Each week we find a new topic for our readers to learn about in our AI Education column.
The relationship between financial providers and consumers, customers and clients is not a strong bulwark against encroaching technology—it’s a rowboat in a hurricane. The winds of change are howling at it as more people receive more services via their computers and their devices.
Think about it. How often do you actually talk to a real-live bank teller? An insurance agent? In today’s financial services industry, chances are good that, if you call or actually walk into a bank branch or the branch of a major national brokerage, you won’t know the people working there. They may provide you outstanding service and you may leave or hang up feeling happy and satisfied, but you probably won’t remember their names in an hour, never mind a quarter or a year. And it works in the opposite direction, too. They won’t really know you.
It’s pretty bad for a business not only to not have any form of relationship with its clientele, but also to not really know the first thing about them.
That long introduction brings us to the topic of today’s AI Education, cognitive banking, which is an attempt to use today’s technology, including artificial intelligence, to at least know a financial institution’s clients better, if not have a better relationship with them.
What Is Cognitive Banking
Let’s be clear—we believe someone thought this up as a neat sounding marketing term, and it’s just been adopted into more everyday use. Banks already have technology that offer users records of transactions and balances over time—that information creates a treasure trove of information for machine learning and artificial intelligence.
The technology behind cognitive banking should be familiar to AI Education readers: AI and machine learning analyze large amounts of data, natural language processing interfaces with users and clients, information is stored and processed on the cloud, and the technology moves at a pace that appears to users and clients to be near instantaneous.
Cognitive banking applies that technology to that data to infer meaningful patterns and risks and to recognize and predict key moments, and then to use that information to offer recommendations and advice. In other words, it’s another recommendation engine, similar to the ones that allow Amazon to figure out what stuff you might want or need next, or Netflix to promote content you’re likely to watch, except cognitive banking is linked up to financial data. Fancy, but not really novel.
But it is pretty new for financial services. To date, banks and other providers have used data transactionally, just to help get money or value from one place or entity to another—when it isn’t being used, data just sits there. Cognitive banking moves financial services towards a more continual use of data, which it hasn’t really had. The beauty of cognitive banking is in the integration potential. It’s being pushed as an entry point to technology-driven financial advice and wealth management and other potential value adds for banking clients—and revenue streams for banks.
Cognitive banking is also proactive technology—most bank technology is reactive, it doesn’t really do anything until someone, an employee or client, makes a request, and then it responds. Most importantly, cognitive banking is deployed within automated systems, communicating directly with clients in natural language using generative AI chatbots.
How Is Cognitive Banking Being Used
A bank could deploy the technology as part of a client dashboard—when a client logs in, before seeing a transaction register or account balances, an agent greets them with a recommendation or an insight. Say they are spending in a way that might lead them to overdraw their account, the technology could warn them that they are at risk of an overdraft and approximate when that might happen.
If a client keeps growing their balance, month after consecutive month, the technology could recommend investment services and link them to an automated offering. If a client has a sudden windfall, similar recommendations and referrals could be made.
Much of cognitive banking exists at the nexus of behavioral finance and technology, sharing similarities with the technology-driven financial wellness platforms being implemented by banks and workplace retirement plans. They can offer behavioral nudges and coaching.
But Wait, There’s More
Yes, a Ron Popeil reference in a piece about cognitive banking. Cognitive banking is about more than the recommendations and the potential value adds. It also can help transform financial services as a business, starting with giving everyone interacting with the bank—those who work with the enterprise and those who frequent it as clients—better and more timely information.
The people who still interact with clients who walk or call in will not only have better information at hand to use in those interactions, cognitive banking makes it more likely that they automatically have the right products and services at hand for those clients—if cognitive banking is implemented as an ambient system, they could have that information without actually having to directly query anything. Cognitive banking systems are also already helping institutions more deeply understand who is or isn’t creditworthy or insurable.
The data and the computing ability built for cognitive banking can be turned towards banking itself as a business intelligence engine. If banks can anticipate their clients risks and needs and events, they can better anticipate their own risks and needs and events. In particular, cognitive banking systems can be used to analyze client behavior and detect—even predict—fraud.
Or Maybe Dystopia
Theoretically, a cognitive banking system could automatically scour web and social media platforms for information about clients and their households—births, deaths, layoffs, promotions, graduations, weddings—and harness that information to offer clients insights and recommendations. While that’s not necessarily a bad thing, the level of surveillance such systems are capable of, and the prospect of tying that surveillance into credit ratings and the greater financial system is a little concerning. In an even more dystopian vision, cognitive banking could be tied into a larger social credit system, where some or all financial services could be denied to individuals or families deemed socially or politically problematic.
Thankfully, in the short term, it seems like it will mean a somewhat better banking experience.
