Why banks must reinvent themselves
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iskMinds International is soon approaching, and we continue to hear from rising stars in the risk community on their vision of the future. Christina Oyenuga at Commerzbank AG, talks about how AI will have an impact.
Artificial Intelligence is currently moving ahead strongly and consequently gaining remarkable importance in our everyday lives. While intelligent voice control or preference learning smartphone applications have already become routine in all our daily lives, this will also change the way financial services work in future. FinTechs are already flooding the market and are increasingly competing with the traditional financial services provided by banks. This forces banks to either adapt or die. Risk manager must develop and implement new techniques to improve the speed and quality of risk decisions at reduced cost while simultaneously managing new risks emerging in a time of increasing regulation. These changes must occur while still maintaining a place for human experience and intelligence in future.
Today, bank risk management is organized in business units, each focusing on individual areas of risks, customer groups, locations or products. Although risk decision processes have developed and become more standardized in the last decades, they still involve a large amount of human intervention (e.g. in corporate lending). Computers are predominantly used to collect data while humans largely manually analyse and apply provided information. Only in the area of simple consumer credit automated decision making has established a foothold based on the implementation of relatively simplistic algorithms. The original process is expensive and can lead to mistakes as well as inconsistent and subjective risk decisions. With big data, machine learning and cognitive computing, to name just a few self-learning technological innovations within Artificial Intelligence, computers can automatically process large amounts of structured and unstructured data sets in order to identify complex non linear patterns which humans are not able to detect. For the area of corporate lending for example, underlying models will be able to allow much better predictions on the financial development of a corporate (including revenue trends, development of profitability and liquidity requirements) as well as its target market or competitors. Considering this, these methods can form a powerful set of tools which help to improve and fasten decision-making processes, increase operational efficiency and transparency. Banks will be able to work with nearly exhaustive information, efficiently analyse tremendous data in every decision made and drive profitability and growth. An increasing implementation of Artificial Intelligence will transform the banking industry. As a consequence, humans will gradually be replaced in risk management functions covering rather routine and repetitive, but also more complex processes. However, human intelligence will remain irreplaceable, especially in legal or reputational risk situations that are not capable of being expressed using an algorithm.
The key challenge for banks is to keep up with innovations, adopt appropriate applications at a suitable time and speed in order to sustainably and successfully reinvent themselves into digital and smart working businesses.
Investments in Artificial Intelligence are currently increasing exponentially in all areas of our daily lives; this development is unstoppable. The key challenge for banks is to keep up with innovations, adopt appropriate applications at a suitable time and speed in order to sustainably and successfully reinvent themselves into digital and smart working businesses. In this context, human intelligence will remain a crucial factor in risk management with great importance in applying this newly gained knowledge, ensuring smoothly running processes as well as handling non algorithmic and non predictable risks. Furthermore, it will be humans to make strategic decisions and further develop technologies in order to be able to reply to new risks emerging from increasing innovation. The effects of increasing Artificial Intelligence in risk management cannot be foreseen completely, but it can be stated today already, that humans and computers will be able to do things together humans up to now were unable to do alone.