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André Schoeman

Standard Bank’s proposed closure of 104 branches across the country by the end of June is nothing more than a natural progression, as banks – both locally and internationally – embark on a digital transformation journey that will completely change the face of modern banking.

The main driving force behind digital transformation in banking is the rapid shift in customer expectations. The days of a customer coming to a branch and doing a banking transaction are largely a thing of the past.

Today, people increasingly want to do banking across multiple channels, which is forcing banks to rethink the way they do business.

Another factor in the shift from traditional to digital banking is that new digital banks are creating increased competition for traditional banking institutions, which have to respond to this new wave of competition, if they are to stay relevant.

Digital banks do have the distinct advantage of not having to manage and maintain physical branches, which can be extremely expensive exercise, given the amount of money that has to be spent on rental, staffing and upkeep.

In short, digital transformation spells a massive paradigm shift for traditional bank, as they strive to compete with new entrants that do not have a legacy of technology or applications or a need to change their mindset. They start off as a digital bank. For traditional banks, it’s something that they have to come around to.

At the same time, while banks are seemingly reducing “human” interaction between themselves and their clients, as part of digital transformation, artificial intelligence (AI)-driven chatbots have the potential to revolutionise the sector.

Essentially, a chatbot is a computer application that mimics interaction with human users on the internet, and can help customers without the need for a customer service agent on the other end. Chatbots can range from simple to highly intelligent, depending on how they are programmed and where they need to be deployed.

A Gartner report maintains that 85% of banks and businesses will perform customer engagement with the help of AI chatbots by 2020 and Juniper research shows that cost savings will reach close to $8 billion a year by 2022 for organisations using chatbots – up from $20 million in 2017.

And while the modern banking customer – specifically the millennial – does not wish to physically enter a banking branch to perform a transaction, this same group has also been found to prefer interacting with AI-driven chatbots over humans for financial advice and decision-making.

This is suspected to be the case because of the private nature of finances, meaning that customers are more prone to sharing their sensitive financial information with a machine rather than with a human.

As a result, AI-based business models are significantly changing the way banking products and services are delivered and accessed.

This has seen bank across the globe starting to leverage conversational interfaces enabled by AI-driven chatbots to enhance their customer experience. These applications have advanced machine learning and natural language

processing capabilities that allow financial institutions to mine large amounts of data and provide highly-targeted offers to their customers. Again, this is in line with expectations of the modern banking client.

Interestingly, this is not a new technology, as chatbots have been used in banking since the early 2000s. Initially, they performed scripted automation processes that need human programming to enable a machine to automatically complete a manual task. Hence, these chatbots interacted with customers via text messaging and could perform simple tasks, such as show an account balance when a command was given.

Modern chatbots have evolved massively and often have the ability to self-learn, automatically correcting processes as errors are encountered, or the ability to automatically revert to a particular process that is most efficient and effective.

Such modern platforms are able to make chatbot interactions as natural as chatting with a human across social media messaging platforms, yet it is a cheap and more efficient process from the bank’s point of view.

Digitisation also does not mean that there will necessarily be large-scale job losses across the industry. Instead, this process means that staff can be reskilled and allowed to perform more creative tasks, rather than mundane task that are not part of their core functions.

Ultimately, this will see the creation of a more efficient and productive working environment.

André Schoeman is the line of business executive at Jasco, a JSE-listed ICT group.

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