Financial institutions turning to artificial intelligence for data mining, cost savings

BB&T Corp. has a well-earned reputation for being deliberate when it comes to adopting technological advances.

That’s why BB&T executives’ enthusiasm for plugging artificial intelligence and robotics into its back-office, customer service and compliance operations has raised eyebrows with analysts and economists.

BB&T joins Wells Fargo & Co. and other national and super-regional banks in spending hundreds of millions of dollars to pursue what they believe will be significant future cost savings from data mining of customer patterns.

“We are investing in improving processing cost— a big opportunity for us and frankly all banks — by the use of artificial intelligence and robotics,” Kelly King, the bank’s chairman and chief executive, told analysts during its first-quarter earnings report April 20.

“We will be pretty aggressive about that. We just think there are huge ways to reduce cost in the backroom by the use of that.”

Forbes magazine called artificial intelligence’s potential for financial institutions “immense” because of its broad operational reach, such as: “including natural language processing (improving interactions between computers and human languages); machine learning (computer programs that can “learn” when exposed to new data); and expert systems (software programmed to provide advice) that help machines sense, comprehend and act in ways similar to the human brain.”

According to analysts, financial institutions have been slower adapters of AI and robotics.

Yet, research firm The Financial Brand said those companies are recognizing “the potential for cloud computing and machine learning algorithms, along with rising pressures brought by new competition, increased regulation and heightened consumer expectations.”

“They all have created a ‘perfect storm’ for the expanded use of artificial intelligence in financial services,” such as product delivery, risk management and marketing.

“New cognitive-based solutions also enable a more pro-active and personal customer experience at a lower cost than was ever possible before,” The Financial Brand said.

The group said its 2017 retail bank trend report determined that increasing use of AI and robotics was the second most popular expectation of financial institutions.

‘In the first inning’

The drawbacks cited to AI and robotics are familiar ones when it comes to new technology, according to a survey conducted by Narrative Science in conjunction with the National Business Research Institute.

About 12 percent of participants said they hadn’t put AI to use because they felt it was too new, untested or weren’t sure about the security.

King said BB&T’s use of AI “is sort of in the first inning. We’ve actually tested some areas to be sure that we are so comfortable with the whole concept of AI and robotics working.”

King told analysts of one example conducted by Daryl Bible, its chief financial officer, that impressed BB&T’s management team.

“Daryl did a test in his financial reconcilement area,” King said.

“We took one process where a human working with a computer took two hours to do the track and solve the process. Once we applied AI and robotics, it was only 15 minutes.

“So, we are engaging some people specialized in this area to help us over time. We will learn how to do this for ourselves, but we are using outside expertise.”

King said incorporating AI and robotics “is a big deal.”

“When we get our methodology being fine-tuned, we’ll boost up the entire company, starting with the most sensitive opportunities and then moving down.”

BB&T said it plans to spend between $400 million and $500 million in capital expenditures, the “grand majority frankly would be technology spends,” said Chris Henson, BB&T’s president and chief operating officer.

King said the bank plans to use the cost savings from AI and robotics to invest in digital products, new markets and “really keep a tight lid on the background expenses.”

“That’s why we’re optimistic in terms of longer-term operating leverage, because we will have to continue to invest in new technologies, etc., but at the same time we’ll simultaneously reduce on the cost our traditional process-oriented activities.

“Frankly, I’m pretty excited about it. It’s a bit early if you were to claim victory, but the concept is really sound.”

Facebook platforms

Wells Fargo said its initial AI push involves launching a pilot of a customer chat experience for Facebook Messenger.

The bank has provided assistance to customers on Facebook platforms since 2009, including adopting that format in May 2016 as its main channel for addressing customers’ common questions and service issues.

The test involves several hundred employees before making it available to a few thousand customers later this spring.

“We’re very excited about the opportunity to provide more personalized services for customers,” said Steve Ellis, head of Wells Fargo’s Innovation Group, where the company’s Artificial Intelligence Enterprise Solutions team is based.

“Our goal is to deliver information ‘in the moment’ to help customers make better informed financial decisions. AI technology allows us to take an experience that would have required our customers to navigate through several pages on our website, and turn it into a simple conversation in a chat environment.”

Wells Fargo said it plans to emphasis AI and robotics in its Payments, Virtual Solutions and Innovation group “as it sees an increasing number of opportunities to better leverage data to provide personalized customer service through its bankers and digital channels.”

Ripple effects

Analysts and economists were mixed about the potential ripple effects from financial institutions increasing their use and focus on AI and robotics.

“Bank margins remain under pressure and the competition from financial technology companies means margins won’t return to levels seen in the past,” said Greg McBride, senior financial analyst with “So the pressure to reduce overhead costs is ever-present.

“The consumer banking experience is becoming increasingly digital, and the organization needs to be less labor intensive to meet the demands of tomorrow’s customer.”

Chris Marinac, managing principal with FIG Partners LLC of Atlanta, said he is encouraged that more banks are preparing to make a big splash with AI and robotics.

“BB&T is very serious about this initiative; they do not mention items on the conference call without careful consideration.

“This AI/robotics trend is very real in my mind and has seriously positive implications for the expense base, profit ratios and shareholder returns in the future.”

Tony Plath, a finance professor at UNC Charlotte, said the AI and robotics “train has long left the station, but that’s true in every industry and in every advanced economy today.”

“Why should banking be any different?”

Plath said most financial institutions have a research and development effort under way to reduce the human work force and replace it with some sort of automated delivery platform.

“Human labor is the most expensive, unreliable and mistake-prone element in any product or service delivery channel,” Plath said. “Take out the people and you get faster, better, more reliable, more consistent and cheaper products and services.

“Robotics will automate much of the back-office operations and support work of these organizations, and robo-advisors will automate the front-end of the businesses.

“Talking with a human expert in any of these industries will become the exception, rather than the rule, of normal business operations.”

Job displacement

Plath acknowledges there will be significant repercussions for the economy as more bank and credit union employees are displaced from jobs by AI and robotics advances.

“We’re already seeing that sort of thing in the unskilled segment of labor markets throughout the advanced economies of the world,” Plath said.

“Over the course of the next 20 years, it will include semi-skilled labor and then fully-skilled labor, and even advanced skilled labor, like physicians and college professors.”

Plath said that technology advances, “the future is gonna get here much faster than you think.”