Financial service providers of the next generation 2024

"AI has come to stay." With these words, Johannes Koch, Member of the Board of Managing Directors of DZ BANK, opened the 19th "Financial Service Providers of the Next Generation" conference at the Frankfurt School of Finance & Management. The event is one of the leading specialist conferences for banking in the DACH region. In his opening speech, Koch, as a leading top manager at Germany's largest genobank, compared the influence of AI tools such as ChatGPT on the workplace of the future with the digital revolution of Excel or even the triumphant advance of smartphones.

Rarely has there been such a uniform and overarching consensus among industry representatives from Commerzbank, DZ BANK, WI-BANK, L-BANK and Helaba as at this year's conference at the Frankfurt School of Finance & Management: financial service providers must now actively address the topic of artificial intelligence to generate long-term competitive advantages and secure their position. In a recent study by msg for Banking AG, banks have already noticed the huge potential and are therefore relying on AI more than other industries such as the automotive industry, the public sector or the manufacturing industry.

The omnipresent transformation pressure to implement AI in banking is being driven primarily by the following three factors:

• An increase in demographic change and a shortage of skilled workers
• The rapid pace of innovation and adaptation of the basic technology
• Constantly changing regulatory requirements

According to an analysis by industry representatives, many financial service providers are currently experimenting with AI. The focus of this phase is on using the momentum in which the intrinsic motivation of employees, freedom and speed are seen as the driving force behind the adaptation of GenKI. Generative AI is a system based on artificial intelligence that can generate new content such as text, images or code from existing data according to instructions. To realize sustainable competitive advantages from the innovation hype, a strategic anchoring of artificial intelligence by top management is essential. Representatives from Commerzbank and WI-Bank discussed current examples in their companies with the audience.

The process models for defining an AI strategy presented at the "Financial Service Providers of the next generation" conference can be summarized as follows:

1. Formulation of guard rails and framework conditions
   Such "AI playbooks" should define not only how data is generally processed, but also how adequate security standards are complied with. At the same time, the set of rules should leave room for innovation.
    
2. Definition of business-oriented use cases
   A funnel principle should be used to evaluate value-adding use cases from the individual perspective of the financial institution. Internal evaluation criteria such as available skillset, acceptance, cost reduction and others must be determined. Even if use cases are currently still heavily based on previous activities, they are a driver of innovation. Cooperation with relevant start-ups should be sought in order to bring digital ingenuity into the buildings. The use cases mentioned by Intero Consulting in the recently published blog article were praised by the majority of participants at the event at the Frankfurt School of Finance & Management as significantly value-maximizing.
    
3. Creating a technological basis
   Good data and systems in core banking are key to success in unleashing the potential of artificial intelligence. To avoid a "garbage in and garbage out" phenomenon, all data should be checked before being linked to the AI solution and inconsistencies should be systematically eliminated. Central data platforms such as ServiceNow and Appian are extremely helpful here. It should also be determined whether AI should be implemented on a pure cloud, on-premise or hybrid solution. Pure cloud solutions offer significantly higher performance in comparison - although this is not necessarily relevant for every use case. The aim is to develop individually tailored solutions for each use case.
    
4. Empowerment of employees
   Dedicated development programs for employees are essential. In addition to the technical skills of employees, the organizational and methodological expertise of senior positions in the company is crucial for successful innovative progress. A positive error culture is an important factor in the company.

The software company Appian distinguishes between two categories of AI usage. Employees can be relieved of recurring standard tasks using AI skills, such as document or email classification, extraction of relevant information from files or automated prompting. With so-called copilots, customers can be supported by GenKI-based chats for the provision of documents and information, while developer activities can be automated with the help of modular low-code models and recommendations for action.

Concerning financial service providers, ServiceNow identifies the potential for GenAI in customer acquisition and onboarding, customer service, risk and compliance management, and technological modernisation segments. We at Intero Consulting also perceive the standardisation of operational processes as the first step towards automation. ServiceNow is particularly focused on high-performance virtual agents with access to portfolio data to support customers and prevent incidents. Furthermore, GenKI will also play an important role in data analytics, the automation of review processes and audit-proof incident management in the future.

"In addition to focussing on their own value creation, it is also essential for financial institutions to ensure efficient operations in order to survive in the market." - With this statement, Dr Hendrik Lemelson, European Head of Banking Operations at Avaloq, opened his presentation on the necessity for banks to concentrate on further developing their value proposition. Two methods for the outsourcing of standard processes that do not affect the financial service provider's value creation process are compared:

• Business Process Outsourcing (BPO): Execution of all processes on the bank's systems
• Business Process as a Service (BPaaS): Execution of all processes on the outsourcing partner's systems

In contrast to the "classic" BPO model, where banks retain a high degree of individualisation and control, banks that utilise BPaaS benefit from synergy effects and high efficiency. The advantages of BPaaS arise not only from the cross-customer development of best-practice processes but also from the outsourcer's focus on the continuous improvement of processes that are not the core business of banks.
In practice, however, we at Intero Consulting consider the availability of a suitable database and process readiness to be a critical factor in the utilisation of AI in the financial services industry.

We have realized the strategic relevance of AI in the day-to-day work of financial service providers and consulting firms. Several years ago, we launched internal field studies at Intero Consulting to analyze and successfully implement the potential of artificial intelligence in day-to-day consulting. Since then, we have created internal AI playbooks for the entire Intero team, identified and largely tested trends in all competence centres and set up our own AI Innovation Hub. Among other things, the AI playbooks describe framework conditions for the safe use of AI, and the entire team receives regular training on their application.

This enables us to offer our customers valuable AI workshops to pass on our knowledge and derive individual solution recommendations for the usage of AI. In the AI workshops we develop, we build on the above-mentioned strategy and individualize it for each customer in order to offer tailor-made solutions.

We also support our customers in various digitalization projects so that the required technical basis is established using central data systems such as ServiceNow or Cloud.

The 19th "Financial Service Providers of the Next Generation" conference at the Frankfurt School of Finance & Management was fully dedicated to the trending topic of artificial intelligence, which is dominating the entire world. In addition, banks should of course also address the other mega-trends in the financial services sector. These include ESG and open finance. Find out more in our Trend Monitor.

Do you want to integrate artificial intelligence into your own processes and position yourself for the future? Our experts will be happy to provide you with individual and customized solutions and actively support you in implementing your plans. Alternatively, we look forward to meeting you in person at the next Handelsblatt BankenTech 2024 (03.12. - 04.12.2024) symposium.

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