Dive Brief:

• Artificial intelligence (AI) will play a key role in accelerating the digital shift in banking over the next five years, according to a report published Tuesday by banking software company Temenos. 

• More than three-quarters (77%) of respondents said successfully using AI will be a key differentiator between "winners and losers" in the banking industry. Improving user experience through greater customer personalization (28%) ranked as AI's most valuable purpose among bankers surveyed by the Economist Intelligence Unit (EIU) on behalf of Temenos. 

• Two-thirds of banking executives (66%) said new technologies such as AI, cloud and DevOps will continue to drive global banking transformation over the next five years.

Dive Insight:

Banks increasingly experience the customer service benefits of AI, and no longer just using the technology for safety and security purposes, said Alexa Guenoun, Temenos's president of the Americas and global head of partners. 

"We’re seeing AI in banking and financial services shifting from being pretty much constrained to things such as [know your customer], [anti-money laundering] and fraud detection, moving into hyper personalization," she told Banking Dive. "It’s now about proposing the right product." 

Guenoun attributes part of this shift to AI’s presence in just about every product consumers use. 

"AI now is driving everything we do. And people are used to it," she said. "You go on Amazon, it proposes a product, and you have options for looking for a movie. It applies pretty much everywhere, so it's no longer scary."

But banks will need to be careful about how they implement the technology, and explainable AI will be a key feature that ensures customers understand why they were denied a loan or recommended a product, Guenoun said. 

"If Netflix recommends a movie at 98%, they could be wrong and you change the movie within five minutes. What's going to happen? Not much, right? But when your bank offers you a loan at a certain price or refuses your mortgage at a certain rate, you want to know why. You want to understand in plain English why this happened what you could do to get a different outcome," she said.

Temenos recently rolled out explainable AI products for banks and credit unions offering loans to small businesses who were struggling because of the coronavirus pandemic.

The software helps banks "make urgent lending decisions that are transparent and explainable in human language to the end-users, customers and the regulators," the company said. 

"Digitization is going to increase the customer support of the banks and make sure that any decision which is going to be taken is going to be trustworthy, transparent and fair," Hani Hagras, chief science officer at Temenos, told IBS Intelligence following the launch. "We believe that this is the time that artificial intelligence and specifically explainable AI is not going to be seen as a future technology, it’s a future that we need today, to be able to minimize the pressure on our human workforce and making sure that we are able to keep our economy’s success."

The ongoing pandemic is likely to accelerate digital transformation in banking, the report also found. 

About 45% of the survey respondents said their strategic response to the pandemic is to build a "true digital ecosystem." 

"This aim to integrate self-built digital services and third-party offerings was cited more than any other response and has increased from 41% of respondents in 2019," the report said.

"Banks were under huge pressure due to new competitors, ongoing regulation and slowing profit growth," Temenos CEO Max Chuard said in a statement. "These pressures have intensified as a result of the pandemic."

About 59% of the survey's 305 respondents agreed with the statement that "the traditional branch-based banking model will be dead" by 2025, the report found. That figure jumped from 44% last year.