Artificial Intelligence Benefits and Risks

February 2, 2023

QUESTION

There has been a lot of news these days about AI. Recently, a Fintech firm pitched us on using their AI platform to enhance our customer services. They also offer many other AI services. Frankly, I am “old school.” I am suspicious of all this technology coming in and taking the place of humans.

Our president, however, is very into tech and gadgets. He wants to use AI for credit decisions, risk management, and even cybersecurity. Our AML officer has climbed aboard the AI bandwagon and wants to use AI to flag potential SAR filings.

I head up customer services. The human factor is what I know, and it works well. I need somebody to ease my aching mind about all these AI services. And that “somebody” is going to be you. A lot of people in the company read your newsletter. We like your straightforward approach.

Here are our questions:

How is AI used in mortgage banking operations?

What are the risks of using AI in banks and nonbanks?

ANSWER

Thank you for your kind words. I will always have a soft spot for the people in customer service, the unit you head. That’s because customer service is often the first contact a consumer has with a company. How communication is handled can make a big difference between a friendly business relationship and a consumer complaint. Consumer complaints risk damaging reputation and loss of business and can cause a lot of legal and regulatory havoc.

Artificial Intelligence, known by its acronym “AI,” is with us to stay. I’m going to provide a few of the ways that financial institutions are using AI. The five banking agencies (viz., OCC, FRB, FDIC, CFPB, and NCUA) have reviewed AI use for a few years, including machine learning. My sense is that the agencies are receptive to AI innovation, with the caveat that companies ensure that the AI identifies and manages risks associated with AI use.

I count at least six areas where banks and nonbanks are using AI.