Originally published in BSA Society Matters magazine.

The UK has been slow to innovate when it comes to using technology to improve the wealth and financial health of their customers.

Many services and apps that have developed over the last 10 years, as mobile banking has grown, have focused on basic money management and fast payments, rather than providing meaningful insight into the financial position of customers.

These digital banking apps cannot even start to understand the complex reality of customers and their families, and there has been a clear disparity in terms of what institutions can provide and consumers need.

The customer and technological challenge

Research shows many Brits continue to struggle to put anything aside for a rainy day – a study from Global Finance and Research found that just under a third of people in the UK have less than £1,500 in the bank, and 15% of people have no savings at all.

With people putting so little aside, it’s no wonder that money worries also come out as the number one cause of stress in many consumer surveys, beating concerns about work, relationships or even health.

When you consider some of the underlying causes of stress – being under pressure or not having control over the outcome of a situation – it underlines why helping people understand their financial situation and build up their savings is so important. But assessing someone’s financial situation to work out whether they should take out a tracker mortgage or the right mix of savings products is extremely hard to do digitally.

Crunching the numbers

In addition to understanding the customer’s situation, you need many different data sources that historically have not been easily accessible. It is complex and difficult to work all that out properly in digital models. A simple question like “What are the best savings products for me?” requires a lot of knowledge about the customer that the financial advisor does either not have or needs a long time to gather manually.

Today these computations can be automated with the right data sources and technology. Open Banking in the UK is helping to provide data that can make these calculations, and the recent recommendation that this is widened to
Open Finance is good news.

But data alone does not provide any special insight. You need the means to bring all that information together to get an accurate understanding of the customer, and artificial intelligence (AI) is providing that.

Using AI to understand customers

AI provides the ability to understand the attitudes and aspirations of customers, rather than just the data. A combination of adaptive questioning and data helps to ensure organisations really understand their customers’ needs

This type of ‘soft advice’ is what you will also get from a competent human advisor. People rarely know how to explicitly rate their risk tolerance, so the challenge is to infer it by asking concrete, relatable questions and to build a model from that.

By combining AI with human advisors, you can calibrate customers’ risk tolerance more effectively. When it comes down to it, algorithms are better at detecting the subtle needs of customers, such as their actual risk tolerance,
compared to traditional expert systems, which mainly gauge the hard financial numbers.

We believe AI is the future of finance and ultimately it will have a positive impact on the financial situation of UK consumers.

Last few remaining tickets for this Thursday's Digital Mutual event are available here.

Read the Society Matters autumn 2019 edition here.