Chatbots in banking: Competition or collaboration?

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Times have changed for banking and financial services customers. Traditional channels, such as phone, email and in-person interactions, have evolved to include smartphones, messaging apps and AI-powered customer engagement platforms, otherwise known as virtual assistants.

Across most developed markets, the number of customers who log onto banking sites from their mobile device have begun outpacing those entering by desktop. Research firm Juniper predicts that by 2021, there will be 2 billion mobile banking customers globally and suggests banks should evolve. “Recent industry shifts highlight why traditional banks must respond rapidly to retain market share by cultivating new revenue channels and enhancing existing base through sustained innovation,” said research author Nitin Bhas. “However, the challenge here for new players is to increase market share and maintain profitability in the long run.”

The shift to mobile is not just limited to retail banking. 42% of wealth managers surveyed in a 2016 Wealth Management Trends report by PwC plan to offer financial goal planning through mobile, aiming to provide a more seamless delivery of advice. While this expansion in omnichannel delivery service is widely seen as essential, PwC suggests that ongoing client communications should remain integrated, coordinated and ubiquitous.

The surging popularity of mobile messaging apps

The financial services industry is building client service frameworks that will successfully accommodate the habits of incoming Millennials and increasingly tech-savvy customers. And no action of this is more apparent than the foray into messaging apps.

Messaging apps have dominated recent headlines: Facebook Messenger alone now boasts more than a billion global users, Google Allo is priming to be the AI messenger of record, and the upcoming IPO of Snapchat (now Snap Inc.) is the one of the most anticipated in years.

So what’s behind the surge in messaging apps, and what is the opportunity for banks? While the transition from voice communication to text has long been apparent, the ability to send rich media across mobile — and overall more enjoyable experiences — are driving unprecedented adoption rates of messaging apps. Long popular in Asia, Japan-based LINE and China-based WeChat have shown to produce diverse revenue streams via advertising and the ability to integrate virtual assistants to other services, such as e-commerce, gaming — and banking.

Chatbots in banking: Entering uncharted waters

Enter the chatbot. Mastercard and Bank of America both recently announced the introduction of AI-powered chatbots within their customer messaging platforms. These virtual assistants allow banking customers to perform routine transactions, ask account questions and manage their finances via SMS and other messaging services, such as Facebook Messenger and WhatsApp.

However, in the State of Chatbots report issued in October, Forrester suggests that the technologies powering these virtual assistants, while promising, aren’t yet ready to meet the high expectations of bank customers. “Money is an area where the stakes are high — and people are less forgiving,” says Peter Wannemacher, a senior analyst covering ebusiness and channel strategy. “If someone inadvertently orders too many tacos via TacoBot, it’s not a huge deal. But if there’s an issue with a payment or a funds transfer, the result can be profound.”

Simply put, a person’s bank account balance is far too significant to be left solely in the hands of a robot. But the report suggests that chatbot technology will improve over time, driven by bot innovations within industries outside of banking.

Is this the year of the “robo advisor”?

In addition to chatbots, 2016 has seen the emergence of the robo adviser. These automated investment services formulate an asset allocation model for the investor based on his or her objectives, risk tolerances and time horizons — sans the element of human intuition. Providers such as Betterment and Wealthfront have been leading the robo advisor front, marketing these technologies to DIY investors with good success.

Further threatening the age-old investment advisory model has been this year’s issuance of the US Department of Labor Conflict of Interest Rule (affectionately referred to as “D-O-L” or “the fiduciary rule” at water coolers in investment offices across America). The much-disputed regulation, which could take effect next April, will require advisors to select the best-performing retirement investments at the best prices — often in the form of low-cost ETFs over conventional mutual funds.

This has led some asset management companies to acquire or build their own robo platforms for financial advisors to leverage, despite the limbo state of the fiduciary rule with the incoming Trump administration.

Over two-thirds of people surveyed in a recent Cerulli Associates study are not comfortable using a fully automated investment service to replace their advisor. Scott Smith, senior director at Cerulli, has actually seen a decline of DIY investors since 2010. He states, “I believe that investors are using these tools to get a basic understanding of their situation and then turning to providers of professional advice once the complexity exceeds their comfort level.”

A hybrid model of chatbots and human agents can offer highest value

Chatbots, robo advisers and artificial intelligence won’t be fully replacing humans in client-facing roles anytime soon, but a hybrid collaborative model that include bots and humans has already arrived. In fact, the aforementioned PwC report suggests that these innovations, combined with the expertise of an experienced financial professional, can offer additional benefits to clients, resulting in deeper granularity of services rendered.

Amir Shevat, Director of Development Relations at Slack, further describes five scenarios where mutual collaboration could be highly beneficial, detailing how best to hand off the interaction from a chatbot to a human.

Gurval Caer, Managing Partner and COO of Stryng, explains how a hybrid communications model can best benefit financial services customers. “The relationship between client and bank isn’t one-size-fits-all,” Caer said. “It will evolve to become a coalition of intricate moments that are dependent on context. Some will be routine enough where it can be executed through chatbot, others will still require the art of human interaction.”

Stryng’s latest white paper reviews some of these elements and details seven definitive needs that that financial institutions should consider in their future client communication platforms. Click here to download Banking on People in The Digital Age – Market Insights & Best Practices for the Financial Services Industry

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