The automatic processing of data with the help of artificial intelligence is deemed to be the key to digital transformation in almost every industry. In the banking and financial world, there are already numerous application scenarios that would hardly be conceivable without Big Data and artificial intelligence.
Numerous FinTechs are developing intelligent banking apps that organise financial matters for customers in a largely independent manner, and they are increasing in popularity. Specialised service providers like us offer analysis and categorisation of bank data based on self-learning algorithms. In short, Big Data becomes Smart Data.
Behind this is the machine learning approach, where complex mathematical algorithms refine unstructured data into valuable knowledge. In this blog post, we look at how Big Data Analytics and artificial intelligence are changing the financial world. We will also consider how banks, FinTechs and especially customers can benefit in the long run.
Is Artificial Intelligence the Key to Digitalisation?
The discussion about the use of new technologies in the financial world essentially revolves around one question: How can the traditional business model of banks be made viable for the future? According to industry critics, many banks have rested too much on their conventional business model in recent years and have lost sight of how the lifestyle and needs of customers are evolving. The keyword in all of this: digitalisation!
Digitalisation is also regarded as the answer to the question of how financial institutions can better position themselves for the future. People often overlook the fact that many managers have not sufficiently considered or addressed how these new technologies can be used to their full potential.
PwC’s 21st CEO Survey showed that digitalisation and regulatory issues are top priorities for bank managers. However, when it comes to a specific technology such as artificial intelligence, only 44 percent of the bank executives surveyed have a clear idea of how it can ameliorate the customer experience or bring about other improvements.
Only 44 percent of bank managers know how artificial intelligence can improve the customer experience.
Burkhard Eckes, Head of Banking & Capital Markets at PwC Germany, takes a critical view of this: “It is time for banks to shift their focus with a clear conscience from the threat of over-regulation to other important issues such as digitalisation and everything related to it – from Big Data to artificial intelligence and cyber security.”
Digitalisation Opens up the Financial Market to New Players
Big Data and artificial intelligence open up new opportunities for banks to further develop their business models and focus more on their customers. The thesis is that digital transformation is taking place at all levels of social and professional life, and that customers are living digitally. Given this reality, financial institutions can only survive in this digital environment if they invest extensively in new technologies such as artificial intelligence.
The Federal Financial Supervisory Authority (BaFin), in cooperation with Partnerschaft Deutschland, the Boston Consulting Group and Fraunhofer IAIS, also came to the same conclusion in a detailed study on the effects of Big Data and artificial intelligence on the financial sector.
The study’s editors point to a development in the financial world that could soon lead to a “winner takes it all” situation. According to BaFin, digital progress and the mass processing of data enabled by artificial intelligence have helped to increase efficiency and lower costs. On the other hand, banks would have to be prepared for the market entry of large technology groups for which intelligent data processing is second nature.
“Many established banks and classic insurance companies are in danger of losing a great deal of earnings potential, as well as first-hand knowledge of their customers when BigTechs enter the market”, said BaFin President Felix Hufeld, commenting on the results of the study.
Innovation Partnerships Between Banks and FinTechs
In order not to let “BigTechs” such as Amazon, Apple or Google contest their traditional market, banks are looking to join forces with up-and-coming FinTechs, which are concentrating on new payment services and the modernisation of the customer interface. In innovation partnerships, established financial institutions are gradually adapting new technologies to make their business models viable for the future of banking.
This makes sense, since FinTech start-ups that position themselves on the banking front end with new apps and services end up collecting a lot of data there. In turn, this can be used by all those involved, especially banks, for process improvements or for the development of new banking products. Not so long ago, the discussion mainly focussed on banks being replaced by FinTechs with ambitious goals in the financial market, but now many parties are joining forces. Start-ups are developing services that are helping large financial institutions to drive digitalisation forward, while newcomers are benefiting from the years of experience that banks possess.
Established banks and emerging FinTechs are now no longer rivals, but allies.
The focus on this cooperation is always on the smart use of data based on artificial intelligence. This enables banks to rapidly develop their services and become more closely aligned with the actual requirements of the market. When it comes to the next generation of financial institutions, experts are speaking of the so-called cognitive bank. The concept is as follows: “The cognitive bank is based on large amounts of data, a secure and agile infrastructure and an ecosystem from which new added value is constantly generated for customers and the bank itself.”
Big Data and Artificial Intelligence Provide a Competitive Edge
New technologies such as Big Data Analytics and artificial intelligence are the driving forces behind digital transformation. They help to combine core competencies that have developed over decades and the solid infrastructure of banks with the growing FinTech ecosystem, which generates enormous amounts of heterogeneous data.
This cognitive approach merges these dimensions with one another with the aim of strengthening the core competencies of all parties and, at the same time, generating new added value for customers. Big Data Analytics and artificial intelligence are therefore not only the turbo for the banking and financial world, they are also the prerequisite for ensuring the long-term competitiveness of banks.
Big Data has long been a reality in the financial world. How can banks and FinTechs use the numerous data sources to develop better banking services and act faster on the market? Our blog post answers this question and more.