To Bot or Not to Bot? That Is the Question for Digital Banking

Arabic version (PDF)

There is a legendary proverb that emphasizes that a journey of a thousand miles begins with a single step.¹ In this case, the first step is highlighting the concept of digital banking by introducing the idea of chatbots or bots.

Digital banking has been defined as

The application of technology to every banking activity, process and program—thereby making the customer’s experience simple, easy and convenient and in the process eliminating the need to be at a physical location.²

A “bot” is basically a computer program that interacts with users employing artificial intelligence (AI) “via normal sounding conversations with the objective of answering questions and providing recommendations.”³ With this state-of-the-art technology, software developers create innovative systems that simulate human conversations to make users believe that they are talking to actual humans.⁴

To understand this concept, it is helpful to focus on the idea of digital banking and its categories, the advantages of digital banking, using bots in the banking industry, the reasons for implementing bots in digital banks, the concept of bot risk, and bot examples in the digital banking sector.

Digital Banking and Its Categories

The term “digital bank” is a polysemy concept (i.e., with multiple coexistence meanings and definitions), and there are several types of digital banks. Consequently, the innovation of digital banks and the different types offered gives customers many advantages. Digital banks can be classified into four categories:⁵

1. New banks—These are full-service digital banks with banking licenses. Examples of these banks are:
   • Revolut
   • Monzo
   • N26
   • Starling Bank
2. Neo banks—These are financial service providers without banking licenses that have partnered with conventional, brick-and-mortar banks⁶ to render online banking services. Neo banks’ customers are required to have accounts opened with the corresponding conventional bank to access digital-banking services. Examples of neo banks are:
   • Moven
   • WeBank
   • Lunarway
   • Yolt
3. Beta banks—These are subsidiaries or joint ventures of conventional banks, providing online banking services through their parent companys’ banking licenses. Examples of beta banks include:
   • Simple (a partnership between BBVA and Bancorp)
   • AiBank (a joint venture between Baidu and China’s CITIC Bank Corporation)
4. Nonbanks—These are organizations that have no business relationship with conventional banks or banking licenses to regulate and support them. Nevertheless, they provide digital banking services to customers. An example of a nonbank is Monese, which is a company operating under an electronic money license.

Advantages of Digital Banking

By removing the need to visit a bank’s physical location, digital banks drive financial customers to the Internet. This advantage is one of the main innovations of digital banking. Additional advantages of digital banking⁷ under the umbrella of financial technology (fintech) include:

• Around-the-clock banking hours—With fintech, customers have online access to their accounts 24 hours a day, seven days a week, 365 days a year. They no longer need to stand in lines to conduct banking transactions. This capability creates an improved service experience for customers.
• Reduced operating costs—The digitalization, automation and streamlining of internal processes in the banking sector result in a significant reduction of banking operating costs. This is the key component of digital banking: generating added value for financial customers in terms of achieving lower administrative fees and creating innovative financial services using fintech.
• Rapid, attractive and simple onboarding processes—Opening an account and conducting day-to-day transactions with digital banks are relatively easy. Using a computer or mobile device, customers can upload scanned copies are required legal documents such as passports, driver’s licenses, employment letters and any other documentation required to open a digital-banking account. In addition, they can use AI via interactions with conversational bots to guide them through the entire process.

BOTS SUBSTANTIALLY CONTRIBUTE TO AUTOMATING FRAUD PREVENTION PROCESSES AND PROCEDURES.

Using Bots in the Banking Industry

When clients have banking queries related to their personal or business accounts at conventional banks, they typically have to go into the bank or call the bank’s customer support center. This scenario can be very time consuming, especially if it is necessary every time a question arises.⁸ A faster, more efficient way to address these situations is to interact with banking bots. When using banking bots, customers can directly chat with the bots and quickly get the answers to their questions. According to Y Media Labs, there are six motives for banks to implement bots:⁹

1. Automated fraud-prevention processes and procedures—Fraud prevention is a critical success factor (CSF) for any bank’s operational strategy. Bots substantially contribute to automating fraud prevention processes and procedures.
2. 24/7 customer service—Once bots are set up, they can operate without any human interference. Therefore, they become the new ongoing automated tool for customer service at the bank.
3. Relevant content pushed to end users and tested user engagement—Bots can become competitive business weapons because they are able to push strategic information to particular and defined users to propel engagement with the banking brand in terms of innovative solutions. Likewise, bots can test the interest level of new business models, applications, processes, products and services.
4. Brand consistency—A noteworthy attribute of bots is the adoption of “one-three-image-projections approach” (one voice, one message and one tone). Bots are able to ensure homogeneous branding consistency for banking institutions.
5. Personalization strategies—Y Media Labs defines personalization as the:
   [O]verall digital strategy that leverages key data points about a customer to present relevant offers, products and services to a target audience when customers need or want to engage in a new purchase.¹⁰
   In that sense, personalization is a strategic tool used to generate incremental revenue for the bank.
6. Enhanced user experience—Because bots have the capability to run well during peak times and low-volume times, they are able to provide a greater user experience due to their quick response time and stable performance.

Reasons for Implementing Bots in Digital Banks

A report titled How Financial Chatbots Are Transforming Digital Banking,¹¹ determined that digital banks should implement bot technology because of the following reasons:

• Improving customer financial health—Bots can advise customers on the day-to-day convolutions of cash management, enabling customers to make better spending decisions and improve their overall financial health.
• Unlocking the value of data—Based on customer conversations with bots and actual banking transactions performed by those customers, digital banks can create financial profiles by identifying customer patterns and behaviors and unlocking the value of those data. Marketing teams can leverage this operational data to generate strategic information and introduce new business models, applications, processes, products and services.
• Provisioning of an all-in-one banking solution—Because many customers hold financial products such as bank accounts, credit cards, cryptocurrencies (e.g., Bitcoin, Litecoin, Ethereum, Dai, Monero), PayPal accounts, Google Wallet accounts and Skrill accounts, many digital banks are required to use bots to aggregate the financial information coming from different sources and platforms. This requirement is known as the all-in-one banking solution.
• Attracting digital natives—Attracting and retaining digital banking customers is one of the key missions of bots in the digital banking landscape. Examples of such customers are younger generations who grew up using popular messaging platforms such as Twitter, Facebook, Skype and WhatsApp. The goal is to get the attention of millennial or “Generation Y” customers, who were born between 1981 and 1996 and are comfortable with mobile devices, the Internet and social networks. This younger generation of consumers will earn banks a large market share.
• Maximizing engagement—A bot’s environment can be a powerful mechanism for maximizing dynamic engagement through “human-bot-human” conversations.

BOTS ARE REQUIRED TO COMPLY WITH GOVERNMENT MANDATES EMBEDDED IN THEIR INTERNAL RULES OR SCRIPT.

Introducing the Concept of Bot Risk

Based on the Project Management Institute’s (PMI’s) definition of risk, “bot risk” is “an uncertain event or condition that, if it occurs, creates a threat or opportunity for a bot endeavor.”¹² Bot risk is a subset of fintech risk and can be assessed using the fintech risk management phases and processes.¹³ Examples of bot risk include:¹⁴

• Inaccurate responses—If bots have incomplete rules or scripts, they may provide inaccurate responses to users.
• Vulnerability—When bots are vulnerable, attackers can take advantage of bots’ weaknesses, which could cause a loss of sensitive data and information. This kind of scenario includes hacking, phishing and other cyberattacks.
• Lack of experience—This occurs when end users have limited or no experience using bots. Consequently, this situation precludes end users from having smooth dialogs with the bots.
• Lack of required regulatory compliance—In this case, governments’ financial regulators dictate bots’ user interaction guidelines to safeguard consumers from disguising behavior and guarantee transparency of operations. Therefore, bots are required to comply with government mandates embedded in their internal rules or scripts. If bots do not comply with government regulations, the organization may be misleading users’ options, subliminally forcing user actions and advising users to select unnecessary products and services.
• Degradation of network performance—Human-bot-human sessions may fully use the network bandwidth. Therefore, a detailed analysis of network capacity and size should be considered before bot implementation.
• Lack of governance structures and procedures— A lack of structure and procedure can result in low operational efficiency, which can lead to investment losses.

Bot Examples in the Digital Banking Sector

There are many state-of-the-art bots that have been developed for digital banking. Some of the most groundbreaking bot technologies include the following:

• RASA—RASA is an “open-source machine learning framework for building AI assistants and chatbots.”¹⁵ RASA can interact with application programming interfaces (APIs), conversational flow, database systems and interactive learning environments with reinforcement neural network.¹⁶ In fact, RASA was used to build the chatbot of N26.¹⁷
• Monzo Chat—Monzo Chat answers most user questions quickly because it can send automated messages; however, in some cases, the Monzo Chat can also suggest help articles to assist end users with their queries. If it is necessary, Monzo Chat can also direct end users to talk to the customer operations team.¹⁸ Monzo Chat is equipped with the later tools and techniques of AI.
• Revolut’s Intelligent Troubleshooting Assistant (RITA)—RITA is a powerful AI-based chatbot that can comprehend normal human language and gets more clever over time as it learns from other conversations with Revolut’s clients.¹⁹

Conclusion

A basic knowledge of digital banking and bots is needed to answer the question of when to bot and when not to bot. It is clear that digital banking can be improved by using bots for innovative solutions offered to customers. This allows customers to enjoy the benefits of having someone (the bot) available 24/7 to respond to questions and provide recommendations accordingly. As a result, bots have become the new labor workforce of digital banking. Because fintech is behind this new breed of banks, bot technology can also be used to support internal digital banking management and control processes and procedures such as fintech risk management²⁰ and fintech governance.²¹ Furthermore, using the risk assessment model from the risk management framework will help identify new bot risk areas in addition to lack of governance structures and procedures, inaccurate responses, lack of experience, vulnerability, lack of required regulatory compliance, and degradation of network performance.²²

BOTS HAVE BECOME THE NEW LABOR WORKFORCE OF DIGITAL BANKING.

Endnotes

¹ Alvarez-Dionisi, L. E.; G. Tapia de Vidal; “Case Studies: Developing Financial Mathematics’ Systems,” Social Economic Debates, vol. 6, iss. 1, 2017, p. 34–46, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=3202837
² The Asean Post, “Digital Banking in Southeast Asia,” 17 February 2020, http://theaseanpost.com/article/digital-banking-southeast-asia
³ Alvarez-Dionisi, L. E.; M. Mittra; R. Balza; “Teaching Artificial Intelligence and Robotics to Undergraduate Systems Engineering Students,” International Journal of Modern Education and Computer Science, July 2019, p. 54–63, http://www.semanticscholar.org/paper/Teaching-Artificial-Intelligence-and-Robotics-to-Alvarez-Dionisi-Mittra/b267ead17a21401cf7832b3c88536d208bb75c9d
⁴ Ibid.
⁵ Caicedo, D.; “The Types of Digital Banks and What They Mean for Business,” Business.com, 5 April 2019
⁶ Hamilton, D.; “What Is Digital Banking?” Securities.io, 15 August 2020, http://www.securities.io/what-is-digital-banking/
⁷ Tech Funnel, “What Is Digital Banking: Definitions, Benefits, and the Future,” 3 August 2020, http://www.techfunnel.com/fintech/digital-banking/
⁸ Khavya, K.; “Banking Bot,” International Journal of New Technology and Research, vol. 4, iss. 7, July 2018, p. 56–59, http://www.ijntr.org/download_data/IJNTR04070041.pdf
⁹ Y Media Labs, “Using Chat Bots in the Banking Industry: 12 Opportunities and Challenges for 2017,” 2017, http://ymedialabs.com/using-chat-bots-banking-industry
¹⁰ Ibid.
¹¹ Abe, How Financial Chatbots Are Transforming Digital Banking, 2016, http://www.abe.ai/wp-content/uploads/2016/11/How-Financial-Chatbots-Are-Transforming-Digital-Banking-White-Paper.pdf
¹² Project Management Institute (PMI), A Guide to the Project Management Body of Knowledge (PMBOK Guide), 6^th Edition, PMI, USA, 2017
¹³ Alvarez-Dionisi, L. E.; “A Fintech Risk Assessment Model,” ISACA^® Journal, vol. 3, 2020, http://cli5.hpbvtv.com/archives
¹⁴ King, M.; “Part Five in a Series: Managing Risks of Technologies Emerging as Business Opportunities: Chatbots,” Schneider Downs, 27 February 2020, http://www.schneiderdowns.com/our-thoughts-on/managing-risks-of-tech-emerging-as-biz-opps-chatbots
¹⁵ Sundaray, B.; “Create Chatbot Using Rasa Part 1,” 27 August 2019, http://towardsdatascience.com/create-chatbot-using-rasa-part-1-67f68e89ddad
¹⁶ Kumar Sharma, R.; M. Joshi; “An Analytical Study and Review of Open Source Chatbot Framework, RASA,” International Journal of Engineering Research & Technology, vol. 9, iss. 6, June 2020, http://www.ijert.org
¹⁷ RASA, “Deflecting 30% of Routine Customer Service Contacts,” http://rasa.com/customers/n26/
¹⁸ Monzo, “The Evolution of Monzo Chat,” 10 July 2019, http://monzo.com/blog/2019/07/10/the-evolution-of-monzo-chat
¹⁹ Braileanu, R.; “Hey, I’m Rita!” 3 February 2017, http://blog.revolut.com/hey-im-rita/
²⁰ Op cit Alvarez-Dionisi, “A Fintech Risk Assessment Model”
²¹ Alvarez-Dionisi, L. E.; “Fintech Governance Challenges, Levels and Theories,” ISACA Journal, vol. 5, 2020, http://cli5.hpbvtv.com/archives
²² Op cit King

Luis Emilio Alvarez-Dionisi, Ph.D.

Is a professor of project management at IQRA University (Karachi, Pakistan) and an international management consultant. He has provided advisory services to chief executive officers, boards of directors and senior management of Fortune 500 companies and has consulted on project, program and portfolio management with numerous enterprises worldwide, including Intel, IBM, Merck, Chevron, Isuzu, Smiths Detection, the Beijing 2008 Olympic Games, Citibank, Standard Chartered Bank and the Government of Singapore Investment Corporation (GIC). His fintech research focuses on risk management, robo-advisory consulting, governance structures, and start-up fundraising, project management trends and tuberculosis management information systems (MIS). He can be reached at dralvarez@iqra.edu.pk and dralvarezdionisi@protonmail.com.