In the age of the connected customer, financial institutions are looking to leverage artificial intelligence to keep pace with increasingly digital consumer demands. While AI has been around for quite some time, the financial services sector is only now feeling the real impact of increased AI investment.
In the last two years alone, more than $4B
in newly funded ventures focused on financial services AI applications. JP Morgan Chase is but one financial institution that’s serious about making good on its commitment to adopting AI and other emerging technologies. With an annual tech budget of $10.8B and $5B set aside for new investments as well as the recent hire of Manuela Veloso
as the company’s first head of artificial intelligence research, the bank is eager to lead the pack in using AI for services ranging from fraud detection to loan approval to improving internal operational efficiencies.
Answering the call to think big
Financial institution leaders understand the need to pursue AI and think big when it comes to technology. Jamie Dimon, JPMorgan Chase CEO, explained
recently that “Artificial intelligence, big data and machine learning are helping us reduce risk and fraud, upgrade service, improve underwriting and enhance marketing across the firm. And this is just the beginning.”
He also suggested that it would be a mistake to forfeit technology innovation in the financial service industry due to fear of potential job loss. “Technology is the best thing that’s ever happened to mankind,” Dimon has stated
. “We’d be living in tents and hunting buffalo and dying at 13 if not for technology. Mankind will adjust. Don’t stop technology but it’s okay to acknowledge that it has some downsides.”
Hi there! I’m Erica
Bank of America rolls out virtual financial assistant
Bank of America introduced Erica, its AI-powered virtual financial assistant to its 25 million mobile customers this year. Using AI, predictive analytics and natural language, Erica can help customers conduct banking via voice commands, text or with gestures from within the bank’s app. She can also help Bank of America customers with a variety of tasks including:
• Search for past transactions, such as checks written or shopping activity
• Access key information, such as routing numbers or the closest ATM
• Schedule face-to-face meetings at a Bank of America financial center
• View bills and schedule payments
• Lock and unlock debit cards
• Transfer money between accounts or send money to friends with Zelle
With 1 million users in just three months, Erica (which gains its name from the last five letters of “America”) is off and running with the ability to search transactions (especially with top merchants such as Amazon, Target, Walmart, Costco and Uber) and access to financial advice the most popular functions with customers. Bank of America has also integrated its Better Money Habits financial literacy content into Erica, so if you ask the virtual assistant about credit scores, she will provide an answer about Better Money Habits and direct users to a video.
Since its development, the bank has taken actions to learn from early experiences including:
• Integrating more than 200,000 different ways for clients to ask financial questions
• Adding new functionality based upon client patterns and behaviors
• Expanding Erica’s conversational knowledge, including the ability to engage clients with salutations and well wishes, such as “happy birthday”.
• Implementing a real-time feedback capture to inform future enhancements
The bank is already working on more complex features to add to the mix including sending proactive notifications regarding upcoming bills and payments, finding out ways for customers to save more based on their spending behavior and managing and monitoring transaction history and changes. Challenges range from addressing broad policy matters like privacy to technical ones like adapting the product to respond to slang like the word “dough” instead of “cash”. To make sure Erica is more than the latest shiny object, Bank of America will need to keep giving customers more than they ask for. Time will tell whether other financial institutions will take their lead with AI-powered innovations.
Source: Bank of America
Last year, JP Morgan followed Dimon’s advice and implemented a program called COIN (Contract Intelligence) which uses image recognition software to analyze legal documents and extract important data points and clauses in seconds, compared to the 360,000 hours it takes to manually review 12,000 annual commercial credit agreements.
Technology is clearly the new competitive advantage for financial institutions and with 81 current patents or patent applications related to AI, Bank of America is proving that it’s intent on proving that it is a serious technology company. Cathy Bessant
, Bank of America’s Chief Operations and Technology Officer, asserted that AI won’t eliminate the need for human workers “unless we’re cavalier about it and don’t pay attention as stewards of employees…If it does, shame on us.” However, she acknowledged that emerging technologies force organizations to reskill the workforce in different ways in order to adapt to an AI world.
Bank of America, in concert with the Harvard Kennedy School
, has formed The Council on the Responsible Use of Artificial Intelligence
to address how the benefits of AI are balanced with human components. “A lot of the conversation around AI is designed to make us think that artificial or automated intelligence is better than human intelligence when, in fact, it is a subset of who we are as humans,” Bessant explained
Other industry leaders, like Deutsche Bank CEO John Cryan
believes that technology will lead to necessary improvements in efficiencies but will also lead to significant layoffs. For Deutsche Bank, that’s not just mere speculation. In 2015, the bank announced it planned to eliminate 9,000 employees as part of a five-year restructuring plan. Three years into that plan, it has now cut 4,000 jobs with technology improvements likely to result in more reductions.
Cryan suggested one reason the bank is moving away from human labor is that consumer banking has shifted online, eliminating the need for many brick-and-mortar branches. He recently stated
that many Deutsche accountants could be replaced by simple technology. “They spend a lot of the time basically being an abacus,” he said. “We’re too manual, which can make you error-prone and it makes you inefficient.”
Despite dire predictions by some regarding technology-powered job losses, there is clear evidence that AI will not serve to eliminate jobs but change them. A recent McKinsey & Co. report
estimated that robotics and AI would fully replace people in less than 5% of occupations by 2030. The technology would instead enhance or change 60% of jobs.
A wave of change is coming
Despite fears and concerns about what AI may mean for the industry, the evidence is clear that the potential is real and the AI train of change will not be stopped. Instead of ignoring the change that is coming, the focus for today’s financial services industry should, therefore, center on culture transformation rather than potential job losses. During a recent MIT Sloan CIO Symposium
, MIT Sloan researcher George Westerman suggested that organizations should concentrate on adopting a digital culture that includes values like autonomy, speed, creativity and openness.
“For all the talk we’ve got about digital, the real conversation should be about transformation,” said Westerman, principal research scientist at the MIT Initiative on the Digital Economy. “This digital transformation is a leadership challenge.” He added that “the question for pre-digital companies is not if they can adopt a digital culture but how do they create the right digital culture given their pre-digital legacies including how employees want to work and be treated.”
With such a call for AI, why aren’t more financial institutions answering it? Despite the strong potential that AI offers the financial services sector, many organizations still lack the agility to transform their business with modern artificial intelligence. A joint study
by National Business Research Institute and Narrative Science, a Chicago-based AI firm, revealed that traditional financial institutions are still in the early stages of AI adoption, with only 32% of respondents confirming use of recommendation engines, predictive analytics, voice recognition and related technologies.
The survey also revealed that 12% of financial institutions that weren’t already using AI believed the technology to be new, untested and risky. Other firms cited “siloed data sets, regulatory compliance, fear of failure and unclear internal ownership of emerging technologies” as the main factors preventing adoption.
Making a mindset shift
The reality is that a number of today’s financial organizations simply aren’t yet positioned to adopt AI. Financial institutions operate in a complex environment with many regulatory restrictions that make adoption of new technology challenging. The very nature of the financial organization demands reliable stability which often flies in the face of digital innovation. AI requires a “fail fast” approach, but financial organizations still find it hard to accept failure.
Organizational structures of today’s large institutions ultimately thwart digital innovation that demands new approaches to value chains and platforms that cut across traditional functional and hierarchical divisions. With a strong resistance to change, many financial organizations are finding it challenging to successfully adopt AI and related technologies.
Vivek Rodrigues, senior manager, Operations Transformation, explained, “There’s an institutional resistance to working with the unknown. It’s very hard to move the needle in this area because the culture of traditionally risk-averse financial institutions is so entrenched.”
Financial institutions interested in transforming into a true digital enterprise need to make a mindset shift. It’s important for financial organizations to implement a culture of innovation that encourages their workforce to be open to thinking about the impact of AI and related technologies in their day-to-day work lives. This means making a concerted effort to disseminate AI learning and access throughout the organization instead of keeping the technology locked away in innovation labs or R&D departments.
Len Steinmetz, Grant Thornton Director, AI Innovation, related a use case involving a retail broker’s fraud detection function. “The business-as-usual monitoring was not effective for online activity and required some out-of-the-box thinking,” he explained. “The paradigms of fraudulent activity are constantly shifting and our cultural view needs to shift along with it.”
To address the retail broker’s challenge, Steinmetz recommended an AI-driven behavioral detection approach—stopping fraud before it happens---by building machine learning predictability profiles of suspicious user behavior during online account activity. “This was an approach that applies to login behavior (something you know), browsing behavior (something you have) and cognitive behavior (something you are) models,” he explained.
As the digital age forces financial institutions to shift from a product-centric to a customer-centric point of view, from planning cycles to “test-and-learn” and from silos to inclusiveness, a new culture of experimentation must be adopted.
A recent Korn Ferry Hay Group survey
of global senior client partners revealed four critical areas on which financial institutions need to focus in order to be successful in digital transformation:
“The message has to be clearly communicated from the top that digital transformation is integral to the success of the business.”
- Learning agility
The research found clear links between learning agility and the success of leaders to adapt and lead. Finance leaders demonstrate higher levels of learning agility, a skill set which is important to extend to the broad workforce.
- Developing a new approach to a risk culture
In order to generate business success in digitization, financial institutions need to move outside of their comfort zone to adopt a new and disciplined approach to risk-taking in order to take advantage of opportunities and drive digital transformation.
- Cultivating digital leadership
High levels of digital leadership among senior leaders is critical to digital transformation. This is especially necessary for traditionally-minded financial institutions looking to transform into a digital enterprise. The effort to develop digital leadership skills pays off as research has shown that organizations with high digital leadership are able to better engage customers digitally and increase top-line growth.
- Fostering a compelling employer brand
Developing a strong employer brand will help financial institutions attract top digital talent and reduce reliance on agencies or external specialists.
Partner, Organizational Strategy
Digital transformation starts from within
Agility and alignment are at the core of any successful digital transformation culture for financial institutions. Erica O’Malley, partner, Organizational Strategy, suggests that while many organizations have the desire to be agile and transformative, they need to understand that it’s not a matter of simply expecting their workforce to flip a switch.
“An intentional investment must be made in shifting and aligning the organizational strategy,” she said. “The first steps are to make the decision to become a digital organization, set a clear strategy and align the organization to that strategy. Some organizations are dabbling in innovation and approaching digital transformation with a hobby mentality. The message has to be clearly communicated from the top that digital transformation is integral to the success of the business.”
One step that financial institutions with traditional, risk-averse cultures can take to embark on a digital transformation journey is to build a prototype model alongside the organization to build and test the new technology faster, gradually transitioning the legacy culture to a new and innovation culture. “This will allow you to run parallel organizations until your incubator programs are up and running so you can then begin to transfer those solutions to customers or other services,” O’Malley explained.
Cultivating a conception pipeline
With so many potential use cases across many departments, where do you begin? It’s important to develop a structure to operationalize use cases, build the ROI and measure the value leveraged by new technologies such as AI.
Too often, organizations get caught up in the latest technology and are looking for the problem it can solve rather than the other way around. “It’s like the hammer looking for the nail,” Rodrigues said. “Instead, it’s important to first understand what problem you’re looking to solve and then identify the appropriate technology solution.”
He added that understanding the problem is important in prioritizing use cases for technology adoption rather than randomly chasing the “flavor of the month.” “There’s some training required around the art of the possible but also investing the time to understand the problem and articulating the need for change,” Rodrigues said. “It’s about moving fast and accepting you may not know all the information about a use case before it’s green lighted. It’s about adopting a startup mentality and being willing to figure out what you don’t know along the way as you continue to invest in the solution.”
Many financial institutions are opting to pursue technology ideas via innovation hubs or alternative organization models, such as adding subsidiary think tanks outside the core institution in order to produce new solutions more quickly.
Financial services talent strategies to drive transformation
As financial institutions continue down the path to digital transformation, co-creation and collaboration will be the mantra, a step requiring a fundamental shift in approach to talent. “The financial services industry is a highly technological industry and the winners are going to be those that invest in making the right people connections,” Grant Thornton’s O’Malley said.
Increasingly, financial institutions will look to bring in talent outside of the financial services industry to help drive the digital transformation agenda. They will also need to closely evaluate their current employees to determine whether they are able and ready to make the journey.
“Too often, large institutions, in particular, underestimate the change and the skills needed to make the culture shift,” she said.
Organizations may find they have long-term, respected employees who don’t want to make the shift to the new culture. That leaves organizations to make difficult decisions and ensure that individuals don’t hinder their digital transformation strategies. It also means they need to be prepared to retrain and retool skill sets of employees, including senior leaders who will need to learn new skills and develop behaviors that may not be consistent with those of traditional finance leaders.
Financial services organizations looking to move the needle on digital transformation need to make it a priority and afford employees the time to work on innovation efforts. As Rodrigues noted, “Innovation is not a one-person job. Even if you have a chief innovation officer, one person can’t effect change single-handedly throughout the organization. Employees throughout the enterprise need to be involved in the innovation process which can’t be achieved in a vacuum.”
Measuring and rewarding progress
Adopting a new culture to support digital transformation also requires considering performance measurement, compensation and incentives. O’Malley recommended that in order to instill an innovation mindset in employees throughout the organization, financial institutions will want to revisit the traditional compensation model and consider the benefits of a compensation system that is more innovative. “One possibility to consider is a team-based model which means either we all win or we all lose,” she said. “This type of system can foster a ‘we’re all in this together’ approach.”
Adopting a new talent model will also require performance management tools that rank how well individuals perform as a team member and defining criteria that map to team performance metrics. “There still will be individuals who contribute at different levels so there will still be variation in compensation but overall results will be tied to team performance,” O’Malley explained.
Rodrigues also suggested that financial institutions should think of measurement and results in terms of consistent, iterative changes rather than aiming for something really big. “Very small changes can add up to a big change in the end,” he said.
Defining the future with a 5-step approach
Grant Thornton defines distinct culture types that can enhance or detract from an organization’s strategic execution. If aligned throughout the organization effectively, they can significantly improve results. Those organizations that aim, specifically, to achieve an innovative culture focus on defining the future through the following:
- High investment in R&D
- Transformational leadership
- Ability to go big and fail fast
- Enthusiasm for extreme creativity
- Commitment to challenge the status quo
- Willingness to pay more for top talent
“An innovative culture strives to create products and services that transform,” Grant Thornton’s O’Malley explained. “A company with an innovative culture can change the world and accepts failure as part of doing business.”
In order to help organizations define a culture journey that will net desired results, Grant Thornton’s Organizational Strategy practice methodology focuses on a five-step approach:
- Assess the organization’s culture to understand its current state
- Index individual components to determine whether they enhance or detract from the desired culture
- Define the future state to maximize strategic alignment and employee engagement
- Transform the culture by developing a roadmap to prioritize and execute the change
- Sustain the culture to ensure the desired culture remains effective in a changing business environment
For organizations seeking to build and sustain a culture of innovation, O’Malley explained that it is critical to carefully assess five key culture components: leadership, environment, human capital, technology and financial. Included in the assessment is a prioritization of both benefits and risks associated with each component to determine where change is needed in order to drive an innovation culture.
Implementing 5 culture quick wins
How can you ensure that your financial organization is structurally set up for success? If you’re ready to make progress on your AI journey, consider these 5 culture quick wins:
- Establish internal groups to champion innovation
Innovation groups or “Data Centers of Excellence” can help drive innovation and data literacy throughout the company, define internal best practices, conduct firm-wide training and sponsor internal accelerators to identify and promote innovative ideas.
- Invest in scaled, strategic bets
Double down on early successes while applying stringent discipline about shutting down unsuccessful projects.
- Conduct a baseline change management assessment
Perform a baseline assessment of how the organization responds to change in order to effectively measure progress on the innovation trajectory.
- Make innovation a priority
Walk the talk and provide employees the time to experiment and focus on innovation. This may require adjusting their workload.
- Reward innovative behavior
Demonstrate that innovation is a priority by incentivizing the workforce with an evaluation and recognition system that rewards innovative thinking and behavior. Define criteria for compensation, advancement and recognition that takes into account an individual’s commitment to digital transformation and innovation. Job descriptions and job specifications should also reflect the organization’s commitment to digital innovation.
AI is here to stay. The time is now for financial service organizations to align their strategy and culture to adopt the kind of agility necessary to successfully drive innovation and digital transformation.
Ready to answer the call to think big? Learn how we deliver big wins to clients building an innovation-first culture for digital transformation. Reach out to our professionals below.
Partner, Organizational Strategy Practice Leader
+1 312 602 8786
Senior Manager, Operations Transformation
+1 212 542 9980