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Rise of the robots

Artificial intelligence promises to change the world of work in a way not seen since the Industrial Revolution. How should credit unions prepare for this dramatic shift?

Imagine that you’re at your desk. Stand up and look over the partition at the co-worker on your left. Now, look to your right. Together, all three of you may handle loans, mortgages, investment advice, international transfers, marketing campaigns, or any of the other many duties that make your credit union successful.

Now, sit down and imagine that it’s 2028 and only one of you still has a job doing what you now do. You or your co-workers have been replaced by AI, artificial intelligence, as computers take over more of your work.

Many experts agree that we are in the early stages of an economic transformation that will rival the Industrial Revolution as a number of factors converge to allow computers to play an even greater role in our business lives.

The AI revolution offers opportunity for greater productivity and services we haven’t yet imagined. But the same experts agree that the revolution could lead to major job cuts with estimates ranging from 20 to 50 percent in the financial services sector.

So, what exactly is this AI that offers such potential — as well as such threats? In simple terms it is using technology to imitate human intelligence. That includes everything from a chatbot that can answer most customer questions about accounts to the system Netflix uses to recommend shows that you’ll like. Machine learning refers to computers learning things independently, without any human instruction. It’s one of the frightening elements that has the attention of science fiction writers and policy wonks worried about ethics.

The term artificial intelligence was coined in the mid-1950s but it hasn’t really started to affect our lives until recently.

A report by Autonomous Research, a financial services research firm based in London, UK, says that financial institutions can expect to cut their operating expenses by more than 20 percent by implementing AI, with most of the savings coming in the front office. But — and it’s a big but — this hinges on consumers being comfortable with AI. Other research suggests people are wary about how banks use their data. AI raises significant issues about the security of customer data, privacy and how data will be used, according to the 2018 Global Retail Banking Report from The Economist Intelligence Unit.

The big Canadian banks are moving into AI in many ways. Royal Bank of Canada (RBC) even has a chief science officer, Foteini Agrafioti, who is also head of Borealis AI, a bank subsidiary that is financing fundamental work by a number of researchers in Toronto, Montreal and Edmonton.

Canadians leaders in AI

Canada has become a big player in AI, largely due to three research pioneers: Geoffrey Hinton at University of Toronto, Yoshua Bengio at the University of Montreal and Rich Sutton at the University of Alberta.

Their work is the basis for voice assistants like Apple’s Siri, the AI algorithms that beat world champions at games like poker and Go, and Google’s self-driving car project, to mention just a few applications.

“If you have a fast-follower strategy at your credit union, you should be looking at this right now.” – Doug Macdonald, MNP 


Autonomous Research predicts financial services companies will enjoy savings of $1 trillion, about half at the retail level, one-third in the middle office, largely in compliance, and the remainder in the back office, handling such tasks as underwriting and collection.

“We are entering a world of technological advances that would have seemed fantastical only a generation ago,” says economist Armine Yalnizyan in Ontario’s Mowat Centre report Race to the Top. “The promises of new technologies and the anxiety that uncertainty and change naturally bring with them mean that the future of work is a top of mind issue for Canadians and policymakers,” Yalnizyan says.

She’s not alone in her hyperbole.

“The next 20 years will see a technological revolution of a scale never witnessed before,” states a report,
Automation and the Future of Work: Scenarios and Policy Options, written for the Centre for International Governance Innovation. “Exponentially increasing computing power, AI, robotics, digitization, the Internet of Things (IoT) and blockchain technology will forever change the landscape
of our planet,” the report reads. “AI, digitization and robotics are likely to engender a revolution with an impact on labour markets that will dwarf that of the Industrial Revolution.”

But the authors do not accept the predictions of rapid job loss, writing: “A more realistic scenario might be one where technology puts pressure on many existing jobs but societal factors slow its impact on the labour force. Many jobs could still be lost, but perhaps not half of them, and automation might happen over a longer time frame than expected.”

Writing in the Harvard Business Review, authors Erik Brynjolfsson and Andrew McAfee agree: “The most effective rule for the new division of labour is rarely, if ever, ‘give all tasks to the machine.’ Instead, if the successful completion of a process requires 10 steps, one or two of them may become automated while the rest become more valuable for humans to do. It often leads to better, more satisfying work for the people involved and ultimately to a better outcome for customers.”

Where do credit unions stand as we head into a period of turmoil and revolution? Mostly on the sidelines, at this point.

“If you have a fast-follower strategy at your credit union, you should be looking at this right now,” says Doug Macdonald, head of National Consulting Leader for Credit Unions at MNP, a national accounting, tax and business consulting firm in Canada. Macdonald adds that he’s not aware that any credit unions have introduced AI applications yet.

Macdonald notes that when Siri and Alexa were introduced they had limited functionality but quickly had new features added. “We’re going to see that curve in financial services. The chatbots of today are very basic and it’s pretty obvious that you’re talking to a chatbot but it’s going to quickly get to the point where it is going to be deeply imbedded in all the interactions you have with a bank.”

Macdonald predicts that the use of AI features will be similar to self-checkouts in grocery stores. Some people prefer to deal with human cashiers, while others are happy to quickly scan their own pur- chases. People will self-select the method that they prefer, so some members will prefer to call a person and others will prefer automated channels.

“Member-facing implementations have to be consistent with your brand strategy, so if you are promising a high-touch experience then you are going to have to put the chatbots behind your frontline staff, but if you are promoting yourself as a digital bank with an efficient operation you may want to come out front and advertise that you’re using a chatbot,” Macdonald says.

“If you’re worried about staff reduction, that’s the wrong thinking. It’s like getting rid of cheque cashing at the teller. That’s not a valuable interaction with your member. If you can take the routine stuff out of the way, you can get your members to worry about the stuff that actually matters.”

AI a valuable tool

AI gives credit unions the ability to gather data and business intelligence and use it, Macdonald notes.
“As a credit union you shouldn’t be afraid to collect and use information on your members because you have the ability to do it in an ethical and responsible way. If you don’t, Google, Amazon, Apple and Facebook are doing it already to your members. You don’t want to be in a situation where somebody else knows more about them than you do.” Macdonald’s concern echoes comments by RBC CEO Dave McKay who told The Canadian Press this past spring that he was worried about someone getting between the bank and its customers with information “and starting to influence the customer to choose different providers.”

Desjardins Capital has taken some action on the AI front. It recently invested in Luge Capital, a fintech-focused venture capital fund that will invest in firms developing AI. “We are witnessing a revolution in financial and digital technology,” says CEO Guy Cormier. “There is a booming start-up ecosystem in this sector. Desjardins wants to support and help develop this incredibly exciting industry,” Cormier says.

“It often leads to better, more satisfying work for the people involved and ultimately to a better outcome for customers.” – Andrew McAfee, MIT Sloan School of Management

Even the Bank of Canada is watching developments. In a speech last year, deputy governor Carolyn Wilkins talked about new technology and what it will mean for nancial institutions. “We will need people with highly technical skills to program and repair the technology,” Wilkins said. “We will also need people to perform tasks that may never be replicated by a machine because they require cre- ativity, intuitive judgment, inspiration or simply a human touch.”

The Bank of Canada recently announced a partnership with the Creative Destruction Lab in Toronto to enable it to stay abreast of developments in the fields of AI, machine learning, crypto-asset technologies and quantum computing.

But let’s give the last word to Brynjolfsson and McAfee: “Over the next decade, AI won’t replace managers, but managers who use AI will replace those who don’t.” ◊