Introduction
Financial services are considered the backbone of any economy and have frequently served as a driver for developing other sectors of the economy. The financial services industry has experienced fast technological growth due to new technologies like Artificial Intelligence (AI) and machine learning, the IoT, 5G network, and blockchain. In the Technology and Innovation Report by UNCTA1, Nigeria ranked 10th in Sub-Saharan Africa and 124th among 158 countries in a global digital readiness index. As a result, many financial service executives are taking a deeper look into their IT departments towards improving efficiency and facilitating game-changing innovation while aiming to lower costs in the long run.
Applications of AI in Commercial Banks in Nigeria
The disruptive AI technology has come to stay, and organisations and multiple industry sectors are harnessing this technology. AI has strengthened the competitive edge of modern banks in this digital era creating more efficient, trustworthy, helpful, and responsive institutions. Leveraging access to massive data on customers, Commercial banks use AI to analyse and predict customer’s lifestyles and behavioural patterns.
Worthy of note is the use of AI-powered chatbots to enhance customer interaction with conversational interfaces. These bots communicate with the customers on behalf of the bank, astronomically reducing the operating cost of the traditional customer care centre. In a cutthroat market to attract low customer deposits, the ease of engagement of some commercial banks using AI-powered chatbots has proven to be a key differentiator. Chatbots are used to send users notifications, inform them about their balances, make recommendations for saving money, provide updates to credit reports, activate their cards, and withdraw cash.
AI-driven underwriting and credit scoring systems are being used to enhance the speed and minimise the risk involved in extending loans and credit facilities to customers by commercial banks.
Commercial banks’ asset and wealth management arms are exploring AI solutions to improve their investment decisions using the treasure trove of historical data gathered over time. Approximately 13.5% of the AI vendors in banking are for wealth and asset management solutions.
AI solutions have found varied and increased use for forecasting across several functions in commercial banks because of the capacity to process and analyse large volumes of data. Such benefits include forecasting customer churn rates and forecasting stock market fluctuations.
Perhaps most notable is the use of AI in cybersecurity. The power of the AI solution to speedily analyse terabytes of data aggregated by Security Operation Centers to produce actionable intelligence for threats and attacks detection or prevention cannot be overemphasised in an industry fraught with risks.
Other use cases of AI in commercial banks include:
– JPMorgan introduced COiN (Contract Intelligence), a Machine Learning enabled chatbot to retrieve required data from an extensive database of legal documents.
– Bank of America is leveraging AI-driven technologies to expand fraud detection and trading functions.
– Citibank, in conjunction with Feedzai, is extensively leveraging AI-driven solutions for fraud detection.
A survey carried out by OpenText in 2021 (United States) revealed that 80% of the surveyed banks are already using AI. Increasingly financial institutions are leveraging AI to improve the customer experience, decrease operational and business expenses, boost compliance efforts, and help them enter new markets and gain revenue quickly.
Undoubtedly these use cases have translated to significant market advantage for commercial banks that have braved the gauntlet, embracing the use of AI techniques despite the scepticism associated with this emerging technology. While concerns with control, assurance, and security of AI solutions still exist, AI does not function based on a set of predetermined rules – the benefits of adopting the technology have proven to be a much stronger lure, particularly for financial institutions. This movement puts laggards in a disadvantaged position in a cutthroat market, with their legacy systems and solutions unable to respond to the increased need to produce business intelligence from the large volume of data they have aggregated.
The survey carried out by OpenText revealed that fraud and risk reduction are the most likely business outcomes from AI deployment and increased customer retention.
These innovations have played a vital role in enhancing the service delivery of banks in Nigeria. However, the question remains in understanding the risks that the application of AI poses in commercial banks.
Threats posed by AI in commercial banks in Nigeria
With a large percentage of commercial bank staff carrying out routine and repetitive tasks, the introduction of AI would replace these employees with technology solutions. In this line, the way employees perform their job would be affected, possibly leading to job loss due to inefficiency or redundancy. Although AI is seen to help transition workers from routine tasks to more complex tasks, they can use their human experience to deliver better results. In addition, the study shows, the inequality between highly skilled and low-skilled workers will drastically increase due to artificial intelligence.
Training and educating employees in upskilling will have a crucial role to play in preventing long-term unemployment. A global talent survey by Mercer2 in 2020 showed that 34% of employees expect their jobs to be replaced in three years, and 61% believe their employers are preparing them for the future of work.
The underuse of AI is considered a significant threat in commercial banks, resulting from management’s mistrust of artificial intelligence to carry out some routine tasks. However, this could also be due to the lack of data on highly dependent AI solutions.
Due to the absence of human interaction, the fear of losing customer trust with the increased use of AI solutions is also considered a risk for commercial banks. People are known to prefer one on one interactions with their service providers. For instance, some customers do not trust chatbots to resolve their service issues and remain sceptical that chatbots can deliver a similar level of support as a human being would. A report from Forrester3 showed that 54% of US online consumers think interactions with service chatbots will negatively affect their service experience.
Conclusion
Topline growth is harder to achieve in commercial banks due to the increase in technology-enabled competition. Undoubtedly, adopting AI-driven solutions has constituted a game-changer for the banks that have embraced this emerging technology. In Nigeria’s highly competitive industry and business environment, the consequences of lagging in adopting this emerging technology will be dire both in the immediate and long term. Considering that the barrier to adoption is a deliberate desire for change, lagging organisations must take that first step and begin the adoption journey. Customer satisfaction and improved operational efficiency by commercial banks increasingly look like a pipe dream without adopting AI-driven technologies.
Let pcl. support you in taking the first step and illuminating the rest of your transformation journey ahead of you.
Contact technology@phillipsconsulting.net
Written by:
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| Oluwatomisin Nwanchi
Digital Strategist |
Oludiji Lana
Enterprise Solution Architect |
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References
- Abad-Segura, Emilio & González-Zamar, Mariana-Daniela & Meneses, Eloy & Vázquez-Cano, Esteban. (2020). Financial Technology: Review of Trends, Approaches and Management. Mathematics. 8. 951. 10.3390/math8060951.
- Denis Ostapchenya. (2021). Five applications of AI in Banking. Finextra. https://www.finextra.com/blogposting/20158/five-application-scenarios-of-ai-in-banking.
- Bani Yuceer. (April 16, 2021). Global Security Operations Center Insights, series. https://securityintelligence.com/posts/ai-in-cybersecurity-addresses-challenges-soc-analysts/.