AI is reshaping the future of financial services has been saved
AI is reshaping the future of financial services
How AI is upending the competitive dynamics of the financial services ecosystem
17 August 2018: Artificial intelligence (AI) is poised to transform the financial services industry, particularly in the banking sector, with the costs associated with shifting banks predicted to plunge.
The New Physics of Financial Services, a World Economic Forum and Deloitte report, examines how AI will transform the realities of financial institutions by radically changing front and back-office operations, creating major shifts in the structure and regulation of financial markets.
Deloitte Australia Digital Partner Joel Lipman said Australians now face significant costs to shift their mortgages between financial institutions but this is poised to change with expected AI advances.
“Banks today may have customers who aren’t willing to change banks because of the high costs associated and the effort involved with shifting mortgages,” Mr Lipman said.
But the future will see these costs removed as AI developments, such as personal banking assistants, are able to identify the best deal for customers and move them without the current high dependency on humans.
The change in AI will also prompt data regulation beyond the financial regulation requirements for the banking industry.
The report identifies nine key findings about how AI is changing the physics of financial services, weakening the bonds that have historically held together financial institutions while creating new and old capabilities combined in unexpected ways.
Four core findings explore how AI is radically transforming front and back office operations: Cost centre to profit centre; A new battlefield for customer loyalty; Self-driving finance; and Collective solutions for shared problems.
Mr Lipman said "AI-enabled back-office functions will see financial institutions turning their centres of excellence into services, while outsourcing most other capabilities."
“There is also a new battlefield for customer loyalty, with past methods of differentiation between financial institutions, including cost, speed and access, eroding,” he said.
"Tailored banking solutions, which will be geared toward customer needs will also mark a new era of self-driving finance, and upend existing competitive dynamics", Mr Lipman said.
While AI presents increased opportunities for competition, it also presents a strong mechanism to collaborate as the value of shared data sets is tremendous.
“There is huge potential for industry collaboration on issues as broad as fraud prevention and anti-money laundering controls, often run inefficiently and ineffectively in the current environment,” Mr Lipman said.
Additional findings from the report explore major shifts in the structure and regulation of financial markets and critical challenges for society to resolve:
Bifurcation of market structure: As AI reduces search and comparison costs for customers, firm structures will be pushed to market extremes, amplifying the returns for large-scale players and creating new opportunities for niche and agile innovators.
Uneasy data alliances: In an ecosystem where every institution is vying for diversity of data, managing partnerships with competitors and potential competitors will be critical, but fraught with strategic and operational risks.
The power of data regulators: Regulations governing the privacy and portability of data will shape the relative ability of financial and non-financial institutions to deploy AI, thus becoming as important as traditional regulations to the competitive positioning of firms.
Adapting talent strategies: Talent transformation will be the most challenging road block on institutions’ implementation of AI, putting at risk the competitive positioning of firms and regions that fail to effectively transition talent alongside technology.
New ethical dilemmas: Global communities have a joint interest in mitigating the risks and harms of rapid technological development. AI will necessitate a collaborative reexamination of principles and supervisory techniques to address the ethical concerns and regulatory uncertainty that are hindering institutions’ willingness to adopt more transformative AI capabilities.
The full report is available for download here: The New Physics of Financial Services.