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Financial services shy away from AI because of regulatory and labor fears
Financial services are failing to successfully implement artificial intelligence, European fintech executives say, even as evidence mounts that the much-hyped technology will boost productivity and cut costs..
Fears of job losses, regulatory concerns and institutional inertia are among the factors preventing bankers from fully adopting the systems that underpin products like ChatGPT.
“Big banks will definitely not adopt [the technology] “As fast as any fintech,” said Tom Blomfield, co-founder of Monzo and group partner at Silicon Valley startup incubator Y Combinator. Generative AI, however, “will make banks more efficient and able to provide the same products at a cheaper cost.”
Only 6% of retail banks are ready to implement AI at scale across their businesses, a Capgemini study has found. McKinsey estimates, however, that it could add up to $340 billion in value to the global banking sector each year, equivalent to about 4.7% of the industry’s total revenues.
Many say the technology, with its ability to answer questions and analyse vast amounts of text and numerical data in seconds, has the power to reduce costs across the industry. However, there are fears that the disruption could lead to job losses.
“People don’t understand that it’s there as a productivity tool,” said Nasir Zubairi, chief executive of fintech accelerator Luxembourg House of Financial Technology. “They still genuinely believe it’s going to take their jobs.”
He added: “Traditional banking is fundamentally analogue by design, and converting from analogue to digital has always been a difficult thing to do.”
Zubairi, speaking this month at the Financial Times’ TNW technology conference, used the example of money laundering checks, where institutions typically hire employees to scour spreadsheets for unusual activity.
He said that when he demonstrated to an institution how to improve this with a custom AI model, which he estimated could save them up to “€450,000 a year in salary instantly”, the request was rejected.
“People don’t like firing people,” he added. “They want to protect their job function, and if they have to lay off people on their team who do those jobs, they are also potentially under threat, as management or their power is also being eroded in some way.”
Central banks have recently been urged to “up their game” with AI, According to the Bank for International Settlements, who said the technology could provide productivity gains, but also carried risks, such as providing incorrect information and being vulnerable to hackers.
A common problem with large language models, the technology behind most generative AI products, is their tendency to “hallucinate,” stating inaccuracies as facts. They are also known to generate information based on the data they were trained on, raising concerns about confidential or secure information.
“There is not necessarily a rejection of [AI]but there is hesitation,” said Wincie Wong, head of digital at NatWest, who called for the risks, ethics and vulnerabilities of the technology to be assessed before deployment. “In the end, we are one of the big banks and many customers keep their data and finances safe with us. We need to respect that.”
Customer service is one of the areas most disrupted by AI tools that can converse in a human-like manner and respond to queries. For more than a decade, digital banks have been using machine learning to triage online queries, often directing customers to a live customer service agent.
However, LLM-powered bots can understand a wider range of queries, regardless of how they are phrased, and can execute decisions such as applying for a bank card, eliminating the need for human intervention.
“I really think this will eliminate the vast majority of customer service jobs” over “the next 12 months and the next five years,” said Monzo’s Blomfield.
Many banks and fintechs, including Klarna and NatWest, are already using AI chatbots for customer service. NatWest’s Wong said they have made great strides with generative AI on their AI service Cora, handling more than 11 million chats over the year, with more than half requiring no human intervention. In 2017, the service received 1,000 chats per month that required intervention.
Swedish fintech Klarna said its AI assistant could do the work of 700 customer service employees and resolve queries in less than two minutes, compared to 11 minutes previously. As a result, the company expected to save $40 million in customer service costs this year.
However, Wong said training the models to be nuanced was crucial to their success. For example, it was necessary to understand that a change of address could have an emotional tone, such as a family mourning.
“Understanding the psychology behind it was really important and if you don’t get it right you can, quite frankly, piss off a lot of customers,” she added.
Banks also had to be careful when implementing the nascent technology, while adhering to strict industry compliance rules and navigating an unfamiliar regulatory environment.
In a landmark 2022 ruling, a Dutch court ruled in favor of neobank Bunq after it sued the Dutch central bank for banning it from using AI to perform money laundering checks.
Regulators last month lifted restrictions on German fintech N26 after improving its control measures. For years, the bank imposed a limit on new customer registrations due to its weak controls on money laundering and faced millions of euros in fines for persistently late filing of suspicious activity reports.
Carina Kozole, chief risk officer at N26, said she worked closely with regulators to build an AI model to assess whether a new customer was a criminal, which reduced incidents on the platform by 90%.
“If we don’t embrace AI in industry, in a few years we won’t be here anymore,” she added. “We need to show the advantages and how we can grow accordingly if we use AI.”
The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above ₹260, one can buy this Reliance Group stock at the short term target of ₹295, keeping a stop loss of ₹240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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