Opinion: AI banks are the future of fintech

Photo credit: Tomasz Wyszolmirski

Joel is a TIA Star Contributor and publishes high-value content that serves the Asian tech community. Read more from TIA Star Contributors here.

This November is full of fintech events, largely thanks to Hong Kong Fintech Week and Singapore Fintech Festival. There is no better time of the year to observe and engage in serious and vibrant discussions on the future of banks and banking.

So, what is that future? What might future banks look like? Popular answers include digital banks, open banks, modular banks, challenger banks, and so on. These terms reflect how much we are exploring the very foundation of banks and banking, as they are challenged to keep up with changing times.

Let’s first look at what we mean by some of these terms:

• Digital banking: This is the move to online banking where banking services are delivered over the internet.
• Open banking: This refers to the use of open APIs that enable third-party developers to build applications and services around the financial institution, allowing for greater transparency.
• Modular banking: According to Backbase, the modular architecture makes it “possible for banks to innovate in the same way [as companies like Facebook and Uber]—fast and in line with customer needs.”
• Challenger banks: These banks distinguish themselves from historic banks by modern information technology practices, such as online-only operations that avoid the costs and complexities of traditional banking.

Reviewing 500 fintech and AI startup decks

The rise of fintech has been the catalyst behind the discussion of the next era of banking. Many facets of technologies developed under the umbrella of what we call fintech today will merge into tomorrow’s banks and banking systems: an amalgamation of open, modular, digital, and challenger characteristics that are already with us in pockets today.

As an investor, I regularly observe fintech and AI startups active in the market. When I recently counted name cards and investment decks sent to me by fintech and AI founders, I was stunned to realize that they numbered more than 400 fintech and 100 AI startups over the last three years.

In reviewing them all in depth, I came away with one strong conviction: all digital banks will actually become “AI banks” (banks that run on AI or AI-powered applications), moving even beyond existing concepts of modular and open banks. This is true for most fintech developments, which are heading toward AI-powered futures beyond simple automation.

Toward an AI bank

The big outcome of technology developed in the internet and mobile era (in terms of banks and banking) was the challenger or digital bank, which we have already discussed. The key to internet-only banks was the removal of physical branches, making chunks of operations virtual.

This dramatically reduced labor costs and also increased convenience and efficiency for a new generation of customers who were ready to embrace digital.

Today, the outcome of AI-driven technology is moving us into a new era of AI banks. This will further remove human labor and engagement, handing off customer relations to machines that are not automated pre-recordings, but intelligent and empathetic AI algorithms—closer to what we’ve seen from Google Duplex than any automated customer service hotline we are familiar with today.

Let me try and summarize two key points:

Banking on a bankerless tomorrow