AI wave: Robots are helping change the way you bank

In Part VI, which is also the last leg of the series, we look at how AI impacts the banking sector.

Have a complaint with your bank? Talk to the robots.

Yes, robots, humanoids and chat bots are the latest "staff" at banks like State Bank of India (SBI), HDFC Bank and Canara Bank.

The AI revolution in banking has reached a stage where the happy-to-help machines are greeting customers at bank branches to offer loans, facilitate deposits and resolve several queries.

HDFC Bank has two IRAs – intelligent robotic assistants – named EVA at its Bengaluru and Kochi branches, Canara Bank employs a robot named Mitra at its Chennai branch, and City Union Bank's has one named Lakshmi working at its Chennai branch.

The day isn't far when, like the Shanghai branch of the China Construction Bank (CCB), a bank in India has an office that is entirely run by robots.

For online operations, banks such as ICICI Bank and Kotak Mahindra Bank have virtual assistants and chat bots. These are AI-based computer programs that emulate human actions to automate and perform repetitive, mundane, high-volume and time-consuming business tasks with equal efficiency and accuracy.

"We are going back to alphabets ABCD…. Artificial Intelligence, biometric, customer experience and data are the four big drivers of finance. And we believe, the finance of the future will not be the finance of the past," billionaire banker Uday Kotak, CEO and MD of Kotak Mahindra Bank, had said in March.

Disruption and uses

The robots, which have certain human-like capabilities, are equipped with cameras, microphones with visual recognition, and remote control. They also speak in different languages to interact and communicate with different customers.

Apart from personalised and self-service options to customers, banks are implementing the technology to bring more efficiency to their back-office and even reduce fraud and security risks.

Experts point out to the untapped potential of the accumulated massive amounts of data which will be banks’ greatest strength.

Banks such as SBI, which is the largest in India, last year conducted the "Code for Bank" hackathon to encourage developers to build AI and blockchain-based banking solutions.

SBI is attempting to collect instant data to bring all services on one platform and preempt a fraud anticipating its occurrence. “We are trying something to detect the stage of a transaction and check behavioural patterns to help offer of the required product on the spot. It also will check on detection and correction of a transaction failure or fraud while or before it happens,” said Amit Saxena, Deputy Chief Technology Officer at SBI.

Cost reduction with efficiency

“All this (conversations and data accumulation from robots and chatbots) will also have more ability to look at small value transactions and get new customer segments. Error rates, turnaround time to get a transaction done is reduced, helps in portfolio monitoring and controls will thereby strengthen,” said Deepak Sharma, Chief Digital Officer, Kotak Mahindra Bank.

In the last one year, the strain on banks’ balance sheets due to mounting bad loans or non-performing assets (NPAs) and the bout of frauds being unearthed, has led to increase in costs.

Of the 21 public sector banks, 19 of them made losses worth a whopping Rs 87,000 crore for the fourth quarter of 2018.

Given this, as per estimates banks will require huge capital of over Rs 1 lakh crore in FY19 and this may drive them to push ahead with the use of AI and such technologies to reduce potential stress by filtering good quality loans and reduce costs towards maintenance of loans.

In March, SBI said it plans to set up blockchain-based exchange for bad debts along with other banks, asset reconstruction companies and investors on a unified IT infrastructure to cut costs and have greater efficiency.

SBI has also enabled 60 digital branches pan India offering advanced banking services such as instant loan approvals, assistance in choosing investment portfolios, access to latest mutual funds etc.

Overall, internet and mobile banking has helped banks reduce costs to Rs 10-15 from Rs 45-50 per transaction.

Even as investment in technology is yet to be accounted for, with robots and chatbots further taking away the rudimentary roles, the costs of services may further reduce for banks.

For HDFC Bank, since its launch in April, EVA has addressed over 65 lakh queries on voice and chat-based channels with over 85 percent accuracy. This would be in thousands or even less with a human employee.

Shrinking physical presence

With growing technology serving customers without having to visit branches, banks are rationalising branch expansion and reducing the number of ATMs. Digital expansion has eliminated the need of large-scale expansion of the branch network.

Although banks continue to open branches, the size and pace has shrunk. Most private banks have seen a huge drop in branch additions this year.

Several banks are remodelling and downsizing their physical presence, resulting in a smaller branch footprint with fewer employees and more self-serving kiosks.

"The definition of branch is changing. With the new regulations, even a banking point can be a branch. You just need a customer touch point,” said Romesh Sobti, managing director, IndusInd Bank, in April.

He added that you certainly need brick and mortar and hence his bank has reduced the target to 2,000 branches in three years rather than 3,000-4,000 branches. Yes Bank also reduced its expansion target to 1,800 branches by March 2020 against 2,500 initially.

While Singapore-based foreign bank DBS is completely online and paperless financial house, in India IDFC Bank operates solely through its mobile app and will focus on physical presence in the form of touch points and banking outlets rather than full-fledged branches. IDFC Bank’s branches will gradually expand from 74 to 200 in three years. On the other hand, the 8,000 points of presence, in the form of merchant points, micro ATMs and Aadhaar pay outlets, will increase to one lakh in three years.

Private lender Karur Vysya Bank and Federal Bank are reworking on a different operational structure with mini branches of smaller size of about 600-800 sq ft (from 1,200-1,800 square feet), only to on-board customers.

For HDFC Bank, branches only do 8 percent of customer transactions as opposed to 43 percent of the transactions in 2008. In 2008, internet and mobile transactions contributed a measly 3 percent and now up to 85 percent.

RBI has further revised banking outlet policy to allow banks more flexibility in opening, relocating, and shutting branches.

The shrinking space underlines the role AI – robots, et al, will play in the coming years.

Hype or reality

On the ground though, it may take just a little more time for AI to go beyond the robots and chatbots.

In January 2017, HDFC Bank had said they would deploy 20 humanoids in two years. Since then, the number of humanoids have been limited to two across the country. Also, IRA first launched in Mumbai has been moved to its Kochi branch "for more feedback and upgrades".

"We foresee a future where these technologies will complement the Bank’s physical network and help our employees add value to our customers…Our road map is pretty open. We are neither closed minded that we will only do 15-20 humanoids nor we are excessively open minded that we have to do 20 somehow, it will depend on customer feedback," Nitin Chugh, Country Head - Digital Banking, HDFC Bank had had said.

For ICICI Bank, there are no humanoids yet, but have around 750 software robotics operating at present. The bank is still in the process to resolve challenges such as using AI from text to voice, solving more complex decision making, getting right data quality, etc…given its innovation stage. It plans to invest further Rs 100 crore in AI and other technologies this year.

The guarded response belies the doubt over machines – how much can they really do?

Reliability on machines

The "Accenture Banking Technology Vision 2018" report, where AI continues to be a top trend for the second year in 2018, said bankers are concerned about how decisions will be made by AI as the technology advances and if those decisions will adhere to actual problem solving alongside regulatory and ethical standards.

"While a lot of technologies are developed and being looked at, at a higher level, we also need to see what business problem and customer problem are we solving?" Kotak’s Sharma said.

Machines need to be well-trained and must take ethical decisions with a view to reduce the problems with complete data and privacy security.

"As AI becomes more visible within banks — as both a co-worker to employees and a customer-facing representative — there will be more scrutiny placed on how AI decisions are made," according to Peter Sidebottom, a managing director of strategy in Accenture’s Financial Services practice.

About 90 percent of bankers believe it’s important for employees and customers to understand the general principles used in AI-based decision making. Transparency will be key, as more than two-thirds (71 percent) of surveyed bankers said the biggest benefit they expect from AI is that it will enable banks to build trust and confidence with their customers.

Uday Kotak believes that significantly more data will be the basis of the bank’s decision making. "It helps find operational gaps so that we don't have gaps between technology and manual processes which things seep through. So, this is a whole different mind-set for the future."

Jobs impact

The biggest fear is about the fear of job loss.

A major fallout of AI and data-based technology is less people can deliver more work. This means more traditional jobs such as passbook updating, cash deposit, verification of know-your-customer details, salary uploads are going digital increasing job redundancies.

Anywhere between 2 million and 6 million jobs globally will be lost over the next decade due to financial technologies like AI and blockchain, said an Oxford University study.

In its annual report 2017-18, SBI said that human resource (HR) issues need a fresh look as usage of advanced digital technology such as AI and big data increases within the Bank.

Earlier public sector banks looked at lot of transactional banking roles. More workforce is now redeployed to do more sales and marketing roles and the backend work like cashier, clerical and other roles are managed by machines.

“Technology has eliminated data entry process and these people are moved to help in sales and other support…About 15-20 percent of our manpower is in sales and customer servicing right now this could easily go up to 50 percent (with technology),” said PS Jayakumar, CEO and MD at Bank of Baroda.

Former banker Vikram Pandit, who ran Citigroup during the financial crisis, also raised an alarm that 30 percent of banking jobs may disappear in five years.

In December last year, SBI Deputy MD Prashant Kumar told Moneycontrol in an interview, said, “With technology, I don’t see downsizing of people but lot of efficiency of managing high level of work with existing people. In last 10 years, more or less the recruitment has been the same but our balance sheet has grown three times, number of transactions have increased.”

As per the Accenture report, nearly 83 percent of Indian bankers surveyed (as compared to average of 79 percent globally) believe that AI will work alongside humans as collaborators and trusted advisors within the next two years.

Professor of IIT-Bombay, Deepak Pathak, who advises various banks on technology, strikes a happy note. “In three years, the mindset of people will change. It will empower them. And as business grows, the number of people required will only increase…Since 1990s, a bank like SBI has only increased its employee base. So, the jobs will remain but the form will change.”

(This was the concluding story in the six-part series)