How Financial Institutions should think about Generative AI?

Given the pace with which Generative AI is reshaping the business landscape across the board, the question that will occupy the minds of business leaders are: how will our industry change over the next 5 years? This is a difficult question to answer simply because of the trade-off’s involved. Move too soon to embed AI and you risk investing in a solution that may itself become irrelevant or not strategically aligned. Spend too much time waiting by the sidelines and you risk your business being disrupted and commoditized. So, the real question on everybody’s mind is: what should we do?

In today’s piece, we’re going to try and answer this question in the context of financial services.

Developing trends in financial services and their implications

As things stand today, the top use cases for the application of AI in financial services range from automating the customer service experience and compliance processes to offering personalized wealth management solutions. To get a sense of how things might change, we can turn our minds to a few developing trends, all of which will may independently and collectively be relevant, in terms of how the industry evolves.

1. Hyper-Personalization

In an era where tailored recommendations are the norm in retail and media, financial services are quickly catching up. Generative AI empowers banks to understand and predict customer needs with great accuracy, paving the way for highly personalized banking experiences. For example, AI can analyze individual financial behavior’s and offer customized advice on saving, investing, or managing debt; basically doing everything a personal financial advisor can do today but at a fraction of the cost.

2. Real-Time Financial Management

Given that instantaneous services have become a norm, the demand for instant access to financial services will only continue to grow rapidly. Customers will increasingly expect to manage their finances with the same immediacy and convenience as sending a message on Whatsapp. This means financial institutions will have to integrate solutions that enable real-time data processing and decision-making. Think proactive account management as a service. This could manifest as AI-driven dashboards that update a customer’s financial status instantaneously, or predictive models that alert customers about potential financial issues before they occur.

3.Increased Expectation for Integrated Services

It’s likely that financial services will recede into the background of a customer’s daily life to function as an ‘invisible’ but fundamental substrate that is seamlessly integrated with every other aspect of a customer’s life such as real estate or healthcare. This requires FIs to form strategic partnerships with companies in various sectors to offer a unified customer experience that blends financial services with lifestyle needs. For instance, integrating financial management tools with real estate platforms to provide real-time mortgage advice while browsing home listings, or connecting retirement accounts to healthcare planning tools.

What should you do about Gen-AI? Start with your point-of-view of the future.

These are just a few trends that we expect will be relevant in terms of how the financial services industry will evolve. Notice how the focus is less on technology and more on evolving customer needs? Well, that’s because that is what we believe should be the central consideration for businesses that want to understand how they can leverage Generative AI to develop a competitive advantage: focus on the customer. Adopting technology for its own sake does not confer a competitive advantage, especially if everyone else is doing the same thing.

The more important question leaders should ask themselves is, given current trends, what is our ‘point-of-view’ in terms of how customer’s needs will change? This, to our minds, is the first question to be addressed before FIs can ask have any real conversation about developing competitive advantages. You need to understand how the game you are playing has changed before you can decide what tools will help you win, and your POV is intended to do just that.

For example, let’s assume an FI adopts the following POV:

Based on this POV, a FI can now begin to have very real discussions about what their aspirations should be, about where they should focus their efforts to achieve their aspirations and the kinds of capabilities and resources (including Gen AI capabilities) that they must develop. The discussion remains focused on strategy and less on technology adoption for its own sake.

Given the rapid pace of developments in the Generative AI space, the sands will continue to shift and it’s not feasible to expect that there will be enough time to sit by their sidelines and wait for things to come to a head before making a move. It may already be too late because certain industries, especially those that are services-based, are more ripe to being disrupted and commoditized than others. To stay relevant and carve out competitive advantages requires leaders to step up and formulate a view about the future and the role they should play in it. This requires leaders to embrace uncertainty, ambiguity and agility as they make intelligent assumptions about their future, invest and learn from meaningful experiments and chart a new path forward.

Thanks for reading,

Hardesh.