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You say many banks, perhaps most, are “doing digital” instead of becoming “AI-native.” What does that mean?

Today, a banks’ whole infrastructure has to be founded on an AI-native platform so it can understand and predictively model customer needs.

Chris Skinner
CEO, The Finanser
Author, Intelligent Bank

Are you advising banks to re-engineer all their systems from the ground up?

Totally.

That’s a pretty Herculean task, isn’t it?

It’s a big ask, but it’s not impossible. Ten years ago, I did a case study in China about Ant Group. They operate Alipay, one of China’s leading mobile payment and digital services platforms.

I was amazed when the head of its financial services architecture told me, that, just 12 years after launching, Ant Group was already starting work on its fifth architecture. It was rebuilding its architecture every three or four years.

European and American banks I’ve dealt with haven’t done that for half a century. Their systems are so deeply ingrained in the organization that replacing them is seen as enormously risky and expensive. Consequently, leaders are reluctant to do it.

You’ve just published a book, Intelligent Bank. What does that term mean to you?

It’s a bank whose customers no longer have to think about money or finance. Everything is delegated to agents. The only time customers have to think about anything is when they receive an alert or are asked a question. The models are saying something like, “You don’t have enough money to go on holiday next month,” or, “You have spare cash – you should invest it.”

Monzo, a challenger bank in the UK, analyzed its customer data and identified people who were buying subway tickets every day. They weren’t buying quarterly or annual passes because they didn’t have enough money in their accounts.

The bank told them, “It’s more cost-effective if you buy an annual pass. To get one, click here.” Effectively, Monzo was offering customers a loan. That sort of data analysis, leading to new business, is an example of intelligent banking.

In the future, an AI agent might decide for the customer whether to take that offer. How does the risk landscape change when AI starts making such financial decisions?

We will delegate authority to AI agents to manage our finances for us. Those agents will deal with one another, bot to bot. We will then have to trust our AI agent to identify a criminal bot.

If a bank’s bot gives your money to a criminal bot that you have designated as your agent, then the bank is at fault. That’s what the regulator will say.

If the bank moves funds on your behalf after you have trusted its agents to act intelligently—and the agents fail to do so—then the bank is at fault.

When banks scale up AI, what tends to break first?

If you are undertaking a massive transformation of your systems to become AI-native, there is a risk that you won’t fully test the rollout. It could go live and break down, or create exposures you hadn’t anticipated.

Another risk: in every massive technology failure I’ve seen, the problem hasn’t been the technology; it has been the human. I’ve done a lot of research into fraud, and spoken with a lot of hackers and criminals. They always say the vulnerability stems not from the tech, but from social engineering.

People have been predicting the disappearance of bank branches for a long time, but it hasn’t happened yet. Will all bank branches eventually close?

The UK provides a good example of what has been happening. Banks there have closed most of their branches over the past decade. But I’m actually working with a startup that’s opening branches.

There are several reasons for that, but the main ones come back to security and trust, as well as brand and marketing. If I can’t physically see you, or can’t go to you and say, “Show me my money,” then I’m nervous.

That point was brought home to me by CheBanca!, a digital challenger bank in Italy. It launched in 2008 and began opening branches. I asked the founder, “Why are you opening branches?”

He said, “It’s marketing. It’s not about service or advice. It’s about trust and marketing.”

He said that wherever the bank had a physical branch, it attracted three times more deposits and assets than it did in locations without one. That was the difference.