European financial services firms are behind when it comes to AI adoption

If there’s one lesson we can learn from viewing recent events through a global lens, it’s that acting early and decisively yields the best outcomes. New research we conducted with the Economist Intelligence Unit (EIU) “The Road Ahead: Artificial Intelligence and the future of financial services” certainly backs this up. Globally, Asia-Pacific banks far outpaced other regions in adopting AI, and are reaping the greatest economic benefits - especially in reducing operational costs and workload. You can read the full report for yourself here.

Drilling into the numbers, the EIU research revealed that nearly 61% of all APAC respondents said that half or more of their workload is supported by AI. Compare this to Europe (including the UK), which comes in a full twenty points lower at 41%. European banks are, consequently, reaping fewer AI-related benefits. Only 32% are lowering operational costs with AI, compared to 44% in APAC. 

Squeezed by ‘double-trouble’

Acting early, however, is often easier said than done. Sitting here in London, I understand the dilemma European financial services face. Their working capital has been squeezed by the ‘double-trouble’ of high regulatory complexity combined and historically low interest rates. As the research shows, cost of technology poses the highest barrier to AI adoption (35%), and there are also dependencies here with other cost-related barriers like insufficient AI infrastructure (25%); insufficient data quality (22%); and lack of appropriately skilled staff (29%). 

What this also means, however, is that Europeans stand to gain the most by adopting AI sooner rather than later. ‘Double-trouble’ raises the profit pressure, tempting staff at all levels to make short-sighted decisions based on personal biases and goals. We saw the disastrous consequences of this during the last great recession. AI’s algorithms can factor in the staggering array of variables that big retail banks have to weigh up in order to make fast, optimal trade-offs, predict more accurately and minimise fraud and risk. 

Challenger banks and a shifting landscape

At the same time, the European, and particularly UK, banking landscape is shifting in response to many other complexities. Changing demographics, Brexit, and the emergence of challenger banks are all bringing disruption to the financial services industry. Challenger banks in particular are reshaping the face of the industry with a technology first approach. They’re built on modern technology stacks, infused with AI, offer apps, and are native to the cloud. As such, they are relatively agile, future-proof and provide well-integrated user experiences. I myself am a customer of both a traditional bank and a challenger bank. The challenger bank often offers services that are far simpler. That experience is driven totally by their technology. 

All hope isn’t lost for banks, however. When traditional banks catch up technologically in applying AI to virtual assistants, mobile apps and “customer 360” they have the opportunity to offer a winning combo of reliability and a great user experience.

Some will argue that challenger banks are not as big a threat as once thought. Perhaps not, but I see growing evidence in Europe the ‘challenger’ banks continue to gain ground. Though this is less true in the UK, the banking leaders I meet know complacency can be a killer for their business. 

Last December, A.T. Kearney’s research found that more than one in five UK consumers (21%), rising to one in three millennials (32%), now state their primary banking relationship is with a challenger bank. This suggests consumers are hedging, by opening challenger accounts alongside traditional accounts. It’s only a matter of time before people start to streamline their portfolios in favour of those providing the best overall customer experience.

The opportunity: AI for personalisation

This point about customer experience provides a neat segue to the opportunities for greater personalisation. One area where the EIU research showed APAC banks falling behind other regions was in the area of AI-enabled “enhanced customer personalised service and customer satisfaction”. Could some have taken automation too far in replacing the human touch? 

In the UK, traditional banks have made huge strides to improve and personalise customer service levels in recent years, and also offer better online and app-based banking services. Having already learned hard lessons about the false economy of poor-quality outsourced and automated service, European and UK banks have the opportunity to apply AI to augment and empower customer service agents to provide the personalised service that builds long-term relationships. 

To get ahead with AI, get started!

As Mark Twain once said: “The secret of getting ahead is getting started”. But not many people know the rest of what he said: “The secret of getting started is breaking your complex overwhelming tasks into small manageable tasks, and starting on the first one.” I would encourage European retail banks to heed this sage advice in order to gain the full benefits of AI. For more information on how to get started, download the report here.