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Chat Bots: Savior or Disintermediator?

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9 December 2016
Stephen Greer

AI is becoming increasingly interesting to bankers. Last year I wrote a blog about “Assistant as an App”, looking at how concierge apps like MaiKai and Penny are offering up AI-driven financial management services. My colleague Dan Latimore also recently posted a blog on AI and its impact.

The emergence of chat bots within popular messaging apps like Facebook Messenger, Slack, Kik, and WeChat similarly has the potential to shift how customers interact with financial institutions. Chat bots offer incredible scale at a pretty cheap price, making adoption potentially explosive. Facebook messenger, for example, has almost one billion active users per month. WhatsApp (soon to launch chat bots) has about the same. These apps offer some extremely high engagement, and with app downloads decreasing, users are spending more time on fewer apps. According to Tech Crunch, 80% of the time spent on a mobile device is typically split between 3 to 5 apps.

Chat bots give the bank the ability to automatically appear in almost all of the most used apps in the world. The opportunity with digital assistants is immense, and given the nature of bank transactions, it’s not hard to imagine chat bots becoming a widely used engagement method. Most of banking is heavily rules-based, so the processes are often standard. Frequent banking requests are pretty straightforward (e.g. ‘send this person X amount of money’ or ‘transfer x amount from savings to checking’). Bank-owned chat bots are also more built for purpose than some of the multi-purpose third-party products on the market, making the functional scope targetted. While chat bots are still very early days, it won't be long before these kinds of interactions are accessible and the norm. Bank of America already has one; many others have plans or pilots.

This video (skip to 7:30) shows what an advanced chat bot might be able to accomplish. The image below from the Chat Bot Magazine is another conceptual banking use case. The possibilities are compelling.

But while the opportunity with digital assistants is enormous, banks must be aware of how this affects their current ongoing digital strategy. For example, if chat bots overcome the hype and become a long lasting method for accessing financial services, then what effect will that have on traditional banking apps? Will chat bots make it foolish to invest large sums of money in dedicated mobile apps?

For all the promise this technology brings, banks need to be aware that this could be a step towards front-end disintermediation. The threat of tech companies (or other large retailers) stepping in to grab banking licenses and compete directly with incumbents was short lived. The more realistic scenario was always relegating core banking functions to a utility on the backend of a slickly designed user interface created by a fintech startup. The incumbents lose the engagement, even if they are facilitating the transactions.

Are chat bots a step towards front-end disintermediation, or are they an extension of the bank’s main app? If you believe that chat bots are a stepping stone (or companion product) towards a world where the best UI is no UI, and where AI evolves to the point of offering significant functional value, then banks could be at risk.

This isn’t a call to hysteria by any means, nor am I calling chat bots wolves in sheep’s clothing, but banks need to be aware of the potential impact. As voice or message-based interactions become the norm, they will have an effect on a bank’s dedicated mobile app. In this environment, the mobile app will need to evolve to become something different; non-transactional.

Chatbots will only further fragment the customer journey, requiring an even clearer understanding of how consumers are choosing to handle their finances and make transactions. Banks need to start thinking about how chat bots and AI fit into a long-term digital channels strategy, one that doesn’t handcuff the institution into a no-win proposition of competitive disadvantage versus wilful disruption.

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