Artificial Intelligence (AI) is creating the ability of a machine, mostly computers, to learn, see, communicate and make decisions like humans with natural intelligence. Machine learning (ML) a subfield of AI, and it involves working with datasets to find certain patterns that allow computer software to improve on its own to perform the desired task.
In order to innovate in the market and win customers, BFIs must start building greater focus on data and analytics in their business culture and make maximum use of data platforms in making business decisions. AI/ML needs to be considered as a strategic tool to transform the traditional banking business model into a new one
ML technology is widely adopted by banks across the globe. With the advent of Smartphone and digital platforms, which helped to create data and increase connectivity, the scope of AI is widening.
Digitisation and data together are leading the AI/ ML to forma nexus of the modern technological era.
In recent years, AI has touched almost every aspect of society, and banking is no exception.
In contemporary times, one of the major changes in the Nepali banking industry has been technology, and digitisation, fin-tech, mobile banking, SMS banking, internet banking, payment gateways and e-wallets have become buzz words.
These attributes, along with the evolution of smart mobile phones as an indispensable part of human life and increasing internet access, are calling on the banks and financial institutions (BFIs) to adopt AI.
A few years back, bank branches used to be the only contact points for customers and customer use to respond to a bank's products; but today, the customers show their preferences and feedback on digital platforms, and this trend is increasing geometrically.
Similarly, BFIs are increasingly using digital channels to reach out to customers. This evolving practice is creating a lot of data everyday, which needs to be addressed. The generated data is raw material that gives a solid ground for the BFIs to initiate AI/ML as a new business facilitator.
Past AI attempts in Nepal are Nepal SBI Bank introducing robotics in 2017 and Macchapuchhre Bank introducing MAYA, a chant assistant on its website, and face book messenger in 2018.
Presently, introduction of chatbots by almost all the BFIs shows gradual AI adoption in Nepal.
An important question to be addressed is: Do Nepali BFIs need AI for regular business operation and growth? The five-fold increase in mobile banking app users in the past three years to more than 10 million shows the banks are getting digitized, that is, the preferred way of banking is gradually shifting from traditional floorbased transactions to the digital mode. Customers are looking for timely and personalised services.
Furthermore, both consumers and banks are found willing to connect via the digital platform for better services.
These digital transactions and interactions are creating large volumes of data, building a platform to design and deliver AI/MLbased banking services.
AI/ML banking solutions are being extensively used in developed and developing countries. The BFIs of these nations are using the solution for identifying consumer behaviour, targeted marketing, credit card business, automating operations, loyalty programmes, risk modelling, churn prediction, conversational AI, detecting frauds/disasters, linking transaction data and regulatory compliance.
The Nepali banking industry is also gradually heading towards the digitisation path. The government, society, regulators and consumers are gradually adopting smart ways of doing things, which has created a different set of requirements for BFIs to act on.
For example, beside credit cards, BFIs are designing consumer loan products without collateral security. In such cases, the self-learning AI/ML solutions are a good tool to manage the risk and suggest proper pricing to the individual customers to maximise returns from a portfolio. In the same fashion, for every banking product and operation, there are AI/ML-based solutions for better banking experience.
In order to innovate in the market and win customers, BFIs need to start building greater focus on data and analytics in their business culture and make maximum use of data platforms in making business decisions. AI/ML needs to be considered as a strategic tool to transform the traditional banking business model into a new business model through the application of data and technology.
Furthermore, the development in this area also helps BFIs to compete with fin-tech institutions and data-based e-commerce platforms, which are gradually making big portfolios in consumer banking in the developed and emerging economies.
Hence, these emerging competitors can also be mitigated with AI/MLbased solutions beside other inherent benefits.
Though we are a developing country, we have already built foot trails into the digital arena. The government is also initiating several digitisation endeavours like e-governance and formulation of "Digital Nepal Framework 2019". Furthermore, with increasing mobile and internet penetration, the general public is also getting acquainted with the technology. These business environments are creating a solid digital foundation, which could be considered as a major pillar for creating data to initiate AL/ML solutions in the BFIs.
Although the common challenges faced on this path are setting up data infrastructure, quality data and making heavy investments in new business models, still we can adopt AI/ML tools.
The BFIs already have their data centre, probably the only industry to have abundant data in Nepal relating to their customers along with IT infrastructure, enough to initiate the basics of AI and prepare for smarter AI/ML-based banking solutions.
We need to bring into practice data-based decisions and build data leveraging the organisational environment so as to lead the banking journey effectively from the traditional, digitised to intelligent banking.
Anil Niroula is assistant manager, Everest Bank Limited
A version of this article appears in the print on February 19, 2021, of The Himalayan Times.