How AI will close the experience gap and redefine digital banking

The financial services industry is undergoing a seismic transformation, driven by its desire to meet the digital needs of the great wealth transfer’s beneficiaries (who will be in receipt of their assets mid-century), as well as to keep abreast of trends like the “Amazon Effect” — which are raising consumers’ expectations of centralization, convenience, speed and service personalization.

To remain competitive against big banks, fintechs and tech giants, local banks and credit unions should embrace digital change and, in particular, artificial intelligence. But AI is not just a product enhancement tool. It is slated to become the cornerstone of the future digital banks’ technology stack — serving to bridge the experience gap and redefine customer centricity.

One key area for AI implementation is in the back office, where operations are run. This is rich hunting ground for AI, given the sheer volume of bureaucracy, friction and bottlenecks that persist within the processes of incumbent banks.

Already, a significant portion of the industry’s leaders (72%) have recognized AI’s potential here, and are deploying it within their own departments. For instance, 64% are using AI for fraud and risk management — pointing to an industry-wide shift toward integrating AI for security and access abstraction.

There are many other back-office areas in which AI can be applied as well, including automation, money movement processes and even tailored marketing. Generative AI, in particular, is proving popular among finance leaders — its adoption having been endorsed by 91% of bank boards, thus underlining its value for future initiatives.

Ultimately, digital banks of the future will embed AI into every layer of the technology stack, to drive efficiencies across the organization.

While financial institutions are increasingly adopting AI to preempt the demands of the next-generation customer, the sentiments of today’s customer are still evolving.

A recent study by Fiserv found that while 70% of younger generations (Gen X, Millennials and Gen Z) are familiar with AI and use it a few times a week, only a small fraction (6%) actively use it for financial planning. This small fraction will likely swell in the coming years as consumers are generally more comfortable with AI features that offer insights, financial advice, or detect suspicious transactions, rather than those that automatically manage or move their money.

The greatest levels of apprehension around AI in banking come from the older customer segment, which has concerns around data security, potential errors and its control over finances. Again, these concerns must be salved through robust guardrails, model transparency and explainability, as well as clear communication and education about AI.

So, what impact can AI-powered financial services have on banks’ customers?

For many, the future of digital banking is AI-driven hyper-personalization. But this does not mean simply improving on customer segmentation. It means identifying, tracking and delivering on the unique behaviors, financial needs and preferences of individual customers.

By analyzing and spotting patterns in real-time behavioral or transactional data, AI tools have the potential to help financial institutions decode their customers’ needs — and meet them. This results in experiences that hand the right content to the right customer, at the right time. Our research shows that digitally engaged consumers yield 16% higher net profit. Every customer interaction is an opportunity to deepen engagement. By proactively supporting customers throughout their financial journey, institutions can unlock significant value and foster long-term loyalty.

AI-powered analytics can also help deepen customer relationships by promoting financial wellness, through free advice and guidance — from budgeting to cashflow recommendations. If FIs can effectively integrate their systems and break down the siloes within data warehouses, such learnings can be cross-pollinated — and disseminated via mobile banking apps, emails, SMS messages or in-person interactions.

The path to a fully digital banking future is paved by AI and the key to success lies in building trust among customers and delivering value through AI-powered experiences. By focusing on personalized guidance — while addressing consumer concerns around security and control — local banks and credit unions have the opportunity to build deeper relationships and supercharge growth. Ultimately, the goal should be to close the experience gap — leveraging data to build more meaningful connections with each and every customer, over time.