Ravi Kashyap, Finance Professor, SP Jain School of Global Management explains how BFSI can optimally leverage analytics and AI
What all are the analytics and AI technologies being deployed in BFSI and what are their business use cases?
The finance industry used to be the leading investor and user of computing power. This was as of a few years back, when I was in the industry. Now I have moved from the industry into academia. So I am not sure if this has changed. But there is reason to believe that it is still the case.
Now specifically about analytics and AI technologies, If I said that the industry is using quantum-neuro-psychological-bio-statistical-quasi-autonomous-machine-learning algorithms, what does it mean? Nothing in this case, because I made it up. That being said, many models actually use some aspects of all these different technical terms I used. Technology terms are buzz words for marketing, but fundamentally behind whatever the Industry is doing.
There are better algorithms and models. These are simply ways of detecting patterns. And when you detect a pattern, you can say what might come next. With more data being collected, there are more inputs to detect patterns and with more computing power, we can get more complicated mathematical models and try more ways of finding those patterns now in the industry compared to say five years back. Many decisions are driven by the output of a model and human still oversee many of those things. But as the models get better or evolve, the human aspects will reduce. All the analytics we used to develop was to find some ways in which we can better predict the outcomes, so that it can lead to greater profits and also lesser risks.
How are the digital technologies helping banks/fintech function in these times of the pandemic?
First let us see the benefits of the current technologies. Due to the pandemic, without leaving my house, I have been able to do all my financial services at home. So that is wonderful,
impossible without all the technology investments made by the financial firms.
In times of pandemics, let us understand what happens. The main issue is that people lose jobs. So the problem is really about getting money back from somebody that has taken money from the banks. I am not fully sure how banks are doing this currently. But we will look at some specific example below. We can think of the financial system or the economy as an expressway with hundreds of automobiles smoothly going along. A pandemic or a crisis is an accident and that of course hurts the people immediately involved such as the people falling sick now from the virus.The aftereffect of the accident is that cars that get stuck behind the accident. The bigger the accident, more the number of people that are stuck. So it is about getting the expressway back in motion. The good news is that the people stuck are not physically hurt.
Similarly in an economy, when there is a crisis, many people get stuck behind the accident. Here it means they lose jobs and have no way of earning an income. We should realize that even during or after a crisis, total wealth does not really change that much. All wealth is some form of mother nature converted into another and somebody’s puts their ownership on it. The governments and regulators have to use some ways to get the money flowing back again like getting the expressway back in motion.
How can banks personalize interactions and reduce response time with customers? How has this translated into a revenue generator for the banks?
Let us understand a bit more of what is AI and the key word there which is intelligence. Why do we need intelligence? It is to make better decisions. Then what is a better decision. We are always optimizing and a better decision helps you to better utilize resources towards some goals and
minimize unwanted outcomes. So AI is really about decision making and optimization. When dealing with people, using all the data collected about a person, we try to see what they do next. And if we are right more times than wrong, the bottom line will take care of itself.
How critical it is to map customer behaviour patterns using analytics at this juncture when the government has offered loan moratoriums?
When we talk about intelligence, it is about making better decisions. If we know behaviour
patterns, we know who is more likely to pay and hence the repayment features can be adjusted accordingly. Whether it is a computer or a human being, it is about making better decisions. When we say we are making decisions you are doing some kind of optimization. It simply means we have some resources and we want to use it in the best way possible. So when we are trying to observe behaviour patterns it is about trying to use it for some decision making goal. When we talk about banks facing non-performing assets, the need to understand who has got those loans and depending on their behavior, it becomes possible for the bank to find ways to recover it. All these will be helped based on the data they have collected.
How has AI been a disruptor in the BFSI sector?
AI is going to disrupt things no doubt. Let us understand how this disruption is happening with a simple example. A manager at work supervises a bunch of employees. In terms of AI, the manager is the human being and the employees are the AI models. As the models or the employees get better they will require less supervision. So the manager’s immediate job is somewhat redundant and this same thing will happen in many industries. So we need to find other ways in which these managers can be actively involved. That is the main issue. It will certainly change the way things are happening. But overall it is a very positive thing for all of us, if we are able to overcome some immediate issues such as some types of jobs no longer requiring human intervention.