultural change". – Michael Neuberg

So it's always true in a nutshell, I think it's about the right mix, about people, process and technology that we need in order to be efficient and successful in that journey. 

Boosting Customer Loyalty

MIGUEL:  And how can companies in these sectors use their communications channels to boost customer loyalty and satisfaction? 

MICHAEL NEUBERG:  I think to increase loyalty and satisfaction is the personalization of communication, I think is crucial. I think it's something where companies can as well differentiate from the market and create really great experiences from the customer perspective. As well, gamification: I think lots of companies are working on that, especially via the app to embed and to attract the customer, the end customer within the application or the service and then out of that, do a kind of upselling and cross-selling. 

At the end, it's also about the right mix of omni-channel support. So we are having apps, chatbots, emails, call, video, perhaps even still a physical mail, which might be required very quiet regulatory wise, or even to make a difference. So I think these are things that that companies need to have a look at when talking about how to attract customers in the future. 

MIGUEL: You've just mentioned some strategies to boost customer loyalty. I want to ask you also, what are the most promising applications of AI in personal finance and wealth management? 

MICHAEL NEUBERG: I think we see a huge variety at the moment of services and topics and they're being evaluated very quickly. I would say that we will see more about it in the future, in general. 

I think we can distinguish between two main areas: on the one hand, these application services increase efficiency, for example, mitigating shortfalls on resources and talents, and increasing efficiency within the company. So, from that perspective, I think we are seeing things with regards to automation of back-office processing. For example, SPS is using technology and banking insurance customers to classify documents, extract and interpret the relevant data, especially in areas of payment processing, loans, or mortgages. 

But we see other banks using that, like Deutsche Bank doing the same in trade finance. This is definitely one part, driving the efficiency and increasing efficiency back from those operations. So, we will see a lot of new developments in that domain, I'm pretty sure. 

The second part is more coming from an end user perspective. There is a big variety of topics happening at the moment: very interesting ones for my eyes are robo-advisors. They have been, once already, a few years ago starting, but they are developing clearly with the new models of ChatGPT and so on. 

Also, predictive analytics for investments, advice, and portfolio management due to the ability to analyze now the huge data. This is definitely an interesting topic; comes along with the automated financial planning and personalized budgeting topics that you could use then from a personal user perspective for your day-to-day financials. 

Virtual assistance is another one. We are seeing lots of approved chatbots, partially as well via voice. As an example, Bank of America has implemented Glass, which is an AI-empowered research and analysis platform that shows the clear innovation in that domain. It combines market data and bank models, utilizing machine learning techniques to identify the industry trends and then predict out of that the client demands.

On the one hand helps to provide individual investment choices, but also analyzes and do recommendations out of that. 

Another example going in the same direction is Kairos. Santander implemented it for their CRB clients, so there you see it is really a topic. 

On the virtual assistants, I think I mentioned it right in the introduction at the beginning, DKB in Germany is now launching a new chatbot with AI. So, I'm pretty sure we will see a lot of these kind of new developments in this direction or these directions over the next month, with definitely lots of very interesting and promising things, as you mentioned. 

"Everyone wants to beat MSCI Global; let’s say that's always the goal and I think with AI, we have much more power to succeed" – Michael Neuberg

Regarding benefits, I think it clears the accessibility to financial advice, cost reduction, the personalized financial insights, improved decision-makings, and ideally then enhanced portfolio performance, if you look at the portfolio management. 

Everyone wants to beat MSCI Global; let’s say that's always the goal and I think with the AI, we have much more power to succeed. 

Hyper-personalization in finance products through AI

MIGUEL: Okay, and knowing all this, how can AI-driven insights help BFSI companies to tailor financial products to individual customer needs? 

MICHAEL NEUBERG: I think this is a really important topic at the moment and highly discussed. I think this is the so-called hyper personalization, which is out on the market at the moment. So some examples that are going in the same direction, I mentioned early on are already with regards to portfolio management. But besides that, BFSI companies are experimenting at the moment with tailored loan offerings or personalized insurance policies.

It’s something that is going and moving in that direction at the moment. I mean, there's a huge set and variety of data that can be used. But it's very important for BFSI companies as well, that this data is aligned holistically and as well a joint data source and data pool is used. 

As I mentioned earlier on, partially we struggle with multiple legacy systems, partially even having their own data pools and we have big organizations partially still working in silos, looking at corporate, at private customers, looking for market domain or even segmented by services. This is definitely a challenge that needs to be overcome, organizational wise, but as well IT wise. 

So just to make it very clear or crisp as an example, imagine you get a personalized loan offering while you are already at the end, not capable anymore of paying and you're in the collections department already of a bank. 

Probably, is not the best from a customer and a banking perspective to offer you a new loan, so we need to combine the data sets to avoid such things happening. 

MIGUEL: There's also another topic that is usually included in these discussions, which is the potential risk. What are the potential risks associated with AI-driven financial services, and how can they be mitigated?

MICHAEL NEUBERG: I think for financial services, the main risks are still accounted in what we see in general for the AI topic, and that's broadly discussed in the market. It's about algorithmic bias, hallucination of the software and data privacy, which is definitely a topic, a little bit depending on the country. In some countries, it’s more discussed than others; where they are more open to that. 

Also, others would be the lack of transparency and cyber security threats. 

We could take examples as well, that have been discussed openly in the community, like Air Canada who was held liable for having a chatbot giving bad advice, or Chevrolet who introduced a chatbot who was then attacked and tricked by different users, on the one hand, selling a car for a dollar and on the other hand, recommending Teslas, which is for sure not the intention of Chevrolet at that point of time.

Then, If you think about financial services, this is even more sensitive data. You can imagine how a failure or misuse in that would lead to high damage—on the one hand, reputational wise, on the other hand, finance wise. 

So as a mitigation, I think it's crucial to be cautious, to have sufficient and supervised training and testing. Not moving too quickly, being sure before opening such new services to the broad audience, having clear audits on the AI systems, having actions and measures with regards to data privacy and compliance, as well as using the data and ensuring that you have the acknowledgement from the customer to use the data with transparent models with regards to AI, and have always human oversight and of course all the robust cybersecurity and IT measures, plus clear guidelines and regulations and policies internally about how to use and how to move to next stages. I think these are crucial measures in order to mitigate shortfalls in the direction we mentioned earlier on. 

New market players: Big Tech Companies & Fintechs

MIGUEL: The future of banking presents some levels of uncertainty, as new players such as big tech companies are entering the field. How can banks face these challenges? 

MICHAEL NEUBERG: Good question! I think a few years ago, when the fintechs rose on the market, everyone was having a fear that they will displace the banks or the insurance companies, but this has not happened. Some fintech’s even have disappeared, but what definitely they have done and what is shown is that innovation and speed has accelerated clearly, is bringing new services, new way of thinking, new technologies, different operating models and products in the market. 

I think what is definitely important with regards to these challenges is what you mentioned about the new players coming in the market. In order to emphasize digital transformation and the adoption of these technologies, you need as we mentioned, a transformation, a different culture within the organization, to foster innovation. You need to be agile, quick, with partnerships with fintech’s to stay competitive. 

I think it is important to focus on the customer experience. What you mentioned earlier on in one of your questions, to provide personal advice, because that's where you will get and attract the customers, and especially banks, as well as insurance companies which have a great foundation of trust. 

"The evolution is so quick, and topics are evolving so fast... doing everything on your own will not work out. You need partnerships"  – Michael Neuberg

 

I think that's a difference with some newcomers coming to the market as customers are still seeking this trust as well, because financial services is a very sensitive business and it's all about trust. 

"It’s all about trust... financial services is a very sensitive business". – Michael Neuberg

 

It’s important to use it wisely, choose the right strategy and as well strategic partners. Doing everything on your own will not work out, as you need to do and have partnerships, being it with fintech’s, new players, or even service providers who've specialized on some of the topics. 

So, at the end, it's a rightful combination of a human service process and automation, which is powerful and a key success, in my opinion. 

MIGUEL: I guess it's good to know how these situations were solved in the past. How did the last financial crisis change BFSI companies? 

MICHAEL NEUBERG: I think the biggest change is definitely with regards to regulation. We've seen over the last years increasing regulation, and all companies partially suffer from that, because it has a huge impact and efforts to implement these kinds of things. 

And this partially still moves on. I mean, now it's about AI regulation, and things are changing but from a risk management perspective, all the frameworks, more considerate lending investment strategies, focus on liquidity and then capital remain key; these are things that we've seen after the crisis. I think they are for sure important to avoid future ones. Stress testing is also another topic to be mentioned. So, regulation and risk management has clearly increased across all domains. 

MIGUEL: You know, facing these kinds of situations also requires a high performance culture. How do leaders play a crucial role in this transformative path? 

MICHAEL NEUBERG: As you rightfully say, it is crucial, and they play an extremely important role as we partially covered some of the things early on. So, I think it's a transformation which we’re in, so we need the organization to change. Change is done by the leaders. It must come from the top.
Leaders must foster the culture of continuous improvement, innovation and development, as well as failure culture, I think is important. So if you try out new things, you're going to fail. That's pretty normal. But out of failure, you can learn and you can improve. And this is as well a mind change in some of the organizations.

I think we have seen lots of developments and improvements in companies over the last years with that regards already. But that's definitely an important one. 
It’s important to encourage collaboration, open communication within the teams. As I said, we need to break up the silos we mentioned early on, especially when it comes to data pools or when it comes to processes.

You need to lead by example and embrace the change and innovation across the whole service. You need to think end-to-end, as I said, break up the silos and come from a customer perspective, looking at the end-to-end service. And this culture can only be embedded in the organization by the leaders, embracing and motivating and recognizing and awarding these kinds of things. 

So, it’s also important the recognition and the rewards for high performers, which provides motivation and retaining talent. So we do not need the specialist, we need as well the leaders to drive this transformation and change. 

Future Trends

MIGUEL: And what is needed to bring more innovation to BFSI companies? 

MICHAEL: So, on the one hand you can for sure- the companies are doing that - invest in research and development and these new technologies, having innovation labs, team labs and experimenting. As what I have said about failure, just have pilots tested, including the mindset as well, with regards to risk taking and experimenting and failure. 

But as well, what I mentioned early on, it’s partnering. The evolution is so quick, and topics are evolving so fast and specialized partially that when you try to do everything on your own, you're going to fail, or this will be at least a very hard challenge and might take quite a lot of time, which you do not have because there will be other bonds in the market being much, much quicker. 

So, you need as well to partner with startups, fintechs or experienced providers as you mentioned on to split the topics and the areas of focus, and to achieve the excellence on the whole value chain. And of course, last but not least -and even the most important topics for sure-, involved customer look at the end-to-end process, obviously from their perspective and involve them and as well their feedback and things to focus over to improve further. I think this is definitely a key, bringing more to success for further innovation and for the companies. 

MIGUEL: It is time for the last question. This is going to be hard, but in your opinion, what do you imagine financial companies will look like a few years from now? And how banks are going to change their products? 

MICHAEL: Interesting question. I don’t have a magic ball, so I don’t know, but from the trends we are seeing clearly that banking and as well as insurance services will be much more interactively embedded in day-to-day life. So, being by the digital channels like apps, virtual assistance…etc.
I bet that in a few years further, the services you get as a customer from your bank or from your insurance company will be much more embedded, so the interaction and adoption will take a significantly bigger part.

That means we will see more adoption of open banking, and integrated and seamless services around apps. Banks and insurance companies are still trying to implement the one app where you have your whole life. 

The Chinese colleagues are, I think, having one platform where you can do nearly everything, from spending money, doing transfers or buying products; all in one app. 

I'm not sure if that is going to reach here in Europe, but definitely we will see a move into that direction. We will have more digital communication interactions in that domain. 

Also, I personally believe that human action will always play a crucial and important role. As I mentioned, it's about trust, especially in that business and especially when it comes to complex services, advice, or other topics.

It could be as video. I think that in branches, we will see a reduction. The trend is going on. We will see less branches in a few years, I'm pretty sure. But what we see on the other hand as well, is that when you interact with chatbots today 50% of the chats has been started with the bot, and it will be as of today, rooted then to a personal agent at the end. 

So, people are still seeking that. The number might be reduced, but it will never be gone.

I think looking at the bank in a few years’ time, there’ll be more digital communication, but in different channels, but as well as the personal interaction.

There will be greater use of user technologies. I'm sure we will see that in combination as well as with new products like the tokenization on blockchain, where you can trade in other assets like cars, art, or whatever. We will see more of that to come as well. 

And as finally outlined throughout the whole podcast, I think we will see much more personalized financial products based on tailored personal needs, based on the artificial intelligence and the powerful data we have.