Article Breakdown
Expanded Access to Products and Services
AI also enables banks to provide their services to more customers, including those that have been underserved by legacy systems. The Federal Reserve Bank recently published a research paper on the expanding role of bank-fintech partnerships that have allowed banks to access more information on consumers through data aggregation, artificial intelligence/machine learning, and other tools.
They found that fintech partnerships result in banks being more likely to offer products and services to the credit invisible and below-prime consumers. The more complete view of an individual’s financial patterns, responsibility level, and potential risks provided by AI’s massive data analysis capabilities can help banks approve qualified applicants who might be denied by traditional credit scoring – without taking on additional risk.
Development of New Financial Products and Services
AI lending can also upend the old one-size-fits-all model of financial services and enable banks to offer potential and existing customers personalized access to products and services suited to their needs. The “big data” collected by AI provides a detailed view of an individual’s purchasing and lifestyle patterns, social media activity, professional licenses, responsibility level, potential major expenses, and risk of loan default.
On a micro level, it can give lenders insights into the daily patterns of individual consumers while, on a macro level, it can take current market trends into account as well. Analysis of this vast amount of data on individual customers, lifestyles, and financial behavior can help lenders design loans and other products that are tailored to customer needs and favorable both for customers and the business.
Challenges and Solutions
Incorporating disruptive innovation into established industries is always challenging, and tech-fin partnerships that enable banks to leverage new technologies are no exception.
Navigating regulatory compliance is critical for any financial institution looking to partner with a technology solutions provider. Financial regulations are designed to protect consumers and their privacy, the stability of financial institutions and the trust between the industry and its market. However, regulators such as the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB), the Federal Reserve Board (FRB), and the Office of the Comptroller of the Currency (OCC) may have different expectations for traditional financial companies and tech companies.
The solution is for financial institutions to stay informed about regulatory changes and understand the implications for their fintech partnerships. Active analysis of current and potential future regulations should be part of the review of any partnership arrangement and the development of all new products and services.
It’s important to remember that banks are used to intense oversight while fintechs may not be, and ensure that both parties understand all the ramifications of banking regulations. Other cultural differences also need to be recognized and addressed to build an effective partnership. Banks are traditionally focused more strongly on risk aversion, while fintechs are focused on innovation and speed. The challenge is to combine both perspectives in a way that produces the best end result. Communication, close collaboration, a clear understanding of roles, and ongoing monitoring are key.
Cybersecurity and privacy concerns are also critical in this business, given the sensitive nature of financial data. Integrating fintech solutions with traditional banking systems must involve robust security measures by both parties. There is no room for compromise when it comes to families’ personal financial data and the increased volume of data that AI handles calls for even greater diligence in protecting it.
While some challenges exist, solving them is worth the effort. Successful fintech-bank partnerships have the potential to strengthen the banking industry and move us toward a more inclusive and profitable financial system.
For quite some time, the banking industry has been under pressure, grappling with reduced earnings and unsustainable cost configurations. Since the 2008 financial crisis, it has maintained a steady price-to-book ratio (P/B) of 0.8 – the lowest market valuation amongst sectors. As the industry today faces the challenges of historic rate volatility, increased oversight, mounting customer expectations, and the rise of technologically savvy asset-light entities and non-bank competitors, a future-proof business model is needed. Growth is more than a goal for banks; today, it’s a necessity.
How can we achieve the growth we need, however, without compromising critical risk management standards? We need to innovate beyond the standard systems of the past. Fortunately, as we enter 2024, the banking industry stands on the cusp of a transformative era brought about by technological evolution.
Artificial Intelligence (AI) technology, in particular, is emerging rapidly as a powerful tool for fostering innovation and looks likely to be the new differentiator in the competitive landscape. Progressive banks have already begun to embrace this innovation and adopt new AI-based products such as customer service chatbots and AI lending platforms.
According to International Data Corp. (IDC), global AI spending is anticipated to be approximately $450 billion by 2027, with banking contributing around 13%. This investment could yield between $200 billion and $340 billion in value annually, representing a 9%- 15% increase in banks’ operating profits, according to a 2023 report by McKinsey & Co.
It’s becoming clear that AI can improve efficiency, enable growth, enhance differentiation and risk management, and revolutionize the client experience. However, few lenders have the resources in funding or manpower to build their own AI solutions from scratch. Partnering with an innovative AI solutions provider can be an effective and cost-efficient option for driving innovation and profitability.
Benefits of Tech-Fin Partnerships
Artificial Intelligence (AI) technology is emerging as a powerful tool for improving efficiency, enhancing risk management, revolutionizing the client experience, and supporting business growth. Tech-fin partnerships can provide banks with the resources they need to achieve the benefits of AI applications at a reasonable cost.
Enhanced Customer Experience and Satisfaction Through Technology
The digital revolution has set the bar high, and as a result, banking customers demand fast, personalized, and secure services.
Busy parents, workers with two jobs, shift workers, people with transportation challenges… Many prospective borrowers need a convenient loan application process that doesn’t require them to be on-site at a lender’s location during regular business hours. For some customers, a 24/7 accessible AI-powered digital loan platform is essential to being able to access credit and other banking services.
Once customers access a platform, chatbots with natural language processing upgrade customer support and make it more responsive and relatable. This can be especially important in helping customers who are new to banking. They can ask questions, clarify instructions, report problems, and get solutions with much of the ease of dealing with a human being.
AI also speeds the evaluation and processing of loan applications. In 2018, MacKenzie noted that the average “time to decision” for small business lending was between three and five weeks in traditional banks, with the average “time to cash” at nearly three months. Personal lending wasn’t much better. Waiting months for money can be stressful for potential borrowers.
AI lending drives approval times down significantly – to days, hours, or even minutes, depending on the type of loan – with cash in hand often in less than 24 hours.
Expanded Access to Products and Services
AI also enables banks to provide their services to more customers, including those that have been underserved by legacy systems. The Federal Reserve Bank recently published a research paper on the expanding role of bank-fintech partnerships that have allowed banks to access more information on consumers through data aggregation, artificial intelligence/machine learning, and other tools.
They found that fintech partnerships result in banks being more likely to offer products and services to the credit invisible and below-prime consumers. The more complete view of an individual’s financial patterns, responsibility level, and potential risks provided by AI’s massive data analysis capabilities can help banks approve qualified applicants who might be denied by traditional credit scoring – without taking on additional risk.
Development of New Financial Products and Services
AI lending can also upend the old one-size-fits-all model of financial services and enable banks to offer potential and existing customers personalized access to products and services suited to their needs. The “big data” collected by AI provides a detailed view of an individual’s purchasing and lifestyle patterns, social media activity, professional licenses, responsibility level, potential major expenses, and risk of loan default.
On a micro level, it can give lenders insights into the daily patterns of individual consumers while, on a macro level, it can take current market trends into account as well. Analysis of this vast amount of data on individual customers, lifestyles, and financial behavior can help lenders design loans and other products that are tailored to customer needs and favorable both for customers and the business.
Challenges and Solutions
Incorporating disruptive innovation into established industries is always challenging, and tech-fin partnerships that enable banks to leverage new technologies are no exception.
Navigating regulatory compliance is critical for any financial institution looking to partner with a technology solutions provider. Financial regulations are designed to protect consumers and their privacy, the stability of financial institutions and the trust between the industry and its market. However, regulators such as the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB), the Federal Reserve Board (FRB), and the Office of the Comptroller of the Currency (OCC) may have different expectations for traditional financial companies and tech companies.
The solution is for financial institutions to stay informed about regulatory changes and understand the implications for their fintech partnerships. Active analysis of current and potential future regulations should be part of the review of any partnership arrangement and the development of all new products and services.
It’s important to remember that banks are used to intense oversight while fintechs may not be, and ensure that both parties understand all the ramifications of banking regulations. Other cultural differences also need to be recognized and addressed to build an effective partnership. Banks are traditionally focused more strongly on risk aversion, while fintechs are focused on innovation and speed. The challenge is to combine both perspectives in a way that produces the best end result. Communication, close collaboration, a clear understanding of roles, and ongoing monitoring are key.
Cybersecurity and privacy concerns are also critical in this business, given the sensitive nature of financial data. Integrating fintech solutions with traditional banking systems must involve robust security measures by both parties. There is no room for compromise when it comes to families’ personal financial data and the increased volume of data that AI handles calls for even greater diligence in protecting it.
While some challenges exist, solving them is worth the effort. Successful fintech-bank partnerships have the potential to strengthen the banking industry and move us toward a more inclusive and profitable financial system.
For quite some time, the banking industry has been under pressure, grappling with reduced earnings and unsustainable cost configurations. Since the 2008 financial crisis, it has maintained a steady price-to-book ratio (P/B) of 0.8 – the lowest market valuation amongst sectors. As the industry today faces the challenges of historic rate volatility, increased oversight, mounting customer expectations, and the rise of technologically savvy asset-light entities and non-bank competitors, a future-proof business model is needed. Growth is more than a goal for banks; today, it’s a necessity.
How can we achieve the growth we need, however, without compromising critical risk management standards? We need to innovate beyond the standard systems of the past. Fortunately, as we enter 2024, the banking industry stands on the cusp of a transformative era brought about by technological evolution.
Artificial Intelligence (AI) technology, in particular, is emerging rapidly as a powerful tool for fostering innovation and looks likely to be the new differentiator in the competitive landscape. Progressive banks have already begun to embrace this innovation and adopt new AI-based products such as customer service chatbots and AI lending platforms.
According to International Data Corp. (IDC), global AI spending is anticipated to be approximately $450 billion by 2027, with banking contributing around 13%. This investment could yield between $200 billion and $340 billion in value annually, representing a 9%- 15% increase in banks’ operating profits, according to a 2023 report by McKinsey & Co.
It’s becoming clear that AI can improve efficiency, enable growth, enhance differentiation and risk management, and revolutionize the client experience. However, few lenders have the resources in funding or manpower to build their own AI solutions from scratch. Partnering with an innovative AI solutions provider can be an effective and cost-efficient option for driving innovation and profitability.
Benefits of Tech-Fin Partnerships
Artificial Intelligence (AI) technology is emerging as a powerful tool for improving efficiency, enhancing risk management, revolutionizing the client experience, and supporting business growth. Tech-fin partnerships can provide banks with the resources they need to achieve the benefits of AI applications at a reasonable cost.
Enhanced Customer Experience and Satisfaction Through Technology
The digital revolution has set the bar high, and as a result, banking customers demand fast, personalized, and secure services.
Busy parents, workers with two jobs, shift workers, people with transportation challenges… Many prospective borrowers need a convenient loan application process that doesn’t require them to be on-site at a lender’s location during regular business hours. For some customers, a 24/7 accessible AI-powered digital loan platform is essential to being able to access credit and other banking services.
Once customers access a platform, chatbots with natural language processing upgrade customer support and make it more responsive and relatable. This can be especially important in helping customers who are new to banking. They can ask questions, clarify instructions, report problems, and get solutions with much of the ease of dealing with a human being.
AI also speeds the evaluation and processing of loan applications. In 2018, MacKenzie noted that the average “time to decision” for small business lending was between three and five weeks in traditional banks, with the average “time to cash” at nearly three months. Personal lending wasn’t much better. Waiting months for money can be stressful for potential borrowers.
AI lending drives approval times down significantly – to days, hours, or even minutes, depending on the type of loan – with cash in hand often in less than 24 hours.
Expanded Access to Products and Services
AI also enables banks to provide their services to more customers, including those that have been underserved by legacy systems. The Federal Reserve Bank recently published a research paper on the expanding role of bank-fintech partnerships that have allowed banks to access more information on consumers through data aggregation, artificial intelligence/machine learning, and other tools.
They found that fintech partnerships result in banks being more likely to offer products and services to the credit invisible and below-prime consumers. The more complete view of an individual’s financial patterns, responsibility level, and potential risks provided by AI’s massive data analysis capabilities can help banks approve qualified applicants who might be denied by traditional credit scoring – without taking on additional risk.
Development of New Financial Products and Services
AI lending can also upend the old one-size-fits-all model of financial services and enable banks to offer potential and existing customers personalized access to products and services suited to their needs. The “big data” collected by AI provides a detailed view of an individual’s purchasing and lifestyle patterns, social media activity, professional licenses, responsibility level, potential major expenses, and risk of loan default.
On a micro level, it can give lenders insights into the daily patterns of individual consumers while, on a macro level, it can take current market trends into account as well. Analysis of this vast amount of data on individual customers, lifestyles, and financial behavior can help lenders design loans and other products that are tailored to customer needs and favorable both for customers and the business.
Challenges and Solutions
Incorporating disruptive innovation into established industries is always challenging, and tech-fin partnerships that enable banks to leverage new technologies are no exception.
Navigating regulatory compliance is critical for any financial institution looking to partner with a technology solutions provider. Financial regulations are designed to protect consumers and their privacy, the stability of financial institutions and the trust between the industry and its market. However, regulators such as the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB), the Federal Reserve Board (FRB), and the Office of the Comptroller of the Currency (OCC) may have different expectations for traditional financial companies and tech companies.
The solution is for financial institutions to stay informed about regulatory changes and understand the implications for their fintech partnerships. Active analysis of current and potential future regulations should be part of the review of any partnership arrangement and the development of all new products and services.
It’s important to remember that banks are used to intense oversight while fintechs may not be, and ensure that both parties understand all the ramifications of banking regulations. Other cultural differences also need to be recognized and addressed to build an effective partnership. Banks are traditionally focused more strongly on risk aversion, while fintechs are focused on innovation and speed. The challenge is to combine both perspectives in a way that produces the best end result. Communication, close collaboration, a clear understanding of roles, and ongoing monitoring are key.
Cybersecurity and privacy concerns are also critical in this business, given the sensitive nature of financial data. Integrating fintech solutions with traditional banking systems must involve robust security measures by both parties. There is no room for compromise when it comes to families’ personal financial data and the increased volume of data that AI handles calls for even greater diligence in protecting it.
While some challenges exist, solving them is worth the effort. Successful fintech-bank partnerships have the potential to strengthen the banking industry and move us toward a more inclusive and profitable financial system.