How Banks Can Better Serve Their Customers

Through Artificial Techniques 31

Armando Vieira and Attul Sehgal

Abstract
Thanks to the big data revolution and advanced computational capabilities, companies
have never had such a deep access to customer data. This is allowing organizations to
interpret, understand, and forecast customer behaviors as never before. Artificial Intel-
ligence (AI) algorithms will play a pivotal role in transforming business intelligence
into a fully predictive probabilistic framework. AI will be able to radically transform
or automate numerous functions within companies, from pricing, budget allocation,
fraud detection and security. This chapter will present some approaches on advanced
analytics and provide some examples from the financial sector on how AI is helping
institutions refine small business credit scoring, understand online behavior and im-
prove customer service. Further, we will also explore how integration with traditional
business processes can work and how organizations can then take advantage of the data
driven approach.

31.1 The Impact of Big Data in Banks

Data generated from online bank transactions, digital sensors and mobile devices is being
produced and recorded at an astonish rate. Every day 2.5 quintillion bytes of data are
created and it is predicted that about 90% of all data processed was produced in the past
two years [1].

A. Vieira ()  A. Sehgal

RedOctopus Innovation
London, UK
e-mail: Armando@redoctopusinnovation.com
A. Sehgal
e-mail: Attul@redoctopusinnovation.com

Springer-Verlag GmbH Germany 2018 311

C. Linnhoff-Popien et al. (eds.), Digital Marketplaces Unleashed,
https://doi.org/10.1007/978-3-662-49275-8_31
312 A. Vieira and A. Sehgal

The amount of data needed to be stored in servers is ever expanding, and for banks the
opportunity to have a 360 perspective of the customer life has never been so high. These
developments provide a huge business opportunity for banks, not only by improving their
core business risk assessment and investment but also by creating new marketing op-
portunities and reducing costs. The challenge is how to extract the intelligence effectively
[2].
Traditionally, banks have tried to extract information from a sample of its internal data
and produced periodic reports to improve decision making. Nowadays, with the availabil-
ity of vast amounts of structured and unstructured data from both internal and external
sources, there is increased pressure and focus on obtaining an enterprise view of the cus-
tomer in real-time, on a self-service basis and in a more systematic way.
By integrating predictive analytics with automatic decision making, a bank can bet-
ter understand the preferences of its customers, identify customers with high potential to
spend, be able to promote the right products to the right customers, improve customer
experience, and drive revenue. However there are several challenges: i) engineering (how
to store, organize and create views over the unstructured data in a cost-effective way); ii)
analytics (how to process real-time analytics within an ever changing environment); and
business (how to apply these insights to transform the business processes and translate
into competitive advantages).
Advanced data storage for structured and unstructured data based on technologies like
Hadoop and Spark in the form of the so called data lakes is becoming a standard.
On the analytics side, Deep Learning based machine learning is making a tremendous
progresses in extracting powerful insights from vast quantities of structured (transactional
data), semi-structured (social networks activity) and mostly unstructured data (images,
video or text) [35] (see Fig. 31.1).
With online banking, credit card and mobile payment systems, banks have access to
a large amount of customer information. Furthermore, social media data can shed light on
brand sentiment and brand loyalty. However, most traditional customer behavior analytics
techniques only focus on hard information and disregard soft and unstructured informa-
tion.
Traditional customer behavior analytics have four dimensions: customer identifica-
tion, customer attraction, customer retention, and customer development. Among them,

Fig. 31.1 Deep Learning algo-

rithms have a higher learning
capacity
31 How Banks Can Better Serve Their Customers Through Artificial Techniques 313

customer identification is the most fundamental and widely implemented in the banking
industry. Customer identification includes customer segmentation and targeting.
Each component of customer behavior analytics is linked to some standard data mining
techniques. In customer identification, classification and clustering methods are usually
used to target a specific customer group based on the business objective. In addition, re-
gression techniques are applied to predict new potential customers. Almost all frequently
used data mining techniques can be applied to better understand customer loyalty, includ-
ing classification, clustering, sequence discovery, association, and regression.
Association techniques are often used in customer development in affinity analysis
to find the relationship between different products that are bought by a given customer
over his or her lifetime. Numerous solutions have been developed and studies done on
traditional customer behavior analytics. For example, a framework for analyzing customer
value and segmenting customers based on their value was proposed in [6].

31.2 Addressing the Opportunity

With the deriving of new customer insight through advanced analytics marketeers need to
organize themselves internally to take full advantage of the available information. Here
are some suggestions:

1. Build a Robust 360 degree Customer View banks need to think beyond one-
size-fits-all as relationship pricing and product bundling become ever more important.
Banks should look at products and pricing based on CLTV the value that customers
bring to the bank across the spectrum of rates, fees, features and services. Despite the
challenges in integrating data from multiple systems and data sharing impediments due
to opt-out policy and regulatory requirements, it is crucial to have a 360 degree view
of customer to improve customer satisfaction and maximize lifetime value.
2. Adopt Advanced Customer segmentation this is key to cater to individualized
needs and should be based on standard banking metrics tenure with the bank, num-
ber of accounts, balances of accounts and loans, frequency of interaction, behavioral
(usage rate, price sensitivity, brand loyalty) and demographic variables (occupation,
income, and family-status). Traditional segmentation is dead -each customer is a seg-
ment.
3. Formulate Intelligent Real time crossselling/upselling Campaigns banks can
use real-time events and customer insight to offer cross-channel marketing campaigns
where relevant events are acted on as a way to deepen customer relationships.
4. Design Innovative Reward Models banks need to move beyond a one-size-fits-all
reward model and design a system where valuable customers enjoy premium benefits
and redeem rewards points easily and in various ways.
5. Enable Automated Customer care Systems In the digital era, customers demand
more self-service options, any-time and anywhere. So expanding customer self-ser-
314 A. Vieira and A. Sehgal

vice, case management, dispute management and event-based decision-making can

be perceived as better customer care, while lowering operational costs and increasing
effectiveness.
6. Enable Prediction through Big Data Big data is the new disruptive technology.
Big data technologies provides banks the ability to understand their clients at a more
granular level and more quickly deliver targeted personalized offers. Being able to an-
ticipate customer needs and resolve them before they become problems, allows banks
to deliver timely, concise and actionable insight to contact center agents. This can also
lead to increased sales, improved customer satisfaction and a reduction in operating
costs. Fighting fraud, financial crimes and security breaches, in all forms, is among the
most costly challenges facing the finance industry. Big data benefits include: Reduced
costs of fraud screening and monitoring fewer false positives, reduced cost of fraud
investigations, reduced payment fraud losses, real time fraud detection and mitigation,
optimized offers and cross-sell.
7. Improve Multi-Channel Experience banks should seek to attract and retain cus-
tomers with a compelling multi-channel experience across all touch-points (branches,
online, mortgage and investment advisors, etc.) Virtual channels are becoming more
relevant, with the increasing penetration of high-speed Internet connectivity and Web-
enabled mobile devices allowing consumers to spend more time online. Online bank-
ing and call centers already account for 55% of transactions [7].

Compared with traditional customer behavior analytics methods most used in banking,
there are two major challenges in the big data era. The first involves how to handle the
massive amount of complex data in a cost-effective and efficient way. The availability of
data has grown in magnitude, speed, and dimensionality. Second challenge is in new data
analytical models required to capture the value behind the increasing amount of unstruc-
tured, soft information [8].
Traditionally, solutions to manage the large amount of data are unable to provide rea-
sonable response times in handling expanding data volumes, leaving few options-either
to run the analytics models in batch mode or perform piecemeal transactions for a more
reasonable response time. Therefore, a bank needs to ensure the real-time response which
requires new expertise in the data management and the latest systems management meth-
ods [9].

31.3 What Is Artificial Intelligence?

Asking whether a computer can think is a bit like asking whether submarines can swim (Edger
Dijkstra).

In its simplest form, Artificial Intelligence (AI), consists of a set of algorithms that can
perform complex cognitive tasks, some deem up to now being exclusive to humans,
31 How Banks Can Better Serve Their Customers Through Artificial Techniques 315

and makes them amenable to machines. AI is today one of the most exciting research
fields with plenty of practical applications, from autonomous vehicles to drug discovery,
robotics, language translation and games [5]. Challenges that seemed insurmountable just
a decade ago have been solved and are now present in products and ubiquitous applica-
tions, like voice recognition, navigation systems, facial emotion detection and even in art
creation like music and painting.
Inspired by the depth structure of the brain, deep learning architectures have revolution-
ized the approach to data analysis [35]. Deep Learning networks have won a paramount
number of hard machine learning contests, from voice recognition, image classification,
Natural Language Processing (NLP), to time-series prediction sometimes by a large
margin [3]. Traditionally AI relied on heavily handcrafted features, for instance, to have
decent results in image classification, several pre-processing techniques have to be ap-
plied, like filters, edge detection, etc. The beauty of DL is that most, if not all, features can
be learned automatically from the data provide enough (sometimes millions) training
data examples are available.

31.3.1 Deep Neural Networks

Deep models have feature detector units at each layer (level) that gradually extract more
sophisticated and invariant features from the original raw input signals. Lower layers aim
at extracting simple features that are then clamped into higher layers, which in turn de-
tect more complex features. In contrast, shallow models (two-layers neural network or
support vector machine) present very few layers that map the original input features into
a problem-specific feature space. See [3, 4] and for a review and [5] for a business oriented
perspective.
Being essentially non-supervised machines, deep neural architectures can be exponen-
tially more efficient than shallow ones. Since each element of the architecture is learned
using examples, the number of computational elements one can afford is only limited by
the number of training samples which can be of the order of billions. Deep models can
be trained with hundreds of millions of weights and therefore tend to outperform shallow
models such as Support Vector Machines. Moreover, theoretical results suggest that deep
architectures are fundamental to learn the kind of complex functions that represent high-
level abstractions [4] (e. g. vision, language, semantics), characterized by many factors of
variation that interact in non-linear ways, making the learning process difficult.
There are many DL architectures, but most of the DNNs can be classified into five
major categories (see Fig. 31.2).

1. Networks for unsupervised learning, designed to capture high-order correlation of data

by capturing jointly statistical distributions with the associated classes when avail-
able. Bayes rule can later be used to create a discriminative learning machine.
 316

Fig. 31.2 Several types of deep neural networks. a Convolutional neural network (CNN) has several levels of convolutional and subsampling layers
optionally followed by fully connected layers with deep architecture. b Stacked autoencoder consisting of multiple sparse autoencoders (c). Deep Belief
Network (DBN) (d). Restricted Boltzmann Machine (RBM) architecture includes one visible layer and one layer of hidden units
A. Vieira and A. Sehgal
31 How Banks Can Better Serve Their Customers Through Artificial Techniques 317

2. Networks for supervised learning. These networks are designed to provide maximum
discriminative power in classification problem are trained only with labeled data all
the outputs should be tagged.
3. Hybrid or semi-supervised networks, where the objective is to classify data using the
outputs of a generative (unsupervised) model. Normally, data is used to pre-train the
network weights to speed up the learning process prior to the supervision stage.
4. Reinforcement learning the agent interact and changes the environment and receives
feedback only after a set of actions are completed. This type of learning is normally
used in the field of robotics and games.
5. Generative Neural Networks Deep generative models are a powerful approach to
unsupervised and semi-supervised learning where the goal is to discover the hidden
structure within data without relying on labels. Since they are generative, such models
can form a rich imagery the world in which they are used: an imagination that can
harnessed to explore variations in data, to reason about the structure and behavior of
the world, and ultimately, for decision-making an example is the variational auto-
encoder.

DNN have been successfully applied to several problems, ranging from natural lan-
guage processing, time-series prediction and image annotation. In the context of banking,
and customer care, the most relevant applications are in customer segmentation, recom-
mendation algorithm, fraud detection and credit scoring.
The main characteristics that make DNN unique can be summarized in the following
points:

1. High learning capacity: they dont saturate easily the more data you have the more
they learn.
2. No feature engineering required: learning can be performed end-to-end.
3. High generative capability: DNN can generate unseen but plausible data based on
latent representations.
4. Knowledge transfer: we can teach a machine in one large set of data and transfer the
learning to a similar problem where less data is known.
5. Excellent unsupervised capabilities DNN can learn hidden statistical representations
without any labels required.
6. Multimodal learning DNN can integrate seamlessly disparate sources of high-di-
mensional data, like text, images, video and audio to generate conditional probability
distributions.

31.3.2 Why Deep Neural Networks is a Game Changer?

To demonstrate why DNN are so effective, lets consider the case of weather forecasting.
Its a very complex problem that takes as inputs many measurements of previous con-
318 A. Vieira and A. Sehgal

ditions in a space-time mesh. Current predictions models are based on huge grid based
finite-element method calculations and large sets of fluid dynamics differential equations
are solved iteratively so that the results are used as initial conditions for the next step.
This is computationally extremely expensive and the predictive accuracy limited as errors
multiply for each predictive time step.
However, recently, using a combination of 3D Convolutional Neural Networks with
neural networks with Long-Short Term Memory (LSTMs) cells, it was possible to build
an accurate model, using up to 100 million parameters, trainable end-to-end, to predict in
less than 0.1 s on a laptop, the weather up to two days ahead achieving a better accuracy
than models that need several hours of computations on a supercomputer [10].
Deep Learning was also applied to other very challenging problems, like image annota-
tion, voice recognition and control, sometimes with super-human accuracy for instance
in the ImageNet competition [6].

31.4 Deploying Artificial Intelligence in Banks

In 2015, technology companies spent $8.5 billion on deals and investments in artificial
intelligence, four times more than in 2010. In 2016, Deutsche Bank announced a crowd-
storming ideas initiative on how artificial intelligence can be used in the financial services
industry, by inviting people to submit their concepts for the chance to develop them at the
German giants innovation labs and win cash prizes [11]. With the likes of Google, Face-
book and IBM among those pouring resources into AI, Deutsche Bank is hoping to be at
the forefront of the technologys application in financial services and arrest some of the
AI talent away from the big technology firms. What is driving this change?
The goal of customer analytics is to create a deeper understanding of customers and
their behavior to maximize their lifetime value to the company. Customer analytics can be
applied to many applications, like customer marketing, credit scoring and approval, prof-
itable credit card customer identification, high-risk loan applicant identification, payment
default prediction, fraud detection, money laundering detection, etc. Banks are using these
techniques to reduce costs and simplify customer interactions. Some early examples can
be seen through recent activities in RBS and Barclays.
After falling 2 billion in the red in 2016, RBS, a UK Bank, announced it will re-
place staff who offer investment tips with so-called robo-advisers in order to reduce
costs. Robo-advisers have been around for a while in the US. A report from Cerulli Asso-
ciates in August 2016 said that robo-advice platforms are expected to reach $489 billion
(323 billion) in assets under management by 2020, up from $18.7 billion today. Current
robo-advisers are essentially online wealth management services which use algorithms to
suggest automated investment portfolios based on customers goals and attitude to risk.
The RBS deployment will provide an automated system to offer customers advice based
on their responses to a series of questions. At the same time RBS will reduce internal
headcount by over 550 staff [7].
31 How Banks Can Better Serve Their Customers Through Artificial Techniques 319

With the aim to boost its multi-channel delivery and understand customer behavior,
Barclays South African subsidiary, Absa, announced a trial of chatbots, using artificial
intelligence to answer simple customer queries posted over popular smart messaging apps.
The goal of the bank is to connect with customers through their conversational channels
of choice rather than by traditional, and more limited options such as SMS or email. The
use of two-way messaging is expected to create a feedback loop to help the bank better
understand the most pressing issues for improving customer service [12].

31.4.1 Customer Segmentation and Preference Analysis

By deploying fine-grained customer segmentations in which customers share similar pref-

erence for different sub-branches or market regions, banks can get deeper insights in their
customer characteristics and preferences. This allows improved customer satisfaction and
improved precision marketing by personalizing banking products and services, as well as
marketing messages.

31.4.2 Recommendation Algorithms for Marketing

Recommendation algorithms are ubiquitous in almost any ecommerce site. A Recom-

mender System (RS) is an algorithm that suggest items to a user that he may be interested.
It uses as input information on past preferences of users (transactional data) over a set
of finite items, either explicitly (ratings) or implicitly (monitoring users behavior, such as
songs heard, applications downloaded, web sites visited) and information about the users
or the items themselves.
Deep Learning can address this problem through an hierarchical Bayesian approach.
Collaborative Deep Learning (CDL) [13] can jointly learns deep representations from
the content of items/users while also considering the ratings matrix with significant bet-
ter results in a self-consistent way. It relies on a method using tightly coupled schemes
that allow two-way interaction between rating matrix and content: the rating information
guides the learning of features and, on the other hand, the extracted features can improve
the predictive power of the CF models.

31.4.3 Credit Scoring

Credit risk analysis is a very important and actual topic. Neves and Vieira [14] pioneered
the use of Deep Artificial Neural Networks for the distress prediction of SME companies.
They showed that these types of ANNs substantially outperform traditional methods based
on Logistic Regression or Support Vector Machines. Recently, Lopes and Ribeiro [24] also
applied a model based on deep belief networks (DBN) for bankruptcy prediction. Despite
320 A. Vieira and A. Sehgal

being a small dataset, they showed that DBN can achieve better accuracy than SVM or
Restricted Boltzmann Machines (RBM).

31.4.4 Churn Management

Churn is a classical, but important, problem for banks. It cost five times more to acquire
a new customer than to retain an existing one. To prevent such attrition (churn) it is criti-
cal to be able to identify the early warning signs of churn. Artificial Intelligence has been
applied with success in this problem through the selection of features that work as proxies
for early indicators of churn using a semi-supervised approach. This can be done using ei-
ther a more conventional transactional data perspective or analyzing the network activity
relationships between customers, their degrees of connectivity and influence.
The Churn Score, that assigns a probability to each customer indicating the predicted
likelihood that the particular subscriber will churn within a predefined period of time, is
constructed based on different models, the most useful are Random Forest (or an upgraded
version of gradient boosting trees) or more advanced Convolutional Neural Networks. De-
pending on the quality of data and business activity, accuracies of up to 90% are common.

31.4.5 Customer Identification

This problem consists of identification of potential high-revenue or loyal customers who

are likely to become profitable to the bank but are not on the books. These methods rely
on template matching (target new customers based on past behavior) and allow banks to
get a more complete and accurate target customer list for high-value customers, which can
improve marketing efficiency and bring huge profits.
Other technique is customer network analysis. It consist of understanding customer
and product affinity through analysis of social media networks and their relations through
exploration of graph connectivity analysis. Customer network analysis can improve cus-
tomer retention, cross-sell, and up-sell.
Market potential analysis: Using economic, demographic and geographic data, we
can generate the spatial distribution for both existing customers and potential customers.
With the market potential distribution map, banks can have a clear overview of the target
customers locations, and identify the customer concentrating/lacking areas for invest-
ing/divesting, which will support the banks customer marketing and exploration [15].
Channel allocation and operation optimization: Based on the banks strategy and spatial
distribution of customer resource, this module optimizes the configuration (i. e., location,
type) and operations of service channels i. e., retail branch or automated teller machine
[16].
31 How Banks Can Better Serve Their Customers Through Artificial Techniques 321

31.4.6 Conversational Bots (Chatbots) for Customer Service

Probably the largest, and most immediate, impact of AI anywhere, supported by DNN,
will not be in self-driving cars or robotics but in customer service. Services like sending
a specific email, a mobile push, or a customer pass for a specific shop or event; predictive
analytics to help support decisions and call centers. Contact centers deal with very mun-
dane interactions that soon will be serviced through automated messaging like chat bots
and personal assistants. AI can help suggest how to deliver a conversation; user interests
and product. It can even use the data for secondary purposes, like risk assessment based
on previous interactions.
Chabots have gone a long way since Eliza, the first conversational machine invented in
the 60s. Trained in large corpus of data, they are capable of answering almost any type of
question. The technology behind chatbots is based on recurrent neural networks (RNN) for
text generation that can be trained end-to-end [17]. In recent years, the demand for Chat-
bots has changed from answering simple questions (almost as a toy) to performing smooth
in open-domain conversations like real humans. The challenge is to model conversation
within a given domain. By introducing trainable gates to recall the global domain memory,
deep learning models can incorporate background knowledge to enhance the sequence
semantic modeling ability of LSTMs.
Banks channel users to customer-service representativesgenerally via a call or live
chat, but chatbots are a new medium for communication that are fastly making inroads at
other financial institutions. Some examples already implemented based on chatbots:

 DBS in Singapore recently launched Mykai, a conversational bot (created by the startup
Kasisto) to help customers perform routine operations, like payments and checking. In
the future the plan is to integrate it in messaging platforms, like telegram or WhatsApp
[18].
 Digibank, recently launched in India, allows to open an account with a bank thats
only accessible via mobile devices. Its based on chatbots intelligent enough to answer
thousands of questions submitted via chats [19].
 Penny is a conversational personal financial assistant [20]
 Bank of America allows customers to interact with a bot on Facebooks Messenger
platform [21].

31.4.7 Fighting Financial Crime and Money Laundering

IT companies are working with banks to create tools to increase robustness in the trans-
action monitoring process and the detection of unusual financial activity. These systems
are based on standard typologies of money laundering such as spikes in value or vol-
ume of transactions, monitoring high risk jurisdictions, identifying rapid movement of
funds, screening against sanctioned individuals and politically exposed persons (PEPs)
322 A. Vieira and A. Sehgal

and monitoring enlisted terrorist organizations. Challenges today are in setting up the cor-
rect threshold levels and parameters, Identifying false positives quickly and accurately,
streamlining operations to minimize costs, accurate data sources and accurate and timely
reporting. The future lies in seeing how the intrinsic benefits of DL can play a role. For ex-
ample, if the IT system could learn from previous cycles and identify false positives before
an alert was generated, it would be a game-changing factor in transaction monitoring,
speeding up and increasing the accuracy of identifying the truly suspicious activity.
We are seeing increasing examples of machine learning in many areas of technology
and financial institutions should grasp the opportunity to use it for repetitive analysis.
There are also alerts that are generated which carry a relatively low money laundering
risk, e. g. an alert based on a counterparty moving funds between their own accounts (pos-
sibly held in different jurisdictions or in different banks). False positives are, however, still
very common for most algorithms. If the system could perform a simplified up-front anal-
ysis to exclude these types of alerts, or move them to a specially quarantined area, then
allied with self-learning, the alert landscape becomes cleaner and only the truly suspicious
transactions require costly human intervention.

31.5 Challenges to Artificial Intelligence Deployment

From the industrial revolution to the emergence of the Internet age there have always been
challengers to the deployment promoting fear of a change in traditional roles and jobs
being lost. AI adoption is very much in the eye of the storm with its perceived ability to
provide reliable results from large data sets and to carry out cognitive and creative tasks
more competently than humans.

31.5.1 Consumer Data Protection and Privacy Challenges

The use of big data raises a number of privacy and data protection concerns, including
transparency (what data are being used and where did it originate) and customer consent
(was permission provided for its use and possibilities of access/redress, can the con-
sumer see their own data and request that errors be corrected). While these issues may
be addressed for the data in credit bureaus which originate with banks and other for-
mal lenders and service providers the same protections do not typically extend to big
data that are amassed from a combination of private commercial transactions, government
sources and publicly available information such as social media posts. Developing a prac-
tical approach to consumer protection for big data, which balances privacy and consumer
protection with commercial applications that can facilitate commerce and even access to
credit, is a challenge that remains to be met.
31 How Banks Can Better Serve Their Customers Through Artificial Techniques 323

31.5.2 Automation of White Collar Jobs

AI is having an impact not just on routine and repetitive tasks but also on cognitive,
and even creative tasks, as well see for example [22] where authors used Generative
Adversarial Networks to generate faces and bedrooms. A tipping point seems to have
been reached, at which AI-based automation threatens to supplant the brain-power of
large swathes of middle-income bank employees. The example raised earlier of RBS of
releasing 550 staff, to be replaced with robot-advisers, is evidence that AI will have
a tremendous impact in workforce by rendering many jobs obsolete [7].
Not only is AI software much cheaper than mechanical automation to install and op-
erate, there is a far greater incentive to adopt itgiven the significantly higher cost of
knowledge workers compared with their blue-collar brothers and sisters in the workshop,
on the production line, at the check-out and in the field. The impact is real as far few new
white-collar jobs are expected to be created to replace those at risk of being lostdespite
the hopes many place in technology, innovation and better education.
What constitutes work todaythe notion of a full-time jobwill have to change dra-
matically. The things that make people humanthe ability to imagine, feel, create, adapt,
improvise, have intuition or act spontaneouslymay remain comparative advantages with
respect to machines, but even those are not guaranteed as the processes where these
competencies emerge can themselves be described by algorithms [1]. The most recent
advanced in AI proved powerful enough to beat the best human players in the challenging
game of GO [23] something regarded as impossible a few years ago as it requires the
machine to learn high level strategy though to be an human exclusive capability.
There is another flipside of AI. The fact that Deep Learning algorithms are probabilistic
cognitive machines controlled by million of parameters, makes them almost impossible
to be understood. This is particularly restrictive for banks as, for instance the scoring
algorithms, have to be white boxes, due to regulation requirements. Furthermore, other
risks may emerge as a consequence of relying on black box algorithms: how can we
be sure they less biased than humans? How will they cope with novelty or non-stationary
data? How can we be sure they are reliable?
We should be prepared for smarter than human systems acting in reality that may en-
counter situations beyond both the experience and the imagination of the programmers
see [1] for further exploration of these possibilities.

31.6 Conclusions and Recommendations

Despite the technological threats, Deep Learning powered AI is transforming businesses

at an accelerating speed. According to IDC, by 2020, the market for machine learning
applications will reach $40 billion. In 2015, only 1% of software include AI, in 2020 this
number will be above 50%. In the future, AI will fundamentally change and automate
324 A. Vieira and A. Sehgal

innumerous functions within companies: from pricing, budget allocation, fraud detection
and security to marketing optimization if organizations implement it in the right way.
Machine Learning will make everything in the organization programmatic, from ad-
vertising to customer experience. This allows companies to create products that interact
naturally with humans and will force reorganize several departments in financial institu-
tions.
Deep Learning is well suited for activities that are heavily data intensive, like adver-
tising and click-through information. Most of the data will be collected by the mobile
phones and a myriad of devices delivering real time geo-referenced information. Multi-
modal learning will allow the integration of text, images, video and sound within a unified
representation.
Banks need to exploit the opportunity of digitalization and advanced algorithms ca-
pable to radically change their business. Banks have deployed online servicing, capac-
ity-management software, interactive voice response systems but theyre not using them
widely and still dragged by inertia. They also need to avoid the trap of deploying AI purely
for cost saving initiatives and build forums that could potentially stifle innovation. Banks
need to take positive lessons from the large IT firms open up their APIs and adopt a more
customer centric approach allowing the real innovators to innovate with more freedom to
enable the rapid turnaround of exciting applications.
Too often, banks manage the progress of their digital transformations by tracking ac-
tivity metrics, such as the number of app downloads and log-in rates. Such metrics are,
however, inadequate proxies for business value. Banks must set clear aspirations for value
outcomes, looking at productivity, servicing-unit costs, and lead-conversion rates, and link
these explicitly to digital investments. Additionally, deeper awareness of the technical ca-
pabilities available and how they can affect processes will be a prerequisite to effectively
manage in this new world.
We are on the verge of the biggest revolution of all times. Banks can take huge oppor-
tunities in assuming digitization will change the traditional retail-banking business model,
in some cases radically. The good news is that there is plenty of upside awaiting those
European banks willing to embrace it. The bad news is that change is coming whether or
not banks are ready.
This disruptive technology do not come without risks. The relentless data stream that no
one can cope but the inscrutable algorithms that process it, can have consequences that no
individual can plan, control or comprehend. Maybe that no one really needs to understand
as long as it increase the profitability and loyalty of customers. Users, however, will be
more preoccupied by the lack of privacy, The risk of data-processing system becomes all-
knowing and all-powerful, so connecting to the system becomes the source of all meaning.
This concentration of cognitive computing in a handful of players will create a threat to
banks.
31 How Banks Can Better Serve Their Customers Through Artificial Techniques 325

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