The use of artificial intelligence can be an equalizer for financial institutions – but community banks and credit unions are challenged by unequal access to the technology.
Everything from conference agendas to marketing materials makes it apparent that financial institutions are being segregated and treated differently according to asset size.
Too often fintech vendors ask community financial institutions with less than $500 million of assets to order from a different menu than their larger counterparts (or don’t serve them at all).
But this is the wrong industry paradigm for four main reasons.
1. Financial Institutions of All Sizes Need AI
Artificial intelligence can be a remedy for many retail banking ills. It amps up productivity, sheds light on the drivers of key performance measures, hones risk and fraud analysis, and is a common thread throughout the next generation of digitally driven products and services. And perhaps most importantly for financial institutions fighting to retain and grow market share: AI can elevate the customer experience in retail banking.
In its report “Reimagining customer engagement for the AI bank of the future,” McKinsey & Company emphasizes, “Banks that leverage AI and analytics to deliver smart servicing and superior experiences stand to increase customer satisfaction and loyalty.” That’s incredibly important to the viability of financial institutions, because, as the McKinsey research shows, deposits grew 84% faster at banks with the highest degree of reported customer satisfaction compared to the banks with the lowest satisfaction ratings.
“Banks that leverage AI and analytics to deliver smart servicing and superior experiences stand to increase customer satisfaction and loyalty.”
What’s more, the stronger the customer experience and the greater the satisfaction, the more likely it is that a financial institution will generate higher revenue. A more satisfied customer typically accounts for about 2.4 times more revenue than one who is neutral, according to “The Value of Customer Experience, Quantified,” by Peter Kriss.
All of this suggests that shaping a top-notch customer or member experience generates significant value, but many financial institutions struggle to execute on this consistently. AI-powered solutions — whether to handle customer service inquiries, personalize marketing communications or assess the credit quality of potential borrowers quickly — can help in an impactful way.
2. The Fate of Community Institutions Depends on Tech Parity
The fear that community banks and credit unions will fade away could become a self-fulling prophecy if vendors’ bifurcated approach to artificial intelligence is not corrected. Reserving “the good stuff” for the banks with the deepest pockets will only exacerbate the divide between the biggest banks and the rest of the industry. Equal access to AI technology, on the other hand, could close the gap.
Financial services is a commoditized sector, where every institution offers comparable products and services. The customer or member experience is what differentiates one institution from the other and creates a competitive edge.
AI enables a personalized, consistent experience across the various channels, which helps foster loyalty, regardless of whether the bank or credit union is a household name.
Read more:
- ‘Yelp’ for Bank Tech: Inside a New Database for Vetting Vendors
- Where Are Bank-Fintech Relationships Headed?
- Five Megatrends That’ll Impact Banking Forever
3. Fintech Vendors Could Self-Destruct
Many fintech vendors selling artificial intelligence solutions overlook financial institutions with less than $500 million of assets because they think the juice isn’t worth the squeeze (meaning that the price a smaller bank or credit union can afford is less than that of a larger one, while the time, effort and implementation cost for the vendor is about the same).
But AI vendors should sell to the little guys too. It’s not just an investment in the common good — it’s worth bearing in mind that multiple small fish can outweigh a big one.
If institutions smaller than $500 million in assets are gobbled up by their bigger competitors, fintech providers risk dying off in tandem, because there will be fewer banks and credit unions to serve.
Diversity and breadth are what make America’s banking system strong.
4. The Technology Should Be the Same
It makes no sense for fintech vendors to separate financial institutions into “haves” and “have nots” in terms of best-in-class artificial intelligence. Even though the delivery of the solution is different, the technology itself does not have to be.
A big bank may have AI infrastructure and a data center on premise, while a smaller financial institution may utilize a software-as-a-service solution and store data securely in the cloud — but the underlying AI technology is just as powerful and transformative. Pricing the solution on a sliding scale can bring it within reach for smaller institutions so they aren’t left in the digital dark.
The ROI of AI:
Three quarters of the largest companies worldwide have already integrated AI into their business. What percentage of those say the return on their AI initiatives fell short of expectations?Just 1%
AI — and its bottom-line benefits — should be accessible to banks and credit unions of all sizes, regardless of how they get it, how they use it, or how it’s installed.
And there are benefits: In a 2021 survey of 1,600 C-suite executives and data-science leaders at the world’s largest organizations, Accenture found that nearly 75% of companies had already integrated AI into their business and, of those, 42% said that the return on their AI initiatives exceeded their expectations. Only 1% said the return didn’t meet expectations.
Read more:
- How Virtual Assistants Take Mobile Banking Apps to the Next Level
- Pros and Cons of ChatGPT and Other Generative AI for Marketers
- See more on customer experience
What to Do About the Discrepancy in AI Tech
There’s an action item here for all sides.
To AI providers: Don’t pigeonhole community banks and credit unions into using inferior AI technology.
To bank and credit union executives: Ask to see the full menu, all offerings at all price points.
Serving community banks and credit unions with separate conference tracks, revised marketing materials and less sophisticated technology is a disservice to the entire financial services industry. To survive, all financial institutions need to meet today’s high digital standards.
About the author:
Michael Boukadakis is the founder and chief executive officer of ENACOMM, which specializes in fintech enablement.