An AI Blueprint For More Profitable Portfolios In 2021

Want to know what 10,000 U.S. consumers think about artificial intelligence (AI) as it relates to their financial lives? Just ask them, as was done for the December 2020 How To Put AI In Your 2021 FI Business Plan Playbook, a collaboration with Brighterion.

This was a year that bent and broke quite a few risk forecasting models, thus all the more reason to bring AI smarts to bear on transaction volumes scaling far beyond a human pace.

“[Circumstances] have underscored the singular importance of artificial intelligence (AI) in managing credit risk as well as supporting other bank operations. AI can make it easier for financial institutions (FIs) to predict how likely their customers are to make timely payments and improve overall risk assessment capabilities. Better credit management is just one benefit AI can confer to banks, however,” per the Playbook. “The technology can also enable FIs to build predictive models, perform real-time data analysis and improve account engagement.”

However, many FIs lack internal proficiency to use AI-assisted credit risk assessment for maximum effectiveness. The Playbook offers exactly that, with strategies to affirm proper use of AI with provision of personalized services to reduce delinquencies and bolster profits.

Smarter, Faster Decisioning

In-your-face unpredictability lit a fire under lukewarm AI plans as COVID-19 was decimating financial markets worldwide. On the fraud front, for example, banks and FIs learned that “Using AI for real-time fraud detection is akin to having a fingerprint scanner that takes customers’ biometric data every second,” the Playbook states. “An AI system that has collected enough information to know how consumers behave online can use their digital ‘fingerprints’ to detect behavioral abnormalities with relative ease. AI systems implemented to identify fraud never stop scanning for it, as do those monitoring consumer credit.”

Monitoring with AI has taken a bite out of cybercrime, with 55 percent of FIs that have adopted AI systems reporting fewer false positives, and 36 percent of FIs saying that AI-powered systems have improved their anti-money laundering (AML) competencies.

Ditto for credit monitoring, which is also benefitting from a top-down AI makeover.

According to How To Put AI In Your 2021 FI Business Plan, “Dynamic, AI-driven credit monitoring represents an improvement over legacy methods. AI systems are able to analyze massive amounts of data at rapid speeds to scan for larger patterns in each account holder’s banking and payment habits over long stretches of time. An AI system that has collected enough data can detect ‘early warning signals’ and predict delinquency with a high degree of accuracy well before a consumer ever misses a payment, with some AI systems being able to detect potential delinquencies as much as 12 months before they occur.”

Profitability And The AI Imperative

It’s not so much the “artificial” as the “intelligence” that AI is building a reputation on, and a great way to burnish that good rep is increasing profitability. Turns out AI now does this, too.

Per the Index, “PYMNTS’ research shows that 63.6 percent of FIs that use AI say their customers’ satisfaction increased, and 23.7 percent say their AI systems reduced the overall risk of their portfolios. It also found that 63.6 percent saw their charge-off rates decline as a result of their AI systems. This demonstrates that AI systems are effective not only in helping banks increase their profitability but also in enhancing account holders’ overall banking experiences.”

You’d think enhancing profitability would be enough, but AI platforms and tools can do more. The pandemic digital shift is creating countless digital devotees. AI fuels their digital desires, whether that’s defined as speed, convenience or a profound wish to avoid the plague.

How To Put AI In Your 2021 FI Business Plan notes that “fifty-one percent of mobile banking app users are using those apps more now than they did before the pandemic began, and they are using them to conduct nearly every transaction and account maintenance activity, largely because they want to avoid exposure to the virus.”

Additionally, researchers found that 60 percent of banking customers now use digital channels and 80 percent of their interactions are done online, “underscoring how critical it is that banks provide digital banking experiences. AI systems’ predictive capabilities can help personalize digital banking experiences and increase digital engagement across all banking channels.”