Chatbots in Banking: The Reality Behind the Hype

Technology advancements continually disrupt the banking landscape. Amidst the upheaval, chatbots are rising as the latest wave of digital disruption. Chatbots, also known as conversational agents or virtual assistants, are shaping the customer experience, and transforming the back-end operations of banks in an unprecedented manner. Looking at the staggering rate of chatbot adoption, MarketWatch suggests that the chatbot market could reach close to a billion dollars by 2024. Taking one step further, KPMG predicts an era of the “invisible bank” to dawn soon where “enlightened virtual assistants” would replace humans at all digital touchpoints of customer interaction.

Let’s look at a few industry use cases to understand the reality behind the hype.

In the age of hyper-personalization, banks must offer a differentiated experience to customers to stay relevant, but it’s practically impossible to do so with manual efforts. Chatbots present a solution to this grave need. Equipped with artificial cognition and understanding of the natural human language, they interact with humans via audio or textual media to interpret and respond to questions, most of the time without any human intervention. They enable banks to provide a simplified, personalized, and seamless experience to their customers at lower service costs. Let’s take Erica as an example. Erica is a voice-and-text-empowered chatbot launched by Bank of America for its clients. Powered by artificial intelligence (AI), Erica is designed to advise customers on financial matters, and it is proving to be no less efficient than a human financial advisor.

Banks can gain deeper insights about customers’ needs and preferences from the interactions between chatbots and customers. These efficient virtual assistants (embedded on banks’ websites or in mobile apps) simplify, distil, and deliver customer feedback and information in the form of insights to banks. Banks can leverage these insights to understand their customers better and make informed, smarter decisions about improving or customizing their offerings. No wonder Gartner foresees that more than 85% of all customer service interactions will be handled by chatbots by 2020.

Another pain point for today’s banks is their chaotic back-office operations. Some of the major banks are investing in chatbots to streamline their processes, reduce manual errors, and lessen the amount of time their employees spend on routine work. For instance, JPMorgan Chase uses COIN to analyze complex contracts. It is faster and more proficient than human lawyers. According to a Bloomberg report, the chatbot helped the bank save more than 360,000 hours of labor! Now, that’s a number you can’t ignore.

Fraud prevention is a critical factor in any bank’s operational strategy. A chatbot can be programmed to monitor and identify warning signs of fraudulent activities so it can instantaneously notify the affected customer in real time via a messaging app. The ability to proactively mitigate fraud is not just a cost saver for banks. It also helps banks to maintain a high brand value among their customers. While banks are gradually realizing and exploring the potential, they still need to go a long way in addressing it.

A Juniper report indicates that chatbots will cut down operational costs by about $8 billion by the year 2022. Banks seem thrilled with the promising early results and hope to gain long-term benefits from their investments in chatbots and supporting technologies. Major banks like HSBC, Bank of America, JP Morgan Chase, and American Express are already making substantial progress in this sector. Most likely, rival banks will soon catch up to maintain their relevance in the marketplace. Clearly, chatbots aren’t just a technology trend; they’re a growing phenomenon that is likely to stay and shape the future of the banking industry.

Sunder Singh

As a FinTech specialist at Virtusa, Sunder Singh brings a decade of impressive experience in software development in the banking and financial services domains to achieve success and growth through digital transformation and innovation. He possesses strong leadership skills and has managed large global teams through complex programs, projects, and applications developed across diverse technologies and platforms. Throughout his career, Sunder has gained knowledge of banking and payment solutions and innovative, customer-centric value-added services with a successful nationwide implementation. He expertise spans across multiple disciplines in IT. He is enthusiastic and excited about novel approaches in the FinTech world.

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