Want to know if chatbots are gaining ground on apps? Look at the data. A Citi analyst, for example, reported that bots are growing at a much faster pace than mobile apps did at this same stage. In the realm of personal finance, bots have the real potential to radically improve the way we manage our money, weaving financial decisions into the fabric of our daily lives and giving us immediate insight into the long-term effects of our spending, savings and investing habits.
For instance, in the near future, when you walk into Starbucks, Siri might gently suggest that instead of spending $5 on a coffee this morning, perhaps you should put those dollars toward your child’s college fund, which you’ve been neglecting lately. To further nudge you in the right direction, she might also let you know how that $5 investment in a college fund will appreciate over time, versus the cost of making one coffee purchase, which holds no long-term value. You compromise and opt for drip coffee instead of a latte, putting the leftover $2.50 into your child’s 529 plan.
This is a simple example, but in time, as AI and fintech bots advance in sophistication, one can imagine even more fantastic ways they can help us simplify financial management and make better decisions throughout the day. The latest innovations in data science embrace behavioral psychology and machine learning to automate chores, make personalized recommendations and provide actionable advice.
We’re already seeing early instances of bots in personal finance from fintech innovators, such as robo-advisors and automated recommendations. But like any new cutting-edge technology, there are bound to be some unintended consequences, not unlike the recent issues with Tesla’s autopilot.
Here are just a few considerations as finbots gain wider adoption:
Who’s the real bank?
As bots make their way into our financial lives, the lines will start to blur as to who is really accountable, who owns the customer relationship, and who is the real bank. For example, Amazon Echo might be the primary way you interact with your finances, but you may have multiple financial accounts with various providers that your bot will need to connect with to provide you with the information and comprehensive insights you need. In such a connected world, it can become difficult to know who owns the customer relationship and where responsibility lies when something goes wrong. At the end of the day, it’s the consumer’s responsibility to manage their financial relationships and interactions.
Human logic vs. computer logic
Individuals, financial markets and computers all are imperfect in some manner; they also process information, understand context and behave very differently. AI might be able to “learn” certain patterns and even try to push us toward more logical actions, but it can’t always make sense of “situational context” and emotional financial decisions or understand market gyrations.
Ultimately, bots follow computer logic, so the more emotionally based financial decisions are still the responsibility of the individual. While leveraging machine learning and AI for predictive analytic solutions, such as lending and insurance underwriting, credit scoring, fraud detection and identity management, and trading-algorithms are getting quite good, the technologies are nowhere near perfect. Bots are not a replacement for personal accountability, nor are they a replacement for anyone having a solid level of financial literacy.
Innovation outpacing regulation
Whenever technology disrupts a market, it can force the obsolescence of established rules and regulations. Just look at how Uber and Airbnb are forcing a debate about employment and housing laws. While this dynamic impacts just about every industry, it is particularly acute in financial services, a heavily regulated industry that is already far outpaced by technology innovation.
With this in mind, regulators and policy makers need to stay up to speed on the technologies that are shaping financial services and personal finance. They must do this while also placing a priority on the long-term benefits of disruptive innovation for consumers and the broader economy. In particular, regulations should balance the perspectives of banks and fintech innovators, and also focus on helping consumers achieve positive financial outcomes in their lives.
Black swan events
Despite the best efforts by the tech and financial community, the potential for completely unanticipated risks always looms. AI is advancing rapidly, but it still lacks critical thinking skills needed if and when these unexpected events occur. When such black swan events unfold, the built-in algorithms and learned behaviors may no longer apply. That means our financial robots, at a minimum, need to know their own limitations and alert humans when things don’t look right. Longer term, though, we’ll expect bots to respond to and guide us through these unanticipated situations. To do so, they’ll need to understand the context of particular events and take a holistic approach to making decisions based on all available data.
Banking on trust
AI and fintech bots present world-changing opportunities in finance that will lead us all toward more insightful prosperity. Banking and finance always have and always will be based on trust combined with strong checks and balances. Finbots will likewise need to gain and maintain our trust if we’re going to rely on them with our hard-earned money. Building that trust requires measured and thoughtful deployment of bot technology.
Today, the most immediate opportunity for bots centers around improving customer care, leveraging bots for personal financial management and wealth management applications. But in time, bots and AI will get more sophisticated and the ecosystem around disruptive financial services and applications will mature.
Data intelligence based on transactional and goal-oriented data will enable us to see all of our financial data in the context of our daily financial lives and increasingly suggest personal and relevant actions to improve it. This will bring advanced financial technologies to more people across every income level and into every aspect of our everyday financial lives. When this happens, not only will individuals and families benefit, but so will the broader economy.