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Banking on technology

Artificial intelligence helping banks get smarter

Total fraud loses incurred on all types of payment cards in 2015 was $21.84 billions, according to TSYS.

It was an attention-grabber when TD Bank Group, with U.S. headquarters in Cherry Hill, acquired Toronto-based artificial intelligence company Layer 6 Inc.

It was an attention-grabber when TD Bank Group, with U.S. headquarters in Cherry Hill, acquired Toronto-based artificial intelligence company Layer 6 Inc.

Yet the move also represents just the latest example of how the banking industry is shedding its stodgy image in a full-blown embrace of technology.

Layer 6 uses AI to help analyze data and predict the needs of individual customers, and it’s no mystery why TD came calling last month. From answering their questions in a fast yet understandable manner, to sifting through reams of data in order to spot fraud, banks are increasingly using artificial intelligence, a cutting-edge technology once the stuff of science fiction.

“Anticipating and meeting customer needs are at the heart of our promise, and we are excited to further accelerate our innovation agenda to deliver well into the future,” TD Bank Group CEO Bharat Masrani said. “As we deploy new solutions, we will extend our deep relationship with customers across all of our platforms and offer personalized, connected and legendary experiences for our customers in the digital age.”

TD has been mum about the terms of the Layer 6 deal, but it’s clear that the bank is getting into AI in a big way.

TD has been collaborating with the Vector Institute for Artificial Intelligence — launched by Layer 6 founders Jordan Jacobs and Tomi Poutanen — to develop the next generation of AI technologies. TD also announced an agreement with another AI provider, Kasisto, to integrate the company’s conversational text-based platform into TD’s mobile app.

And in November, TD announced that Amazon’s AI-powered digital personal assistant, Alexa, will give customers voice activated access to detailed information about TD products and services, locations of TD branches and exchange rates, through Alexa-enabled devices.

“Voice interaction offers the potential to connect our customers with what matters most to them, more simply and easily than before,” TD Chief Digital and Payments Officer Rizwan Khalfan said. “This is just the first step towards more natural conversations with our customers, aligned with our broader vision of using smart innovation to add value to our customers’ daily lives.”

Challenges follow banks’ embrace of tech

Artificial Intelligence is one of the many ways that banks are embracing technology, but tech advances that offer convenience and efficiency can also lead to challenges.

Consider the concept of remote banking, which enables customers to connect with their individual and commercial accounts from the comfort of their home, business or elsewhere.

Led by the preferences of younger customers, more banking is being done online or through mobile channels, with more than 85 percent of retail banking transactions in the U.S. conducted digitally, according to a 2017 Accenture report.

But as banks beef up their digital capabilities to attract and retain customers, more hackers are trying to illegally access their systems, warned Veronica Montagna, a Newark-based partner at law firm McCarter & English who represents banks as part of her corporate transactional practice.

“Each state has its own regulations concerning sensitive personally identifiable information, like Social Security numbers [or] bank account, credit and debit card numbers, and other information that if disclosed could cause economic or other harm to the identified person,” Montagna said. “In addition to taking steps to prevent or at least mitigate any breach, New Jersey requires banks and other institutions to report most breaches to federal authorities and to the New Jersey State Police. Customers and bank employees who were affected may also need to be alerted.”

Banks that operate in multiple states often look to the most stringent regulations — which are usually in California and Massachusetts — and use them as a national baseline, she added.

“In addition to state privacy laws, in 2017 New York State began requiring banks to hire or appoint a chief information security officer who’s responsible for periodic testing of IT systems,” she said. “This individual is also required to report any security incidents, even if they don’t normally require reporting. I wouldn’t be surprised if New Jersey adopts a similar rule in the future.”

Many banks outsource their digital banking and security to third-party providers. And in an attempt to protect themselves, they require the provider to indemnify the bank for any losses stemming from a breach.

“But remember, at the end of the day it’s still the bank’s responsibility,” Montagna stressed. “And it’s still the bank’s reputation that’s on the line.”

Some institutions, such as Valley National Bank, leverage the AI of third-party providers to get results. TSYS — a Columbus, Ga.-based provider of credit card processing and other services — signed a long-term agreement last year with Wayne-based Valley to continue to provide issuer processing services for the bank’s consumer credit- and debit-card portfolios.

TSYS also unveiled a new fraud prevention product, called TSYS Foresight Score with Featurespace. It’s a fraud and risk scoring tool that incorporates machine learning, a form of artificial intelligence, to bolster an issuer’s ability to fight transactional fraud.

According to TSYS, total fraud losses incurred by financial institutions and merchants on all types of payment cards was $21.84 billion in 2015 and is expected to reach $31 billion by 2020.

The AI-based anti-fraud product “is especially adept at spotting subtle variances from predicted human behavior, allowing it to more accurately predict new and unknown fraud types,” according to a statement from the Georgia provider.

“TSYS has been a trusted provider for Valley for two decades,” said Thomas Sparkes, first senior vice president with the bank. “They have provided a tremendous level of support and product expertise over the years, affording our customer base the best service we could ask for.”

You have questions, AI has answers

Wells Fargo, a financial services company with branches in New Jersey, also is exploring AI technology, and already has “some pilot programs in place,” according to Brian Pearce, the company’s San Francisco-based senior vice president, enterprise artificial intelligence.

“Last year we rolled out a national pilot program — with about 5,000 users — utilizing an AI-powered virtual banking assistant, or chatbot, on the Facebook Messenger platform,” he said.

The chatbot responds to basic questions about deposit and credit card accounts, transactions, and branch or ATM locations, which Pearce said can help to free up bankers to focus on “more complex” tasks.

“We’re currently analyzing the results — like determining the most-frequently asked questions — before determining how it may be expanded and identifying additional channels where it may be introduced,” he said.

Separately, Wells Fargo plans to expand a predictive analytics option that’s currently available on a limited basis part of its mobile app, Pearce said.

For example, it can analyze a customer’s activity and offer suggestions, such as whether they might want to consider moving a certain amount of funds out of a checking account into a higher yielding, but less liquid account one.

“The feature, which is scheduled to roll out nationwide in February, can also call your attention to large or suspicious activity associated with your account,” he said.

The appeal of artificial intelligence is its ability to quickly sift through reams of data — millions of transactions in many cases — and detect patterns or trends. Still, AI may be able to supplement a human’s activity, but it can’t replace them.

“So at the branch level, say, AI at some point in the future would be able to anticipate a customer’s need, and perhaps offer loan products,” Pearce said. “But at that point a team member would take over and speak with the customer to customize the package to that individual’s unique circumstances and needs. So AI can help us to use information more efficiently, but it won’t solve everything. Artificial intelligence is an exciting and powerful tool, which can make it easier for customers to interact with the bank through mobile and other channels. But at the end of the day it’s still a tool.”

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