As outlined in a report by S&P Global, mutual banks are finding themselves needing to decide to invest more heavily in AI technology to avoid being outpaced by mid-sized and larger institutions, and falling behind in gaining operational efficiency, and continuing to advocate for members and keeping their service human and personal.
According to the report, mutual banks are trying to keep the cost of their AI implementation down by not investing in proprietary systems and models, and instead investing in plug-and-play AI services, outsourcing the platforms to third-parties, which allows them to offer the same digital experiences as larger institutions at a fraction of the cost.
However, as the S&P Global highlights, this cheaper route introduces a number of challenges of its own, including creating increased cyber risk from AI-software vulnerabilities, less clarity on governance requirements and dependencies on vendors.
In a survey of 15 Australian banks, S&P Global found that while early adoption offers significant advantages for first-movers, customer experience is not what the mutual banks are improving, but operational efficiencies are being bolstered.
These include strengthening fraud and scam prevention with real time risk monitoring and scoring and behavioural profiling, streamlining the processing of credit and loans, and modernising customer service operations with smart virtual assistants.
That being said, while operational efficiencies are improving in regards to risk, the survey also found that the reliance on third-parties means that mutual banks face greater risk than larger banks with their own proprietary AI tools.
“Our broader survey results suggest that banks that develop AI in-house will possess enhanced risk-management skills. Developing their own models internally means they can embed governance directly, perhaps through use of opensource tools, into the architecture of their AI models,” the report reads.
“By developing their own technology, larger banks can establish monitoring systems and detect degradation in performance in real-time. It also puts lenders in a better position to understand third-party AI applications.”
AI risk is already covered under the Australian Prudential Regulatory Authority (APRA), but scrutiny over the technology has increased and thus may require more action.
That being said, the significant cost benefits could allow mutual banks to gain a competitive edge over those that don’t adopt AI, resulting in what needs to be a fine balancing act.
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