By W.B. King
From chatbots to predictive analytics to streaming onboarding capabilities, artificial intelligence (AI) applications have been successfully leveraged in the banking space for many years. The next generation of AI services was the focus of a recent Alkami study, The Application and Consumer Perception of Artificial Intelligence in Banking.
In January 2024, “to separate market myth from reality,” Alkami surveyed 150 regional and community financial institutions (RCFIs) to assess “how they are currently using or planning to use AI across various digital banking use cases, their attitudes towards the opportunities and challenges AI presents, and their outlook on its potential future impact to their business.”
The Plano, Texas-based fintech offers a cloud-based digital banking solution designed to meet the needs of all RCFIs. Along with the RCFIs polled, 1,500 digital banking consumers (ages 22-65 weighted to the 2020 US Census for age, gender, region, and ethnicity) were asked to compare their attitudes, perceptions, and beliefs to the RCFIs that serve them.
“There is a disparity that underscores a broader dialogue within digital banking about AI, which involves managing expectations and fostering trust as much as it pertains to technological advancement, the report noted. “Furthermore, financial institutions encounter a dual task when adopting AI: leveraging AI to enhance operational efficiencies and accountholder satisfaction, while navigating the complexities of data security, privacy concerns and ethical considerations.”
Deciphering Disparate Mindsets
Over the next five years, 96% of RCFIs polled see the potential and use cases of AI. Sixty-one percent of consumers surveyed, however, do not see AI “significantly influencing” their banking operations.
“The discrepancy in optimism is largely driven by the tangible benefits that AI is anticipated to deliver for financial institutions, including enhanced efficiency, cost reduction, and improved customer service,” the report offered. “A considerable majority of these institutions—78%—see AI as a catalyst for uncovering new business opportunities, while additional benefits are expected in areas, such as time savings for employees (77%), reducing operational costs (59%), and revenue growth (56%).”
One anonymous credit union respondent noted: “I think AI offers exciting opportunities but, in our industry, I think it presents all kinds of potential liability and compliance concerns.” To this end, 73% of FIs polled said AI can “significantly enhance” digital accountholder experiences. When the FIs were asked how this response figures into apprehensions about AI’s impact on account holder trust are significant, 54% expressed concerns. The survey’s findings validate this stance.
“Less than half of consumers (45%) feel comfortable with their financial data being processed by AI, even if it gives them a better digital banking experience. This emphasizes a crucial challenge for financial institutions: balancing AI integration with maintaining consumer trust and satisfaction, but this is not a one-size-fits-all paradigm among generations,” the report continued.
“Millennials are the most comfortable with their data being used by AI to deliver a better digital banking experience, with 51% agreeing to the same, statistically higher than all other generations - Generation Z (Gen Z), Generation X (Gen X), and baby boomers.”
RCFIs Falling Behind Megabanks and Neobanks
As a result of RCFIs’ and consumers’ conflicting view on AI banking capabilities over the next five years, a capabilities gap exists between these subsets. “Only 18% believe that AI is presently being leveraged effectively within their operations—a perception that is largely aligned with their peers as only 17% also believe other RCFIs have done the same,” the report stated.
What is perhaps most concerning for RCFIs is competition from neobanks and megabanks, which respondents noted “as far more advanced” when it comes to rolling out this technology.
“Seventy-six and 74% of [survey] respondents perceiving these competitors to be successfully leveraging AI in at least a few key areas today, respectively,” the report continued. “More than one in five go so far as to believe that neobanks and megabanks have successfully embedded AI in their organizations.”
Among reasons that RCFIs are not keeping pace with neobanks and megabanks are a few variables, including resource availability and tech/data infrastructure, respondents said.
“Approximately 68% of these institutions recognize their grasp of AI as only basic, signaling a prevalent early phase in the AI adoption learning curve,” the report found. “This stage is critical as it sets the groundwork for future advancements or potential stagnation due to gaps in knowledge and application efficacy.”
Budgeting also plays a factor. Sixty-nine percent of FIs with assets greater than $5 billion are at the emerging stage of AI knowledge, compared to 64% of those with less than $1 billion in assets.
As it relates to the top strategic priorities in AI adoption, “RCFIs are keenly focused on automating manual processes (57%), bolstering fraud protection measures (44%), and enhancing accountholder experiences (41%),” the report continued. “Interestingly, credit unions demonstrate a stronger inclination towards process automation (66%) compared to banks (49%), while banks place a greater emphasis on achieving operational efficiency (45% compared to 30% for credit unions).”
Trusting Third-Party AI Advice
Among major takeaways from the Alkami survey was that RCFIs do understand that there are critical uses cases for AI that should be seriously considered. To this end, 53% of decision makers indicated AI uses for customer service, 49% for data insights, 44% for security and fraud protection, and 36% for marketing.
“Credit unions are more likely than banks to assume greater AI impacts across front-office use cases, like customer service (61% vs. 47%) and marketing (43% vs. 31%), while banks are more likely to anticipate greater impacts in security and fraud protection (49% vs. 36%),” the report noted.
“We are exploring expanding our AI presence within our fraud group, as well as integrating a ChatGPT tool into our day-to-day workflow in IT,” an anonymous credit union respondent said. “There’s opportunities for efficiency. Allowing members to self-serve and assist members with their financial decisions/budgeting,” another credit union respondent added.
Over the last 10-plus years, credit unions have increasingly partnered with third-party fintechs to enhance both back office and member-facing services. The same scenario is holding true for AI today and potentially into the future.
“A substantial 76% of community banks and credit unions are trusting advice from third-party technology providers for guidance on leveraging AI utilization in their organization, slightly outpacing their confidence in internal information technology departments, which stands at 74%,” the report stated. “This data is likely the result of the complexities associated with AI, the confusion surrounding it thanks, in part, to industry hype, and the specialized knowledge required for its successful implementation.”
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