Banks looking to innovate want help from AI: Survey

Competition from fintechs and neobanks that specialize in excellent digital experiences have forced the hands of banks and credit unions to focus their innovation efforts on customer experience, leaving areas such as operations, products, business models or partnerships on the back burner.

This focus has also made banks sensitive to technological levers they can pull to bolster their customer experience. Recent developments in generative AI have blown away both retail and enterprise users, leading banks to heavily consider the technology as a potential differentiator in the customer experience arms race.

These findings from a recent survey by American Banker build on previous work by others, including consulting firms McKinsey & Company and PWC, that found customer experience to be a key differentiator for potential clients, a distinct competency of leading financial services companies and an obsession among smaller institutions looking to grow their business.

The survey, conducted by American Banker's parent company Arizent, found that customer experience has grown over the past year as a priority for financial institutions, with 78% of respondents last year reporting it as a top-three innovation priority compared to 92% saying so this year.

Smaller institutions tended to report customer experience as a higher priority for their innovation investments compared to larger firms, with 60% of respondents under $5 billion in assets ranking it as their top priority compared to 34% of institutions with $50 billion or more in assets saying the same.

The report, titled "The key to finance innovation: Moving beyond tech to tech-driven culture," is based on a July 2023 survey of 110 financial institutions, of which 77% were banks and 23% were credit unions. Responses were limited to people who reported having personal knowledge of their organization's innovation programs, including executives, product managers, department heads and similar titles. Separately, Arizent also surveyed 69 insurance companies or carriers about their innovation strategies.

Experts have pointed to several forces behind the banking industry's focus on customer experience in recent years, including increased competition from fintechs and a shift toward digital banking. Changing customer expectations have also had an effect, according to Daniel Amarandei, a product manager at software provider firm Stefanini.

"Consumers are becoming more discerning and demanding, and they expect a high level of service and convenience from the businesses they interact with," Amarandei wrote this summer. "This means that banks will need to work harder to meet the needs and expectations of their customers in order to keep them satisfied and loyal."

One way consumer expectations have started to change may be the interactivity and intelligence of the chatbots with which they interact. ChatGPT, Google Bard, Claude by Anthropic and similar products have shifted what users expect from chatbots, especially as companies tout integrations with these very products, including in customer support experiences.

One such integration is Morgan Stanley's use of GPT-4, the technology behind ChatGPT, to develop an internal-facing service that accesses, processes and synthesizes its wealth management content and internal documents.

Other banks have also taken notice. Few surveyed by Arizent cited chatbots or generative AI as critical to advancing their institution's innovation strategy or initiatives (27% said so for generative AI, and 27% said so about chatbots or "other custom interaction technologies"). But AI and chatbots were by far the most exciting ways bankers cited to create a competitive advantage over the next two years.

Specifically, 35% of survey respondents mentioned AI, generative AI, machine learning or chatbots in open-ended responses to the question, "What technology are you or your organization most excited about that could create competitive advantage in the next two years?"

While the technology may excite banks, few have launched consumer-facing products that exploit generative AI such as large language models, with many focusing on internal uses or merely tinkering with the tech. The first to break the mold with ChatGPT-like customer service would stand out from the crowd, both for consumers and regulators.