A Thoughtful Approach to Generative AI

It is hard these days to keep up with the noise and hype around technologies that are coming to disrupt existing business models. While leaders must learn and stay informed about innovations, it’s helpful to remember in the process that they often result in life-changing improvements for our businesses and our consumers.

Take the financial services industry: It is humbling to look back and evaluate where and when the most significant technology changes have happened. From a consumer standpoint, there have been three giant leaps in the fintech industry over the last 50 years.

Improved Access
One was when ATMs became available and customers no longer had to plan activities around banks being open. Growing up in India, I remember times when we had to change our plans because we couldn’t get to the bank before it closed.

The next big advance came with digital access that allowed customers to see their account balance at any time. But the real lifestyle upgrade came when fintechs like PayPal Holdings offered services like Xoom that made payments happen in near real time. This marked the advent of the platform economies with excellent digital experiences through fintech providers.
After digital access and transactions, there was a major boost to automation for financial services. This boost greatly benefited consumers, a subset of whom have never had to look for a bill in the mailbox and then take the time to set up payments. Automation also helped financial institutions better serve their communities by, for example, reducing the time it took to process a loan application.

Fintechs have developed a strong competency around these advances. In the 10 years that followed the Great Recession, mortgages initiated through fintech channels on average grew 30% year-over-year, reducing the time to originate by 10 days without increasing the default rate, according to a 2018 research paper from the Federal Reserve Bank of New York.

Opportunities and Risks
As we push farther on that efficiency frontier, we must talk about generative AI and the potential this new technology has for both financial institutions and consumers. What is generative artificial intelligence, or AI? How can it impact banks and customers?

In the simplest sense, generative AI refers to artificial intelligence models that generate new data similar to the data that trained the model. Banks can use generative AI to create new documents, whether they are loan closing documents or suspicious activity reports, saving time and resources.

This innovation can lead to more accurate and consistent outputs or predictions, better risk management and improved customer experiences. However, it’s crucial to ensure that financial institutions use generative AI transparently and ethically to maintain trust and fairness for all parties involved.

Crafting a Strategy
As is often true with new and disruptive technology, financial institutions and technology providers should resist the temptation to apply the technology to their most complex problems and avoid the risk of learning it doesn’t work as expected. Failing to resist this temptation results in disappointment, unfortunate conclusions about the technology’s potential and, most importantly, the opportunity cost.

Instead, start by inventorying all the use cases and pursue the most straightforward ones. This exercise accomplishes two critical objectives:
It increases teams’ familiarity with the technology.
It ensures that teams walk before attempting to run with the most complex use cases.

Proceed with caution in how your institution embraces this new technology. Trust is at the foundation of financial institutions and the broader ecosystem, and generative AI has sparked legitimate concerns about data security. As technology advances, the possibility of data leakage through publicly available models as well as the potential exploitation of a data leak by nefarious individuals increases.

Organizations must implement stringent security measures to safeguard their data and prevent unauthorized access. Moreover, it’s crucial that regulators and other stakeholders establish guidelines to ensure that generative AI is used responsibly.

Generative AI could dramatically affect financial institutions and how they serve customers or members. Ignoring this disruptive technology is not an option. Understanding and taking measured steps when adopting generative AI can pave the way for modern and accessible financial services.