The rise of chatbots – How they’re transforming the banking world

The history of chatbots dates back to 1966, when MIT professor Joseph Weizenbaum created the first known chatbot, Eliza. Initially designed as a psychotherapist and inspired by the character Eliza Doolittle from Pygmalion, Weizenbaum’s pioneering work paved the way for the evolution of chatbot technology, leading to advancements such as ChatGPT that have transformed interactions across industries globally.

Chatbots have emerged as a vital part of the modern user experience landscape. Whether encountered on websites or mobile applications, chatbots greet users with proactive messages like “Is there anything I can help you with today?” upon landing on a page. Their rapid evolution from a novelty to an essential tool has significantly impacted various sectors, particularly the banking industry, where chatbots have created a significant shift in customer service and engagement. Let’s take a look.

What is a banking chatbot?

‘Oh god, I’ve probably got to take the day off. I’ve got some bank work to tend to tomorrow.’ This is often a common sentiment when a visit to the bank is looming large. Tedious, time-consuming, and almost annoying are all words that customers usually associate with the banking sector.

This traditional experience of waiting on hold for extended periods when calling customer support at a bank has prompted a shift towards enhancing customer service through AI chatbots.

These chatbots leverage advanced technologies like natural language processing, user intent recognition, and keyword analysis to provide real-time assistance to customers. By using these features, AI chatbots act as accessible 24/7 personal assistants, significantly quickening and, as a result, improving the overall customer experience, taking away the sentiment that bank work is as consuming as ever.

Unlike human customer service agents with defined work hours, AI chatbots are available round-the-clock to address banking issues promptly. This capability ensures that customers receive immediate support whenever they encounter a problem or query, setting a new standard for communication and service excellence within the banking sector. Banking chatbots are critical in providing efficient, responsive, personalized assistance and enhancing customer satisfaction and loyalty.

Types of chatbots in the world of banking:

In the world of banking, there are three essential types of prominent chatbots that we must look at:

Rule-based or keyword-based chatbots:

Rule-based or keyword-based chatbots are commonly encountered in modern banking experiences. These chatbots analyze customer input to provide predefined responses, functioning as 24/7 personal assistants for handling FAQs and routine inquiries. The simplicity or complexity of the input determines the level of response from the chatbot; the more straightforward the input, the more efficient the answer. These systems offer efficient support for straightforward issues. They continuously evolve to handle more intricate queries effectively within the banking sector.

An example of a conversation with a rule-based chatbot would look like this:

Chatbot: Good day! Please enter your 16-digit card number, customer identification number, or branch code for us to proceed.

User: 1789 6790 5437 3245

Chatbot: Thank you. Please select your option below:

1. Account Balance
2. Set up an appointment
3. Anything Else

Intent-based chatbots:

Did you ever think a nonliving being could gauge and process your emotions and react to your words, statements, and queries accordingly? That’s how intent-based chatbots work. Intent-based chatbots use natural language processing to analyze and understand user intent to help customers with questions and through multiple processes.

An example of a conversation with an intent-based chatbot would look like this:

User: I would like to know my account balance.

Chatbot: Good day! Before we proceed, please provide your account number or the last four digits of your social security number.

User: My account number is 56743560

Chatbot: Thank you for verifying. Your current account balance is $5,037.50. Is there anything else I can assist you with today?

AI assistants:

While a common misconception is that AI chatbots are the only kind of chatbots out there, that is far from the truth. While all chatbots use a particular aspect of technology to keep a conversation going, AI assistants use natural language processing and understanding to truly deep-dive into discussions with customers and address their queries in real-time.

An example of a conversation with an AI assistant chatbot would look like this:

User: Hello, I need assistance with checking my account balance.

Chatbot: Hi! I’d be happy to help you with that. Please provide me with your account number or the name associated with your account.

User: Sure, my account number is 56743560.

Chatbot: Thank you. Let me retrieve your account information. (After a brief moment, your current account balance is $5,037.50.) Is there anything else I can assist you with today?

User: Yes, I’d like to inquire about recent transactions on my account.

Chatbot: Of course. To provide details on your recent transactions, please specify the period you’re interested in, such as the last week or month.

User: Please show me transactions for the previous month.

Chatbot: Here are your transactions for the previous month:

April 1st: Bakery store purchase – $50

April 5th: Gas station purchase – $35

April 15th: Rent payment – $100

April 20th: Drinks with Jane – $1,500

User: Thank you for the information. That’s all I needed for now.

Chatbot: You’re welcome! Feel free to reach out if you have any questions or need further assistance. Have a great day!

As you can see, the depth of conversation with each chatbot is different, and the banking world has integrated all different types into its customer experience model.

Benefits of chatbots in the banking world:

Immediate responses:

Banking chatbots provide immediate assistance and eliminate the frustration of long wait times often associated with customer service. Unlike human agents with defined work hours, chatbots are available round the clock, offering instant relief to customer queries and grievances. This continuous availability of chatbots enhances and elevates the overall interaction experience by providing timely guidance and support for various banking tasks, ensuring customers receive prompt assistance whenever needed.

Reduced costs:

Before the incorporation of chatbots in the banking sector, many customer queries required manual handling by staff stationed behind desks and laptops. With the adoption of chatbots, routine and more straightforward inquiries can be addressed quickly and efficiently, preventing the escalation of issues that require more detailed attention. This integration saves banking institutions time and reduces costs that would otherwise be incurred by hiring trained personnel to manage customer queries. As a result, chatbots contribute to enhanced efficiency, cost savings, and reduced opportunity costs within the banking industry.

Data collection:

Customer interactions with chatbots serve as data gold for banks, offering insights into customer preferences and interaction trends. Chatbots systematically capture and analyze these interactions to identify patterns and customer grievances. This data is then leveraged to generate detailed reports that inform data-driven improvements to the banking interface.

Banks can optimize their offerings and enhance overall customer satisfaction and engagement by tailoring services and experiences based on customer needs and feedback from chatbot interactions.

Linguistic Flexibility:

Engaging with a human staff member behind a desk confines conversations about the languages they are proficient in. In contrast, integrating AI systems enables banks to adopt a multilingual approach, potentially expanding their reach to a broader audience and breaking down linguistic barriers.

This integration enhances inclusivity and accessibility for customers from diverse linguistic backgrounds, promoting effective communication and service delivery across different languages within the banking sector.

The Key Takeaway:

Chatbots have significantly shaped and changed how traditional banking functions, transforming critical tasks in response to the global shift towards digital-first services. These interactive digital systems have added a layer of personalization to the banking experience and have introduced innovative ways to enhance efficiency, save time, and engage customers more interactively. This evolution marks a significant advancement in the realm of modern banking services.

The future of chatbots involves integrating robot process automation, more in-depth AI-driven conversations between users and machines, and an environment that eliminates the need for human interaction. Financial institutions must adapt, accept, and integrate these chatbots into their ecosystem, which will make or break the bank in this digitally driven space.

Want to know more? Escalon has helped over 5,000 companies across various industries improve their compliance regarding internal controls and streamline processes. Talk to an expert today.

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal, or accounting advice in this article. If you would like to engage with Escalon, please get in touch with us here.