Consumer debt reached $4.15 trillion in 2019 and anti-fraud professionals have seen a 64% increase in online retail fraud in the first four months of 2020. With risk on a sharp incline, it’s no surprise that financial institutions are turning to advanced AI to manage credit risk and payment services.
Credit risk, delinquency and payments fraud are on the uptick as 2020 launches another year of rising consumer debt. According to Mercator Advisory Group, credit card debt is currently at $1.08 trillion and will expand another $100 billion by 2023. Financial institutions (FIs) are carrying vast amounts of risk.
With $4.15 trillion in consumer debt (Federal Reserve), financial institutions and payments companies are the latest focus of our collaborative research with PYMNTS. The unlocking AI playbook: credit risk and payments edition reports on the state of AI in the financial industry based on interviews with 150 U.S. banking executives.
Here are the key findings:
FIs are increasingly using AI to manage payment services and underwrite credit risk, applying the technology to critical functions within these areas.
An overwhelming majority of banks currently using AI apply the system in payment services: 92.9 percent. The second-most common application is credit underwriting, as 71.4 percent of AI-using respondents deploy it in this area. This statistic represents a dramatic shift from 2018, when just 27.3 percent reported using AI in credit underwriting, a 162 percent increase.
Banks primarily use AI within payment services to deal with security-related functions, including system security, authentication and preventing data breaches. When managing credit risk, the most common use of AI is for credit decisioning, which was cited by 60 percent of AI users – more than twice the share citing any other related activity.
FIs believe advanced AI has the greatest potential in customer life cycle management, enhancing payment services and underwriting credit risk.
The largest shares of banks believe these three business areas are the most promising for advanced AI.
- 43.7 percent of bank managers believe payments teams would be “very” or “extremely” interested in using the system
- 38.8 percent believe the business unit would be highly interested in the system for new product/customer life cycle management
- 33 percent would be interested for underwriting credit risk
Banks increasingly view advanced AI as a system that can bring new capabilities to payment and credit services, not just a way to reduce manual review.
FIs’ three most-expected benefits from advanced AI are improved customer satisfaction, reducing payments fraud (67 percent in both cases) and improving credit/portfolio risk (62.1 percent).
Commercial banks are the FIs most likely to use AI, and they are especially intrigued by the potential of advanced AI to improve credit risk.
Our research shows that 19.6 percent of commercial banks currently use AI, compared to just 2 percent of community banks and 6.1 percent of credit unions. Commercial banks are also more likely to be highly interested in advanced AI than other types of banks, with one-third of them “very” or “extremely” interested in implementing the system.
To learn more about the feedback and PYMNTS analysis behind the numbers, download The unlocking AI playbook: credit risk and payments edition.
The unlocking AI playbook: credit risk and payments edition was researched and written by the analysts at PYMNTS.