A.I., Robo Roles, Predictive Analytics and the Promise of Emerging Affluents


Editor's Note: In this blog series we discuss Artificial Intelligence, robo roles, and analytics. As Gen Y continues to gain financial power, these tools will help build relationships with this segment. While many larger banks are already using some of this technology, it's crucial that community and mid-sized banks along with credit unions jump on-board or they risk losing shares of the largest income-earning demographic.

The power of artificial intelligence (A.I.), robo advisors and predictive analytics has been a trending topic in the financial services industry for months now. The recent public discussions about the promises and problems that come as robotics and A.I. merge to give us robots with anthropomorphic appearances and capabilities have broadened interests in how this type of technology can be used in banking. One specific area of focus has been how these advances might help identify new opportunities for better serving the consumer while accessing new sources of revenue. 

A report published by Javelin in December 2016 entitled, Wealth Management in a Mobile First Era: How to Turn Robo Savers Into Robo Investors discusses what shape these value-added services to consumers might take and how financial institutions could possibly monetize these offerings. The main basis for the conclusions drawn in the report is built on the "promise" of Gen Y (defined by Javelin as 25-34). As has been well-documented by now, this generation is the largest one ever and thus will inevitably compose a significant percentage of the US population.

The law of large numbers suggests that this fact is not to be discounted. But there are features about this generation that are as interesting, if not more, as its sheer size. Today, Gen X - the generation immediately preceding Gen Y - is the largest income-earning demographic with an estimated total of $7.4 trillion. However, by 2020, Gen Y will match Gen X in this category and by 2025 Gen Y's total income aggregate will be approaching 50 percent more than what Gen X will be earning.

To monetize this trend, financial institutions will need to build a relationship with the emerging affluents in Gen Y before they are "affluent' but while they are still "emerging." The TBTF (Too Big to Fail) institutions traditionally have the technology and associated services to do this. For them, A.I. and robo capabilities will help further fine tune their targeting and give them more value-added services to use in growing their relationships with this segment. 

However, for community and mid-sized banks and many credit unions, this is not necessarily the case. Too often, by the time emerging affluents become identifiable to these organizations, they have already "emerged" and are affluent.  Thay also most likely have already become clients of brokerage, maybe even a brokerage that offers banking and/or is owned by a member of TBTF club. As the manager of digital banking at a $15 billion asset bank said once, "We need some way to find these customers before they become clients of these firms or risk becoming only their accounting system of record."

Overcoming this challenge is not a simple matter, but it is not impossible. There is data generated by a consumer's relationship with a bank or credit union that may indicate the person is moving toward affluence. The fact that financial institutions are not utilizing this data has more to do with the inaccessibility of the data. Third parties used by a bank or credit union often control data associated with the services they provide to the consumer through the institution. This data is very difficult for the institutions using these third-parties to access.  Also, many of the IT infrastructures powering financial institutions feature "data jails" where the system serving as a foundation for a service to the consumer (e.g. e-banking, mobile banking) contains unique data that is difficult to collate with another system's data to arrive at actionable information.

Innovative banks and credit unions are considering how to address the need to be able to access and cross-reference data to grow their role as trusted advisors to customers and members, including soon-to-be emerging affluent among Gen Y. In the next posting on the 270° View, some of the strategies these institutions are utilizing to accomplish this will be discussed. Stay tuned...