With more than 50 percent of financial services companies working on a chatbot project, mobile banking leaders should be following the latest developments in this technology. Chatbots have officially reached buzzword status in Silicon Valley, as investment is pouring in to create a new generation of AI that can generate its own conversations.

What’s driving the growth? A big step up in performance. What does it mean it all mean for you? It’s never been more important to stay on top of this rapidly changing business and technology development so that innovators and decision-makers can make their business a part of the next generation of banking.

Although not quite yet widely used within banking or wealth management, the smart money seems to be on chatbots making a big impact over the next two years. According to a Personetics study, 80 percent of those surveyed in banking see chatbots as an opportunity, the company noted in Financial Brand. But isn’t it just about simple code helping to eliminate calls to the call centers by letting people chat with an algorithm?

Turns out chatbots bring opportunity all over the business. Personetic’s report indicated that over the next 3-5 years, 34 percent of those surveyed expect for over 50 percent of conversations with clients to be handled by bots. Nearly 60 percent believed that more than quarter of all customer conversations will be handled by bots in the relatively near future. What this means, according to Jim Marous, co-publisher of the Financial Brand and publisher of the Digital Banking Report, is that all types of conversations — and not just customer service questions — will be fair game for chatbots to handle in the future.

“What will banking be in two, three or four years? It’s going to be this,” said Michelle Moore, head of digital banking at Bank of America.

Augmenting the Future of Banking

What’s driving these bold predictions for the future of banking? Chatbots have been around for some time, so the concept is not new. A well-known early example that began to step up to the Turing test is ELIZA, the famous computer-based “psychoanalyst” developed by the MIT Artificial Intelligence Lab in the 1960s.

Since then, it’s clear that robotic interfaces (and how we interact with them) has evolved. While basic chatbots just answer simple queries on recent transactions and spending limits, Bank of America’s latest chatbot called Erica, which launched in October 2016, can track your credit score, review your spending habits, offer advice on how to pay off bills, and follow up on requests to move money between your accounts.

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Mobile banking is also a big focus for Capital One, which in March 2017 debuted its Eno chatbot, which lets customers manage their money using their smartphone. Consumers can ask Eno about their account balance, payment history, recent transactions and credit limit via text messaging.

What’s happened to make chatbots more relevant to real-world problems in complex industries like mobile banking is the quantum leap over the past four years from machine learning. This integration into chatbots has made the technology a viable industry solution for customer service.

As noted in Fortune in 2016, consumers have witnessed “quantum leaps in the quality of a wide range of everyday technologies [such as …] speech-recognition functions on our smartphones.” Making its way into the mainstream press, the breakthroughs in AI and machine learning have dramatically improved these services after a long period in which researchers saw only minor improvements.

Chatbots are a beneficiary of these developments in machine learning. Just as voice assistants have taken off in popularity as personal AI solutions, chatbots are the future of mobile banking and wealth management. To be cutting-edge with a chatbot initiative in 2017, Marous explains, involves several prerequisites:

1. Natural Language Processing (NLP)
2. Contextual engagement
3. Access to real-time data
4. Ability to cite relevant written materials
5. Deep knowledge
6. Ability to work seamlessly across channels, including mobile and web
7. Learning over time
8. Anticipating customer needs

By including these features or capabilities within a chatbot program, companies can ensure that your offering is up-to-date and can deliver an optimal customer experience.

Preparing Your Business

While the table stakes are clear, how can a thought leader working in technology and financial services stay on top of developments? What platforms are the ones worth staying on top of in 2017? For now, it’s critical to stay current since there are no single winners in this category when it comes to trends in deep learning, neural nets and AI.

One way to stay informed is to follow the funding of AI-focused startups, which reached an all-time high in Q2 2016, according to a report by CB Insights.

Another way to stay on top of the future of banking is to track the news from the nonprofit Partnership on AI, which promotes public understanding, conducts research on ethics and shares best practices. And while the consensus on forums such as Reddit and Quora is that there is no clear-cut winner to date, Facebook and its M (for Messenger) platform is one of the leading solutions to watch.

With the latest developments in AI promising significant impacts for businesses, innovators should start experimenting, if they haven’t already, with pilots to lower operating costs and improve client experience through the use of chatbots.

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Michael Halloran

Michael Halloran publishes the FinTech Blog on innovation and trends in financial services firms and startups, and is head of partnerships and business development at MaxMyInterest.com. Previously, he was with Morgan Stanley, where he managed partner relationships in the wealth management division. He began his career as a consultant at Gemini Consulting, where he helped launch the U.K.'s first online bank. He was also a managing director at Scient (now Razorfish). Follow him on Twitter: @fintechblogger

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