AI in banking: not so risky business

You’ve lost track of time while staring blankly at a wall in your local bank branch, anxiously waiting for an update on the status of your loan application. It’s a relatable situation for many Europeans, as modern society continues to run on credit. Yet, as many as 37 million Europeans don’t have access to responsible credit. Instead, they rely on informal means of managing money such as being cash-reliant, dealing with pawn-brokers and turning to moneylenders for short-term, high-interest loans.

At the same time, Europe’s banks are under pressure to reduce the rate of lending after the European Central Bank found that institutions were supervising nonperforming loans totaling over €850 billion. This means that even if Europeans go down more formal routes, accessing credit or other types of financial services remains difficult as banks continue to become more stringent

So how can Europe’s finance sector responsibly cater to customer credit needs while continuing to grow revenue streams in an environment that’s increasingly risk-adverse? For leading institutions, artificial intelligence (AI) and machine learning are proving to be the secret weapons, allowing financial innovators to tailor products and services to customers looking to take control of their financial future.

AdviceRobo, one of Europe’s leading FinTechs, is transforming the traditional risk assessment model with a new psychographic credit scoring system. Partnering with Microsoft, the white label solution leverages big data and AI to make it easier for European banks to assess the risk and creditworthiness of a new customer and their ‘willingness’ to pay back loans.

Answering a series of online questions, which vary from spending habits to conceptual reasoning, the lender is immediately provided with a score based on a continuously updated system. The score is sent via an API to a lender who can make an informed decision on whether or not to grant credit. By analyzing big data, financial institutions using AdviceRobo’s AI-platform have reported the acceptance rate of good loans improves by as much as 20%.

What’s more, the new analysis enables financial institutions to continuously monitor loans for risks or anomalies. Through machine learning, AdviceRobo can provide customers with personalized strategies to help prevent foreclosures and defaulters, and protect them against over-consumption of credit. By pre-emptively advising those with more risky loans, banks are decreasing the number of non-performing loans and decreasing the default rate by 38%.

“Credit lending, by nature, is a risky business. By applying AI and providing our unique psychometric insights, we eat risk for breakfast. Whether it’s the self-employed, start-ups or millennials, we help relieve thin-file customers from financial stress while at the same time boost the return on investment for lenders,” says Diederick van Thiel, Chief Executive Officer at AdviceRobo.

But mitigating risk and granting people access to responsible credit is only one piece of the puzzle. Consumers must also trust financial systems and feel empowered to use credit by making informed investment decisions and consequently taking control of their financial security.

As Europe continues to enjoy relatively low interest rates and low volatility, Cognitive Scale and Bridgeweave are set to launch an AI solution that hopes to democratize trading by providing investment insights to Europeans wanting to participate in the stock market. The collaboration will help people from all walks of life with the ability to make more informed investment decisions by sharing both necessary and personalized information to effectively capitalize on their credit.

“No two investors are the same, yet some asset management structures still group customers based on rigid, broad and impersonal classifications,” says Akshaya Bhargava, Founder of Bridgeweave. “Despite significant differences in their appetite for risk, many customers find themselves placed in the same segment, assigned the same relationship manager and provided with the same insight and advice. But now, through AI, we’re able to segment investors more precisely and deliver high-quality tailored insights that have never before been accessible.”

By leveraging technology like machine learning, cognitive science, big data and AI, FinTechs around Europe are working to create products and services that meet institutional standards, provide affordable and responsible advice, and rebuild consumer’s trust in the transparency of financial institutions.

It’s astonishing to think how intertwined credit is with our dreams. No student loan, no degree. No credit card, no travel. No credit history, no mortgage. And for every one of these goals and ambitions, Europe’s financial sector is investing and innovating in the types of technology that will help get us financed and give credit where credit is due.

For more information, please feel free to download The future banking ecosystem whitepaper.