29 September 2020

Banks See Pressure in AI Race From Fintechs and Big Tech

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Fintech and big technology companies could outpace traditional banks in the race to develop AI tools that help personalize services, evaluate credit risk and more, analysts and industry executives say. While that could fuel new partnerships in banking, it also could lead to increased competition that eats into the business of more established financial institutions, industry observers said during a panel discussion this week.

“I think that AI innovation will be more and more concentrated [with] the fintechs,” Gaia Bellone, senior vice president and head of data science at KeyBank Corp., said on a virtual panel as part of the Ai4 conference.

Dr. Bellone said financial-technology companies tend not to face the internal red tape that a traditional bank may have in advancing artificial intelligence projects, such as having to get approval from multiple parties. She also said they can leverage cloud-based AI and data resources without incurring major capital costs.

“I really can see that kind of business booming and then big organizations like ours kind of integrating their solutions in our processes,” she said.

Fintech companies like Square Inc. and PayPal Holdings Inc. digitize functions such as payments and lending. Companies in the industry cover a variety of services, including wealth management, insurance and mortgages.

When it comes to offering lending services, many fintech firms tout their digital-first approach and willingness to consider alternative data, such as utility bill history, that traditional banks may not, said Javed Ahmed, a senior data scientist with education company Metis who has had stints with Amazon.com Inc., the Federal Reserve and the U.S. Treasury. Those factors—as well as their appeal to younger customers and the rise of e-commerce prompted by the pandemic—are likely to help boost the market share of fintech companies, he said.

Meanwhile, large tech companies, already heavyweights in AI, are increasingly moving into areas served by traditional banks. “I think they’re going to try and push further,” Dr. Ahmed said.

Big tech companies see financial services as a way to get closer to users and glean valuable data, and see their edge as offering helpful tools and technologies to those users. Alphabet Inc.’s Google plans to introduce checking accounts next year, in a partnership with several financial institutions. Apple Inc. rolled out a credit card last summer. Amazon.com has talked to banks about offering checking accounts.

While fintech and big tech players may be able to move faster on AI development, banks shouldn’t be counted out with respect to AI development, said Ashit Talukder, head of AI and machine learning at Moody’s Analytics.

“The larger institutions actually have a lot of initiatives under way,” he said. He added that AI increasingly is being tapped to better personalize customer experiences, such as offering services, information and advice catered to individual customers. He also said banks are using it for risk-and-compliance tasks, such as anti-money-laundering and politically exposed persons screening.

AI initiatives at banks are gaining steam during the pandemic as bank leaders look to step up digitization and automation efforts, several panelists said. But that means increased regulatory scrutiny may not be far behind, said Jose Murillo, chief analytics officer at Mexico City-based Grupo Financiero Banorte .  

“So people like us might be very happy that our data science initiatives are really moving at a faster pace,” he said. “But probably the rest of the world is going to be scared, and I think that regulation is going to be ramped up, without any doubt.”

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