2019 The Future

of Artificial
Intelligence
How to filter through applications of
AI for banking business transformation

Expert
Contributors :
 Contents
The Future of Artificial Intelligence Report 2019
2 | The Future of Artificial Intelligence Report
The Future of Artificial Intelligence
How to filter through applications of AI for
banking business transformation
Introduction

Chapter 1:
Artificial intelligence hype

Expert view
VocaLink

Chapter 2:
Avoiding artificial stupidity

Expert view
Pelican

Chapter 3:
Filtering the ethics of AI

Expert view
IBM

Chapter 4:
Explainable and auditable AI

Expert view
Xceptor

Conclusion

Bibliography

About
3 | The Future of Artificial Intelligence Report
 00 |
Introduction

While artificial intelligence has established itself as a disruptive

technology for decades, AI is arguably at the peak of the hype
cycle now and banks have started to implement this technology
to transform traditional models of businesses.
4 | The Future of Artificial Intelligence Report
However, being a multi-faceted
technology, financial institutions
must decipher whether it is
machine learning, robotics, deep
learning, business intelligence or
natural language processing
that is the most beneficial for
corporate banking.

Some banks have launched

chatbot applications and virtual
assistants, but others do not have
the talent within the business
to deploy innovative products
that are personalised for their
customers, and an even smaller
number do not understand the
value of AI.

This report on The Future of

Artificial Intelligence analyses how
despite a lack of experience using
the technology which has resulted
in problems when attempting to
identify unusual trends, prevent
fraud and avoid bias on an ethical
level, banks are now focused on
developing AI with a business-
critical consideration. 5 | The Future of Artificial Intelligence Report
 01 |
Artificial intelligence hype

While artificial intelligence is transforming

several industries, the financial sector has a
lot to learn from specific case studies in
non-banking areas such as health, travel
and retail. To start at the beginning, despite
the term AI having been bandied about with
a number of different definitions, the actual
definition is simple: technology that
appears intelligent.
6 | The Future of Artificial Intelligence Report
Having been in existence since the 1950s,
early forms of the technology were created
and designed to mimic human nature,
and this is where the controversy and
misconceptions have emerged from. After
a period of quiet development, artificial
intelligence has undergone a modern
revolution with subsequent excitement
as a result of techniques such as machine
learning coming to the fore.
Abhijit Akerkar, head of AI business
integration at Lloyds Banking Group,
reveals that a bank’s journey into artificial
intelligence starts with experimentation.
For Lloyds, it was around 24 months ago.
Experimentation provides a low-cost way
to test what works and what doesn’t.
This experience shapes the portfolio of
use cases and hence, the trajectory of
value creation.
“The last three to four years have seen the
explosion of data, easy and low-cost access
to powerful compute power, and availability
of sophisticated machine learning
algorithms. The stars are aligned for the
breakthrough. No wonder, companies have
stepped up their investments towards
embracing AI,” Akerkar says.
Machine learning is another term that
has been bandied about and it must be
remembered that this is a subset of AI;
all machine learning is AI, but not all AI is
machine learning. Machine learning enables
programmes to learn through training,
instead of being programmed with rules and
as a result, can improve with experience.
This is why there has been excitement
about machine learning in financial services,
as MMC Ventures explored in their report
‘The State of AI: Divergence,’1 in
partnership with Barclays. “Machine
learning can be applied to a wide variety
of prediction and optimisation challenges,
from determining the probability of a
credit card transaction being fraudulent to
predicting when an industrial asset is likely
to fail.”
1
MMC Ventures, ‘The State of AI: Divergence’ (2019).
2
Financial Times, ‘Europe’s AI start-ups often do not use AI, study finds’ (2019).
Deep learning, which is a subset of machine
learning, has also become mainstream
knowledge because of how it emulates
the way animal brains learn tasks, but
deep learning has not been used to its full
potential in financial services, yet.
The tipping point
MMC Ventures also state that after
“seven false dawns since its inception in
1956, AI technology has come of age. The
capabilities of AI systems have reached a
tipping point due to the confluence of seven
factors: new algorithms; the availability of
training data; specialised hardware; cloud AI
services; open source software resources;
greater investment; and increased interest.”
In what is being described as the fastest
paradigm shift in the history of technology,
banks can now adopt AI technology
because of the shift to cloud computing,
offerings from vendors and software
suppliers. According to Gartner, only 4% of
enterprises had adopted AI in 2018. Today,
this figure has jumped to 14% and a further
23% intend to deploy AI within the next
12 months.
“By the end of 2019, over a third of
enterprises will have deployed AI. Adoption
of AI has progressed extremely rapidly
from innovators and early adopters to the
early majority. By the end of 2019 AI will
have ‘crossed the chasm’, from visionaries
to pragmatists, at exceptional pace – with
profound implications for companies,
consumers and society,” the MMC Ventures
report posed.
But is this interest all conflated hype? MMC
Ventures also revealed in March 2019 that
7 | The Future of Artificial Intelligence Report
40% of Europe’s AI startups do not use any
AI programmes in their products, as was
reported in Financial Times. 2
 Based on interviews and investigation into
2,830 AI startups in Europe, David Kelnar,
MMC’s head of research, said that while
01 | Artificial intelligence hype
many of these firms had plans develop
machine learning programmes, none
actually were at present. “A lot of venture
capital groups in Europe are responsive
to companies that are interested in raising
money [for AI],” Kelnar said.
The FT went on to report that companies
that are branded as “AI businesses” have
historically raised larger funding rounds and
secured higher valuations in comparison
to other software businesses. In addition
to this, politicians have also contributed to
this hype by discussing so-called AI success
stories.
AI FOMO
At Finextra’s annual NextGen Banking
conference, keynote speaker head of AI at
TSB Bank Janet Adams framed the debate
and stated that “AI is the new electricity” and
has the potential to power everything we
do in the future, helping banking customers
thought the wealth creation stage of their
lives.
However, despite hype around uncovering
the mysteries that surround the technology,
Adams pointed out that business models
cannot succeed without proper education
of staff in financial services, and only then,
strategic advantage can be gained. “Data
equals training equals insight. Roshan
Rohatgi, AI lead at RBS, agreed and added
that “everyone is keen to use this stuff, but
the system, the fabric, is not mature yet. It’s
all well and good to go from POC to pilot, but
it never really reaches the real world.”
The hype discussion continued in Karan
8 | The Future of Artificial Intelligence Report
Jain, head of technology Europe and
Americas from Westpac’s keynote, in which
he explained that a lot of discussion about
AI is around FOMO - fear of missing out.
And this “FOMO generation” have different
expectations and “want their banking
services to be available in a couple of clicks.”
It was also argued in a later panel discussion
that this FOMO also exists within the
corporate banking infrastructure, where the
board may ask executives if they are working
with artificial intelligence - after having heard
about the technology in the news - for the
execs to reply, revealing that their bank has
been using machine learning for a few years.
In conversation with Finextra, Prag Sharma,
head of Emerging Technology, TTS Global
Innovation Lab, Citibank, highlights that
there has been a recent resurgence in
artificial intelligence and this is because of
the development in the overall capability of
the technology driven by “data, processing
power, cost and algorithms, products and
services developed by the open source
community.”
Annerie Vreugdenhil, chief innovation
officer at ING Wholesale Bank suggests
that AI is already part of our everyday lives
and is more prevalent than first thought.
“The world is changing rapidly through
technological developments and as a result,
our expectations are changing. As we adapt,
and these technologies become more
intertwined into our lives, our expectations
around what could be achieved also grows.
We believe in stepping out of our comfort
zone, even beyond banking, to explore
the opportunities, and as we do this, our
expectations extend beyond further than we
have ever imagined before.”
Paul Hollands, chief operating officer for
data and analytics at NatWest has a different
view. After saying that he was “a terrible
person to ask whether AI is a buzzword
or not,” he said he has always thought that
AI was “a massively overhyped term. It is
a collection of capabilities, so you know, if
you think about it in its simplest form, it’s
machine learning, its robotics and it is to
some extent, chatbots as well and I think a
lot of what we’re trying to do is around how
do we used advanced techniques to help get
to smarter outcomes for customers.
“We’ve been using machine learning for
a long time in terms of how we identify
opportunities to customers to save money
and do things differently. I sit there and
think machine learning isn’t that new but the
technology that is available that put the data
through and true and a speed at which it is
palatable enough to get an answer – that
is new.”
Machine learning lead at Monzo Neal Lathia
adds that “machine learning is well beyond the
peak of inflated expectations, but the broader
usage of the phrase ‘artificial intelligence’ is
hyped to a cringeworthy degree.” OakNorth’s
chief operating officer Amir Nooralia had a
similar view and said that while there is hype
around AI, he believes that it is justified and not
just part of a cycle.

“The hype is here to stay and if anything, will

only continue to grow over time as more use
cases develop and more propositions are
proven. Personally, I think the tipping point will
be commericalised AI: moving away from AI
chatbots which make us more efficient to AI
making commercial insights that lead to more
profitable businesses. Once that is proven in an
industry, it will permeate across quickly and then
replicated across other sectors. We saw this with
investment banking and algo-trading and how
quickly it took off, once money was being made.”

Stephen Browning, challenge director – next

generation services at Innovate UK, provides
a concise outlook at artificial intelligence and
explains that “it is not necessarily the technology
that’s important, it’s the projects and programs
in which AI is getting used. What we’re seeing
right now is a surge in interest around a
particular type of AI that is machine learning and
variants of that such as deep learning and that’s
driven substantially by two main things that have
developed and come along.

“One is the computing power available at a

reasonable price and the other is the availability
of large quantities of data. When you bring those
two together you have the ability to use machine
learning models to do some things that are
quite remarkable in terms of the ability to spot
patterns, but it’s not intelligent in the normal
sense of the word.
9 | The Future of Artificial Intelligence Report

“These techniques come under the broad title of

artificial intelligence, that’s really why there is a
surge in interest at the moment. The opportunity
to apply these techniques to new areas where
there is access to data gives the ability to spot
things that maybe you couldn’t spot before so
when you’re talking about financial services,
identifying fraudulent transactions far more
readily or using machine intelligence to assess
communication and potentially see where people
aren’t being so honest and spot fraud.”
 Expert view:

David Divitt
Vice President,
Financial Crime
James Hogan
Product Manager,
Financial Crime Solutions

In a Q&A interview with Finextra,

David Divitt, Vice President,
Financial Crime and James
Hogan, Product Manager,
Financial Crime Solutions from
Vocalink explore how financial
institutions can approach
innovation and combat financial
crime at the same time.
10 | The Future of Artificial Intelligence Report

After it emerged that people had

started to see Facebook ads that
were related to their Internet
search history, consumers felt as
if the line was being now being
crossed, especially when it comes
to the unpermitted sharing of data.
50% believe that a GDPR-style
regulation could be implemented
by regulators in the US, with barely
one-in-five believing it would never
come to pass.
Why should innovation be embraced without scrutiny?

A level of scrutiny should be encouraged and is warranted as long as it doesn’t suffocate the
process, since criminals tend to exploit weaknesses as soon as they emerge, and generally
before the industry has time to fully investigate. That being said, applying unnecessary
governance can be a barrier to true innovation, and diminish the opportunity of discovery and
achievement by slowing the process down unnecessarily.

How can banks take a measured approach to keep pace with innovation and help
combat financial crime?

The well-established banks have historically been less agile when reacting quickly to change
or taking the lead when it comes to launching innovative products and solutions. It is true of
course, they have many more customers and greater legacy technology challenges then say,
a challenger bank, however, the arrival of the so called challenger bank and new initiatives
such as Open Banking has shaken the industry into life. In order to keep pace, the industry
as a whole needs to embrace agility and adopt a “start-up” mentality which encourages
experimentation. Financial crime is already proving the ideal incubation environment for new
ideas and technology to be tested: because bad actors move at an extremely rapid pace, it is
essential that the industry is similarly agile and innovative to combat it. Innovations such as
network-level money laundering detection, device fingerprinting, AI and machine learning
have all had significant impacts in reducing fraud and money laundering, but more can always
be done. We encourage financial institutions to dedicate teams focussed on innovation, who
can work in a different way, but have the backing and the resources of the parent. However,
ensuring that their mission is well communicated across the organisation and has the support
from the various stakeholders is critical to success.

Data and algorithms are improving our supervisory approach, but what should financial
11 | The Future of Artificial Intelligence Report

institutions focus efforts on?

For financial crime, wider collaboration is the key and exactly where financial institutions
should devote time as data and algorithms in a silo can only go so far. Partnering and sharing
intelligence will deliver new learning to ensure financial institutions keep pace. Regular pilots
and investigative explorations should form a conveyor belt of that innovation, wherever
possible focussing on collaboration. Of course, financial institutions have a long, competing list
of priorities but investment here, specifically in data science, aiming for tangible outcomes will
reap reward.
 When it comes to combatting financial crime, why is there a spotlight on machine
learning when hacks cannot be statistically analysed?
Expert view

Machine learning is based on the principle that when given enough data, the machine can
better detect and react to the subtleties of a problem. Where humans alone can generally
interpret only the more obvious trends and patterns, a machine can comb through orders of
magnitude-more data to uncover the extremely hidden patterns which detect differences in
data. For this reason, tackling financial crime lends itself very well to the technique. Financial
crime involves identifying a relatively rare situation occurring amongst a huge pool of
legitimate transactions – a true needle in a haystack. Fraudsters intentionally try to blend in to
the crowd and avoid obvious clues to their activity. Also, criminals experiment with new attacks
and evolve existing ones rapidly, so reacting to them must also be done at speed. For these
reasons, machine learning is a great tool in the arsenal of weapons to combat financial crime.

Can risk models be built using algorithms to monitor crimes such as money laundering?

Absolutely. Risk models are in operation today and are at the forefront of combating money
laundering activity. The application of a rule-based strategy to detect money laundering is
antiquated and is proving to be an efficiency overhead that is no longer useful. The key to
truly exploiting algorithms to detect this type of criminal activity however is embracing a
collaborative approach where the silos across entities are broken down. The act of laundering
money is harder to detect at single transaction, single bank level and a wider network of
activity, relationships and neighbourhoods is the best approach to tackle this global problem.
12 | The Future of Artificial Intelligence Report
02 |
Avoiding artificial stupidity

While most financial applications of artificial

intelligence have been in the customer
service space, there are other areas that
banks are working with to improve through
implementation of innovation technology.

13 | The Future of Artificial Intelligence Report

 Prag Sharma, head of emerging technology
at Citibank’s TTS Global Innovation Lab,
highlights in conversation with Finextra that
02 | Avoiding artificial stupidity
there are a few main areas that financial
institutions are working to improve with
artificial intelligence technology, other
than chatbots.
Sharma explains that at Citibank, they
are also working to improve operational
efficiency with artificial intelligence because
there are several predictions that the bank
needs to make, for example predicting
customers behaviours from a transactions
or liquidity perspective and or around
detection outliers in payments data. He
adds that natural language processing is
beginning to get used to handle the
millions of documents that are usually
processed manually.
“We’re a bank so compliance is a key
area of focus. We’re looking at regtech
and how that is going to affect us in the
future, where we can make it easier for
ourselves to have processes in place that
continuously monitor various activities
with natural language processing as the key
technology enabler.
Gulru Atak, global head of innovation at
Citibank’s TTS Global Innovation Lab,
says that the bank also have a platform
called Citi Payments Outlier Detection
that leverages machine learning to detect
outliers in corporate customer payments.
On this point, Sharma says: “It’s a good
example of Applied AI if you’re looking at
what banks are interested in today, which
is using AI to look at payments transactions
and find anomalies. We could have bought
something off the shelf and applied it,
14 | The Future of Artificial Intelligence Report
but we as an organisation looked at it and
tried to figure out whether this would
add serious value and truly understand
the underlying algorithms, without
having to rely on third parties because we
understand our data better than others.”
3
PwC, ‘Getting real about AI and financial crime’ (2019).
Atak says that the bank also have a platform
called Citi Payments that leverages machine
learning to detect outliers in corporate
customer payments.
Financial crime
As International Banker explained in an
article last year, while chatbots appear to
be the most visible use case of artificial
intelligence and developments are
being made in algorithmic trading, AI is
also making considerable inroads in the
compliance and security space. Money
laundering continues to be a problem in the
global financial services and banks such as
HSBC are exploring their options to combat
this issue.
The article goes on to point out that in
April 2018, HSBC had partnered with big
data startup Quantexa and had piloted AI
software to combat money laundering,
which follows the bank’s partnership with
Ayasdi to automate anti-money laundering
investigations that were being processed by
thousands of human employees.
“The aim of the initiative is to improve
efficiency in this area, especially given that
the overwhelming majority of money-
laundering investigations at banks do not
find suspicious activity, which means that
engaging in such tasks can be incredibly
wasteful. In the pilot with Ayasdi, however,
HSBC reportedly managed to reduce the
number of investigations by 20 percent
without reducing the number of cases
referred for more scrutiny.”
But how then do companies make the
most of the tools and techniques that AI
offers now but also prepare for what the
future might look like? PwC highlighted that
despite hundreds of millions being invested
into technology that fights financial
crime, many financial institutions are still
struggling, but continue to rely on what
would be considered legacy infrastructure
to keep up with new and evolving threats. 3

PwC explained that financial
services companies are aware
that AI is a faster, cheaper
and smarter way of tackling
financial crime, but there is a
lot of confusion around how
organisations should harness
this technology
“These models tend to be based on black
and white rules and parameters; for
example, if a transaction is over $10,000
or a person uses a credit card overseas,
then it gets flagged. The problem with
simplistic approaches like this is that they
tend to throw up an enormous number
of false positives. And in an environment
of increased regulation, increasing
competition and increased cost pressures,
it doesn’t make sense to have your team
trawling through thousands of alerts that
don’t represent real financial crime tasks.”
PwC explained that financial services
companies are aware that AI is a faster,
cheaper and smarter way of tackling
financial crime, but there is a lot of
confusion around how organisations should
harness this technology – “just because a
certain technique is feasible doesn’t mean
that a company is in a position to apply
it immediately.”
To remedy issues with financial crime,
PwC suggested using AI to scan enormous
amounts of data and identifying patterns,
behaviours and anomalies because the
technology can faster than humans can.
“It can analyse voice records and detect
changes in emotion and motivation that
can give clues about fraudulent activities. It
can investigate linkages between customer
and employees and alert organisation to
suspect dealings.”
KPMG delved deeper into this problem
in its 2018 report, ‘The role of Artificial
Intelligence in combating financial crime,’4
4
KPMG, ‘The role of Artificial Intelligence in combating financial crime’ (2019).
which explored how robotics process
automation (RPA), machine learning, and
cognitive AI can be adopted or combined to
solve issues with financial crime today.
However, KPMG advised making “a
reasoned decision as to what type, or
mix of types of intelligent automation
a company should implement, financial
crime stakeholders first need to design an
intelligent automation strategy.
Intelligence automation could
be used to reduce costs and
increase efficiencies and
effectiveness
“This strategy depends on what investment
the institution is willing to make and the
benefits sought, including a weighting of
the risk potentially involved, and the level
of efficiency and agility desired. Therefore,
the intelligent automation strategy should
be aligned with the size and scope of the
institution and its risk tolerance.”
KPMG also pointed to specific areas
in financial crime compliance where
intelligence automation could be used to
reduce costs and increase efficiencies
and effectiveness. For transaction
monitoring, the first being the need for
institutions to build on alerts and cases
that have previously occurred, building on
any existing machine learning models to
establish a domain knowledge base that the
cognitive platform can rely on.
“It is the key to monitoring the risks the
15 | The Future of Artificial Intelligence Report
institution already knows and identified.
Instead, it looks at patterns that exist in the
data to identity if those patterns have been
seen previously.” The second suggestion
from KPMG was to use machines to
“automate aspects of the review process
and deployed to build statistical models that
incorporate gathered data and calculate a
likelihood of occurrence (closure
or escalation).”
 The third point was to employ bots to scan
the internet and public due diligence sites
“to collect relevant data from internal and
02 | Avoiding artificial stupidity
other acceptable sources,” which would
save analysts vulnerable time. For Know
you Customer (KYC), the report identified
areas such as applying judgement to these
domain areas using RPA and machine
learning. This allows financial crimes
officers to make KYC a priority because
the information they obtain better reflects
actual risks.
In addition to this, machine learning can
also automate the extraction of data from
unstructured documents, while RPA can
enable institutions to be provided with a
more reliable and more efficient customer-
risk rating process, and in turn, more of a
real-time risk assessment. RPA also has the
potential of reducing, or even eliminating,
the need to contact customers repeatedly.
Alongside this, in a speech given by Rob
Grupetta, head of the financial crime
department at the Financial Conduct
Authority at Chatham House5 in November
2018, he pointed to how “the spotlight is
squarely on machine learning,” which has
been “largely driven by the availability
of ever larger datasets and benchmarks,
cheaper and faster hardware, and advances
in algorithms and their user-friendly
interfaces being made available online.”
Grupetta continued: “But financial crime
doesn’t lend itself easily to statistical
analysis – the rules of the game aren’t fixed,
the goal posts keep moving, perpetrators
change, so do their motives and the
methods they use to wreak havoc. Simply
turning an algorithm loose without thinking
isn’t a suitable approach to tackling highly
16 | The Future of Artificial Intelligence Report
complex, dynamic and uncertain problems
in financial crime.
“That’s not to say we can’t use algorithms
and models alongside our existing approach
to help us be more consistent and effective
in targeting financial crime risks. Consider
building a risk model using algorithms:
using a set of risk factors and outcomes, we
could come up with a kind of mathematical
5
FCA, ‘AI and financial crime: silver bullet or red herring?’ (2018).
6
International Banker, ‘How AI is disrupting the banking industry’ (2018).
caricature of how the outcomes might have
been generated, so we can make future
predictions about them in a systematic way.
“For example, in a money laundering
context, the risk factors could be a firm’s
products, types of customers and countries
it deals with, and the outcomes could be
detected instances of money laundering.
Unfortunately, it’s quite difficult to acquire
robust figures on money laundering as
industry-wide data is hard to come by,
and criminals aren’t exactly in the habit
of publicising their successes. Crimes like
money laundering – a secret activity that
is designed to convert illicit funds into
seemingly legitimate gains – is particularly
hard to measure.”
AI could render 30% of
banking jobs obsolete in the
next five years
To resolve this issue, he explained that the
FCA had introduced a financial crime data
return back in 2016 which would provide an
industry-wide view on key risks that banks
face, which would then target supervisory
resources that are exposed to inherent risk.
“We are moving away from a rule-based,
prescriptive world to a more data-driven,
predictive place where we are using data
to help us objectively assess the inherent
financial crime risk posed by firms. And we
have already started experimenting with
supervised learning models to supervise
the way we supervise firms – ‘supervised
supervision’, as we call it.”
Substituting humans
However, while on one hand, AI technology
can reduce the number of times that a
customer needs to be contacted, in the
example highlighted above, fears are also
amounting around the substitutability
of bank employees, as the International
Banker article also discussed. 6 While there
have been many statistics and news articles
bandied about, Lex Sokolin, global director
for fintech research firm Autonomous Next
revealed that AI adoption across financial
services could save US companies up to
$1 trillion in productivity gains and lower
overall employment costs by 2030.
Conflicting data suggested that
AI may also result in a rise of
banking jobs, as revealed by a
recent study from Accenture
that found that by 2022, a 14%
net gain of jobs is likely to occur
in jobs that effectively use AI, in
addition to a 34% increase
in revenues.
The article also pointed to ex-Citigroup
head Vikram Pandit’s expectation that AI
could render 30% of banking jobs obsolete
in the next five years, asserting that AI
and robotics “reduce the need for staff in
roles such as back office functions”. Japan’s
Mizuho Group plans to replace 19,000
employees with AI-related functionality
by 2027, and recently departed Deutsche
Bank CEO John Cryan once considered
replacing almost 100,000 of the bank’s
personnel with robots.
However, conflicting data suggested that AI
may also result in a rise of banking jobs, as
revealed by a recent study from Accenture
that found that by 2022, a 14% net gain of
jobs is likely to occur in jobs that effectively
use AI, in addition to a 34% increase in
revenues. Accenture also finds that the
most mundane human jobs will be replaced
by robots, and leave banking employees to
focus on more interesting and complex jobs,
improving work-life balance and helping
career prospects.
In conversation with Finextra Research,
Paul Hollands, chief operating officer for
data and analytics for NatWest,
highlights that this could be a problem,
because there is a skills gap and “there is a
change in the skills required in all
7
Darktrace, ‘The Next Paradigm Shift: AI-Driven Cyber-Attacks’ (2018).
organisations as the ability to use machine
learning, to use robotics and artificial
intelligence increases.”
Hollands goes on to discuss how employers
have a right to ensure that the people
within the organisation also have the core
skills to help them grow. Oaknorth’s Amir
Nooralia also had a similar attitude and says
that it is not about “machine replacing man
(or woman), but rather machine enhancing
human. Think Iron Man suit boosting a
human rather than an all-knowing robot.”
Like the healthcare sector that will
continue to require a human’s emotional
response, “when it comes to finance, it
is very personal and there are situations
that will require empathy and emotional
intelligence – e.g. a customer who might be
experiencing anxiety of mental stress as a
result of debt. It’s not like travel where the
process involves getting from A to B, or
retail which is purely transactional, so the
human element is less important.”
Nooralia then goes on to reference a
recent Darktrace whitepaper, ‘The Next
Paradigm Shift: AI-Driven Cyber-Attacks7
in which the organisation believes that in
the future, “malware bolstered through AI
will be able to self-propagate and use every
vulnerability on offer to compromise a
network,” Nooralia says.
In the whitepaper, Darktrace state that
“instead of guessing during which times
normal business operations are conducted,
[AI-driven malware] will learn it. Rather
than guessing if an environment is using
mostly Windows machines or Linux
machines, or if Twitter or Instagram would
be a better channel, it will be able to gain an
17 | The Future of Artificial Intelligence Report
understanding of what communication is
dominant in the target’s network and blend
in with it.”
Nooralia adds: “A human will always be
guessing and will never be able to learn as
quickly as a machine can, so it is inevitable
that the machine will be better
in comparison.”
 Expert view:

Rajiv Desai
SVP – US Operations

In a Q&A interview with

Finextra, Rajiv Desai, SVP –
US Operations, from Pelican
discusses AI and the potential
for transformation, in addition
to the challenges that the world
of real-time payments presents
and how compliance plays a
part in this process.
18 | The Future of Artificial Intelligence Report
How do you see AI transforming banking in the future?

Artificial Intelligence is already a ubiquitous part of our everyday lives, and banks have been
deploying AI for several decades in task-specific ways. AI in transaction banking has been used
to address key bottlenecks in payments and financial crime compliance. These are the areas
where thousands of people are used in the back offices worldwide to do repetitive tasks which
require basic human intelligence. Application of AI to these areas will continue to grow as
these are some of the main causes of inefficiencies and last-mile problems that banks have to
solve. However, we are now also at an inflection point in banking transformation. This will also
transform AI from becoming a “nice to have” enhancement provider to a “must have” facilitator
of an open banking and real-time digital banking environment.

Can you explain how you see the challenges of today’s real-time payments world being
addressed by AI?

In today’s real-time environment complex processing and compliance decisions are made
within a few seconds. It is simply not possible in this increasingly digital and 24/7 instant
payment world to throw more human resources at the problem. The human body and mind
simply lack the abilities to consistently and systematically assess, investigate and decide on
matters 24x7 within seconds. AI is the only solution available to address this need to complete
the existing processing tasks and new challenges facing us like High Value Payment Fraud.
Real-time fraud detection in high value payments will gain increasing importance and AI will
play a prominent role to address the same issues.

Are there other compliance areas where you see AI playing a major role?
19 | The Future of Artificial Intelligence Report

In addition to tackling the growing problem of payments fraud, sanctions screening obligations
in a real-time environment can be incredibly challenging for banks, often resulting in very high
false positives, or wrong hits, in financial crime compliance. We have noticed that with dozens
of watchlists with thousands of patterns of names, companies, ships and cities many words
trigger false alerts. However, most of the time, humans can quickly and easily decide that the
hit is not real using context and common sense. For instant payments it is clearly not practical
to have humans take these decisions, so using Natural Language Processing AI technology can
easily figure out whether “Laura” is a ship or first name of a person, or if “Iran” is a street name
in Denver or a blacklisted country. In addition, auditability and examinability are particularly
important in these regulated contexts – banks need to have full confidence in their ability to
fully demonstrate and explain the decisions that AI processes have taken.
 03 |
Filtering the ethics of AI

As decision-making factors using AI become

more accepted, pure economics might not
align with the softer strategies of a bank. Many
financial institutions are questioning how
artificial intelligence must be governed within
an organisation and how it can be taught
to align with a bank’s brand and ethos, but
without influence from human judgement.
20 | The Future of Artificial Intelligence Report
While AI has dominated news headlines
over the past year or so, the majority of
announcements and research has been
around the ethics of the technology and
how to manage or avoid bias in data. In
April 2019, a fortnight after it was launched,
Google scrapped its independent group set
up to oversee the technology corporation’s
efforts in AI tools such as machine learning
and facial recognition.
The Advanced Technology External
Advisory Council (ATEAC) was shut down
after one member resigned and there
were calls for Kay Coles James, president
of conservative thinktank The Heritage
Foundation to be removed after “anti-trans,
anti-LGBTQ and anti-immigrant” comments,
as reported by the BBC.8 Google told the
publication that it had “become clear that
in the current environment, ATEAC can’t
function as we wanted.
“So we’re ending the council and going back
to the drawing board. We’ll continue to be
responsible in our work on the important
issues that AI raises, and will find different ways
of getting outside opinions on these topics.”
The big tech example
Many industry experts expressed confusion
at the decision and referred to Google as
being naïve. However, as it was only the
external board that was shut down, as
Bloomberg reported, the “Google AI ethics
board with actual power is still around.”9
The Advanced Technology Review Council
was assembled last year as an attempt to
“represent diverse, international, cross-
functional points of view that can look
beyond immediate commercial concerns.”
Many technology giants have laid out
ethical principles to guide their work
on AI, so why haven’t financial services
institutions?
Bloomberg referenced the AI Now Institute
which wrote in a report last year that
“Ethical codes may deflect criticism by
8
BBC, ‘Google’s ethics board shut down’ (2019).
9
Bloomberg, ‘The Google AI Ethics Board With Actual Power Is Still Around’ (2019
10
European Commission, ‘Ethics guidelines for trustworthy AI’ (2019).
acknowledging that problems exist, without
ceding any power to regulate or transform
the way technology is developed and
applied. We have not seen strong oversight
and accountability to backstop these ethical
commitments.”
Days after Google scrapped their external
ethics board, the European Union published
new guidelines10 on developing ethical
AI and how companies should use the
technology, following the release of draft
ethics guidelines at the end of last year.
After the EU convened a group of 52 experts,
seven requirements were established that
future AI systems should meet:
1. Human agency and oversight:
AI systems should enable equitable
societies by supporting human
agency and fundamental rights,
and not decrease, limit or misguide
human autonomy.
2. Robustness and safety: Trustworthy
AI requires algorithms to be secure,
reliable and robust enough to deal
with errors or inconsistencies during
all life cycle phases of AI systems.
3. Privacy and data governance:
Citizens should have full control
over their own data, while data
concerning them will not be used to
harm or discriminate against them.
4. Transparency: The traceability of AI
systems should be ensured.
5. Diversity, non-discrimination and
fairness: AI systems should consider
the whole range of human abilities,
skills and requirements, and ensure
accessibility.
6. Societal and environmental well-
21 | The Future of Artificial Intelligence Report
being: AI systems should be used to
enhance positive social change and
enhance sustainability and ecological
responsibility.
7. Accountability: Mechanisms
should be put in place to ensure
responsibility and accountability for
AI systems and their outcomes.
 The EU also explained that in the summer
of this year, the Commission will launch a
pilot phase that would involve a number
03 | Filtering the ethics of AI
of stakeholders, but companies, public
administrations and organisations are
welcome to sign up to the European AI
Alliance today.
Potential regulation
At NextGen Banking London, Maciej
Janusz, head of cash management Nordic
Region at Citibank brought up the subject
of regulation and said that regulation
“comes when something crashes. Banks
will be reluctant to implement AI without
human oversight.” Comments on regulatory
frameworks were also made by Monica
Monaco, founder of TrustEU Affairs, who
revealed that governance - at the moment
- only exists in the form of data protection,
specifically Article 22 in GDPR, which
could become a source for future principles
to govern AI and the use of algorithms in
financial services.
Monaco also made reference to the
European Commission’s ‘AI for Europe’
report which was published on the 25th
April, which she recommended everyone
read. On GDPR, Monaco said that the right
to be forgotten could become problematic,
as it would also apply to institutions, not
just individuals.
A question was raised as to whether AI
could be a leveler, as the technology is
shining a light on all issues, especially the
non-diverse nature of the industry.
Ekene Uzoma, VP digital product
development at State Street argued that
the issue with data abuses is that they start
22 | The Future of Artificial Intelligence Report
to take on different forms, so predicting
may be a little difficult. He also spoke about
education and how there needs to be a
recognition that we cannot look to the “altar
of technology” to solve problems.
According to Terry Cordeiro, head of
product management - applied science and
intelligent products at Lloyds Bank, “AI will
automate repeatable work, but where does
that leave us [humans]? We could say that
the workforce of the future will be more
relationship-based. Banks need to look
at how to foster new talent and how to
develop existing teams.”
Cordeiro continued: “Even algorithms
need parents. And the parents have the
responsibility to train them, but where
are these people? They don’t exist.” In
conversation with Finextra, Monzo’s
machine learning lead Neal Lathia highlights
that “there is bias everywhere, and a lot of
active research on measuring, detecting,
and trying to remedy it. I don’t think it’s
too late – it’s a problem that will have to be
constantly revisited.”
Nooralia also has a view on this and says:
“The challenge lies in AI’s ‘black box’
problem and our inability to see the inside
of an algorithm and therefore understand
how it arrives at a decision. Unfortunately,
as we’ve seen in several circumstances,
AI programmes will replicate the biases
which are fed into them and these biases
originate from humans. So, the first step in
eliminating these biases is to open the ‘black
box’, establish regulations and policies
to ensure transparency, and then have a
human examine what’s inside to evaluate if
the data is fair and unbiased.”
Sara El-Hanfy, innovation technologist –
machine learning & data at Innovate UK
explains that “an AI system is not in itself
biased. These systems are being designed
by humans and will therefore reflect the
biases of the developers or the data that
is selected to train the system. While
there is absolutely a risk that AI systems
could amplify bias at scale, there is also an
opportunity for AI to improve transparency
and tackle existing biases. She provides
recruitment as an example and says that
it is “good that we are becoming more
aware of the possible unintentional harms
of using AI technologies, and by having
these conversations, we can advance
understanding of AI and establish
best practices.”
Innovate UK’s Stephen Browning adds that
there is a “need for humans to work in a way
that doesn’t perpetuate bias into the data
and on to the system. We are very conscious
of that as something that would hold back the
use of this type of technology or damage the
benefits you could potentially obtain from AI,”
he says – somewhat paraphrasing the concerns
of the AI Now Institute.

Browning continues to say that “what really

holds AI back and undermines it is the human
aspect, and not the technical aspects, and
that is what we’re working on. There are also
activities across the UK government that are
trying to address this, such as the Centre for
Data Ethics and Innovation.

Prag Sharma, head of Emerging Technology,

TTS Global Innovation Lab at Citibank, also
believes that this is a real concern in this day
and age, especially with the emergence of
explainable AI and more financial institutions
wanting to know how certain decisions are
being reached.

In order to solve the issues with ethical AI,

Sharma suggests introducing “rules and
regulations around an audit trail of the data,
so we are aware of what is produced, what is
consumed and how the result will reflect that.”
But in reality, we are only just coming to terms
with how this technology actually works and it
is not a case of financial services staying a step
ahead of big technology corporations either.

Annerie Vreugdenhil, chief innovation officer,

ING Wholesale Bank says that it “is not about
winning or losing, it is about making the most
of partnerships and the technical expertise
and capabilities from both sides. For example,
we believe that collaborating with fintechs is
key, because we can’t do it alone anymore.
Partnerships can be beneficial for both
parties: fintechs can bring agility, creativity and
entrepreneurship, while financial institutions
23 | The Future of Artificial Intelligence Report

like ING bring a strong brand, a large client

base with an international footprint, and
breadth of industry expertise.”
 Expert view:

Michael Conway
Associate Partner,
Global Business Services

In a Q&A interview with Finextra,

Michael Conway, Associate
Partner, Global Business Services
from IBM explains how banks can
prevent bias to avoid a breakdown
in trust in regard to the technology
and the financial institution itself.

How can we ensure that the data we feed into AI systems are not racially, sexually or
ideologically biased?

Bias in AI systems mainly occurs in the data or in the algorithmic model. As we work to develop AI
systems we can trust, it’s critical to develop and train these systems with data that is unbiased and to
24 | The Future of Artificial Intelligence Report

develop algorithms that can be easily explained. As AI systems find, understand, and point out human
inconsistencies in decision making, they could also reveal ways in which we are partial, parochial, and
cognitively biased, leading us to adopt more impartial or egalitarian views.

Training the AI system is key and it must be quantitively and qualitatively assessed. Whilst the
orchestration and engineering of the system will be underpinned by devops and automation, we do
not have the same level of process sophistication for training AI at the moment. As a result, we must
be smart about how we approach training. Data science and machine learning have a very important
role in delivering focused and appropriate training for the AI platform as it matures. However, if
you only focus on the numbers there’s a chance you will deliver for the 80% and forget the 20%.
Qualitative assessments and manual reviews are essential to understanding with evidence how AI is
performing and therefore where Bias may be entering the system. Focusing upon questions like ‘did
the AI system satisfy the question’ not simply ‘did it give the most appropriate response’. In the early
days of AI evolution, we need to be overly critical to ensure that we provide a realistic baseline for the
system to replicate.
How can bias be tamed and tackled so that AI systems are as successful as they can be
in what they have been trained to do?

At this stage of AI training, and the heavily regulated environment we operate in, “Assisted
Learning” is critical to making sure that this type of bias is closely monitored. The application of
wholescale Automated Testing and the growing discipline of deep learning to understand the
performance of AI, as well as products (such as IBM’s OpenScale) help us better interpret the
performance of the AI Corpus. In parallel we must challenge ourselves to build diverse teams in
thinking, in background and in approach to make sure we don’t suffer from “group thinking”. As
mentioned above, recruitment in finance is more heavily focused on technical capabilities than
ever before. Ensuring that we balance this with a diverse and rounded perspective will help
mitigate the risk of bias from the outset.

At what stage in the process does discrimination need to be prevented?

Discrimination should be prevented at every stage of AI evolution. This is from inception to

training. This is done by establishing a thorough and appropriate control framework, one that
allows the AI to flourish but has appropriate measures and controls to ensure you know how
the system evolves over time.

Following this, how can banks make sure that bias in AI does not break down trust that
humans have in machines, but also the trust that customers have in their banks?

Transparency. Transparency in process, decisioning and training. Transparency in informing

customers they are talking to a virtual assistant. By ensuring banks have an appropriate
process for management and training of AI at scale, this will facilitate full end-to-end
transparency in the operation. In delivering this, we can provide appropriate control points that
allows these systems to grow and proliferate across the enterprise with confidence that we are
treating customers fairly throughout their engagement with AI. What is more, these control
points will provide the required evidence that the Regulator will require when reviewing how
banks are using AI across their endeavours. 25 | The Future of Artificial Intelligence Report

Once this bias has been mitigated, to what extent can the financial services industry be
transformed?

There is a long way to go before we can speak with confidence that the financial services
industry has been transformed, however we are in the crest of an AI wave that can take the
industry a long way. If we can strike the right balance of the use of AI technology with the
transparency mentioned above, we will be able to ensure that we can maintain the trust of the
customer, enterprise and the regulator – all of which are essential to ensuring this technology
is not simply the latest buzzword in financial services. Once this can be established, we will be
able to answer our risk counterparts and begin changing the dial in the world of risk appetite
for this technology. If we can evidence, it is safe to operate this technology at full enterprise
scale and that the control points at every stage of the customer engagement, there is no
reason why the future of financial institutions cannot be centred around artificial intelligence.
 04 |
Explainable and auditable AI

At NextGen Banking London, Jason Maude,

head of technology advocacy at Starling Bank,
advised that explainable AI is necessary. “We
cannot just say that it is because the computer
has said. People are not going to trust that
answer, when they are declined for a loan
application or another product. The trust that
people need to have for banks to function will
not be there if we leave it up to the computer.”
26 | The Future of Artificial Intelligence Report
While machine learning might not be at
the heart of processes, it does not mean
that we shouldn’t interrogate them.
Maude continued and said that software
engineering techniques like version control
should be introduced. “Do testing where
data sets are randomised before being
put into the system to see how the output
has changed. Provide an audit trail that
regulators could start demanding.”
However, Jonathan Williams, principal
consultant at Mk2 Consulting pointed
out that as regulators are not from a
technological background, this is difficult.
“The other challenge is looking at the
outcomes and checking they are in line with
what we would expect. Humans bring their
own biases, but we cannot automatically
test those. Regulators have a steep learning
curve to ascend.”
Maude then made a very poignant point,
that remained with most of the audience
before the end of the conference. “I don’t
think we will reach a point where humans
will not be able to explain what is going on.
We may get to a point where the cost of
explainability outweighs the benefit.”
As the responsibility shifts from
human to machine, the need for
explainability increases.
“If an algorithm already has humans in
the loop, the human decision-makers
can continue to bear the responsibility of
explaining the outcomes as previously done.
This can help the radiologist work more
accurately and efficiently, but ultimately,
he or she will still provide the diagnosis and
explanations,” Costenaro said.
However, as AI matures, we’re likely to
see the growth of new applications that
decreasingly rely on human decision-making
and responsibility. Costenaro continued:
“For a new class of AI decisions that are
high-impact and that humans can no longer
effectively participate in, either due to
speed or volume of processing required,
practitioners are scrambling to develop
ways to explain the algorithms.” It is up to
IT leaders to take the reins to ensure their
company uses AI properly and incorporates
explainability when necessary.

Explainable AI lets humans understand

and articulate how an AI system made
a decision, but questions are still being
raised about the potential consequences
of AI-based outcomes and whether this
is needed, as some low-stakes AI systems
might be fine with a black box model, where
the results are not understood.

Jane.ai head of artificial intelligence R&D

Dave Costenaro explained: “If algorithm
results are low-impact enough, like the
27 | The Future of Artificial Intelligence Report

songs recommended by a music service,

society probably doesn’t need regulators
plumbing the depths of how those
recommendations are made.”11 While a
person may be able to get by after being
recommending a song they don’t like, AI
systems being asked to make decisions
about medical treatments or mortgage
loans, could become problematic.

11
The Enterprisers Project, ‘Explainable AI: 4 industries where it will be critical’ (2019).
 Expert view:

Dan Reid
CTO and Founder

In a Q&A interview with

Finextra, Dan Reid, CTO and
founder of Xceptor, discusses
how AI has progressed in the
financial services industry
and the obstacles banks have
to overcome to leverage the
technology in the same way
that other sectors have.
28 | The Future of Artificial Intelligence Report
How is AI changing business across all industries?

Often the issue with AI is that it means something different to everyone you talk to, so no
one is really sure what they should expect out of AI, what changes they are looking for and
how best to go about it. It’s creating confusion rather than clarity. AI isn’t a single thing, rather
it is series of building blocks that solve business problems by learning from vast amounts of
structured and unstructured data. Typically you have to start by outlining what you mean by
AI. For us the main building blocks are machine learning and natural language processing with
a heavy focus on data transformation, so being able to ingest all manner of data types from
spreadsheets to pdfs right up to emails written in colloquial shorthand. With 80% of a firm’s
data typically unstructured, this opens the door for business to really get its arms around
its vast data banks, automating the ingestion of emails, pdfs, contracts and then being to
interrogate them and derive smart analytics.

What can financial services learn from successful case studies?

It can help identify some good places to start. We’ve been working with clients on areas such
as using natural language processing to classify unstructured emails, and to extract relevant
data points from them. This process typically achieves a high level of automation. Similar to any
process, AI or not, exceptions can occur and these can be flagged by validation rules. Other
areas include NAV validation, fraud detection and named entity recognition. These are just
a few examples and are all focussed on data enrichment – so building better data models to
drive smarter analytics. That is where the business value is and it is essential that value can be
demonstrated.

What are the challenges that hinder banks from implementing AI technology?

Part of it is cultural, people aren’t sure what AI means for them, their role, their jobs, but people
are as important to successful deployment as much as the technology or the analytics. Part of
it is treating AI like a single category, there are so many building blocks in the AI repertoire and
it’s a matter of identifying the best fit for the task at hand. And a big part of it is data quality and
29 | The Future of Artificial Intelligence Report

maturity. Access to the right data of a reasonable is often the biggest hurdle.

What are the challenges that hinder banks from implementing AI technology?

Scaling up AI is one of the biggest challenges for firms. We see pockets of deployment but
rarely enterprise-wide. There is still a long way to go and identifying the right part of AI for the
right task is key to success.
 05 |
Conclusion

While early forms of the artificial intelligence have been

created and designed to mimic human nature, controversy
and misconceptions have emerged but after a period of quiet
development, AI has undergone a modern revolution and
techniques such as machine learning have come to the fore.
30 | The Future of Artificial Intelligence Report
Most financial applications of
AI have been in the customer
service space, but there are
other areas such as fraud
prevention that banks are
working with to improve.
However, as decision-making
factors using AI become more
accepted, this may not align
with the softer strategies of
a bank.

Many financial institutions

are questioning how artificial
intelligence must be governed
within an organisation and how
it can be taught to align with a
bank’s brand and ethos,
but without influence from
human judgement.

The future rests on explainable

AI and banks should interrogate
processes, but in order to do
this, regulators have a steep
curve to ascend. A problem also
emerges when humans cannot
explain how AI works, which
would outweigh the benefit of
the technology.
31 | The Future of Artificial Intelligence Report
 06 |
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32 | The Future of Artificial Intelligence Report
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07feb18.pdf [Accessed 1/3/2019].
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AI: 4 industries where it will be
critical’ (2019).
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com/article/2019/5/explainable-ai-4-
critical-industries [Accessed 29/5/2019].
About Finextra
This report is published by Finextra Research.

Finextra Research is the world’s leading specialist financial technology (fintech)

news and information source. Finextra offers over 115,000 items of specialist
fintech news, features and TV content items to 420,000 unique monthly visitors
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Founded in 1999, Finextra Research covers all aspects of financial technology

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within the wholesale and retail banking, payments and cards sectors worldwide.

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working inside banks and financial institutions, specialist fintech application
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information and data to Finextra surveys and reports.

Finextra reports coming in 2019:

The Future of Payments

The Future of Trade Finance

The Future of Core Banking

The Future of Cybersecurity

Contact Salesadmin@finextra.com to get involved.

33 | The Future of Artificial Intelligence Report