Algorithms Are Not Enough in Financial Services

For every article you see about the advantages of emerging artificial intelligence (AI) technology, it seems like there are 3 or 4 discussing how machines are going to take all our jobs.

Finance has been one industry where employees are already experiencing significant displacement. However, financial services firms shouldn’t get carried away with automation.

The most successful firms will be those that can master a hybrid approach to financial management. Computers give you algorithms—but humans facilitate the experiences customers need.

Using Computers for What They Do Best

At times, the outcry about computers displacing human workers goes too far. There’s nothing wrong with automation, but companies have to find the appropriate use cases.

The hallmark case study for computers overtaking humans in financial services is at Goldman Sachs. Back in 2000, Goldman employed about 600 cash equities traders who worked with the firm’s largest clients to buy and sell stocks. As of early 2017 automation has taken hold—only 2 of the 600 traders remain.

According to CFO (and former CIO) Martin Chavez, this is only the beginning of automation at Goldman Sachs. In a recent speech, he explained that “everything we do is underpinned by math and a lot of software.”

The business benefits of automation are clear. Rather than paying high six-figure salaries for 600 traders, the firm only has to pay the 200 computer engineers that have taken their place in that division. When the trades include pricing analysis for things that easily are determined on the market, complex trading algorithms remove the margin for human error.

And Goldman is even starting to implement algorithms for investment trading processes that have typically relied on salesmanship and relationship-building skills. It’s clear that these types of efficiency gains will only increase.

If you take Goldman Sachs as the example, you might think that they’re on a collision course with total human displacement. However, if you look at Goldman’s venture into online retail banking (GS Bank), you start to see the value of balancing computer algorithms with human experiences.

Hybrid Financial Management: Balancing Automation with Human Experience

Streamlining operations with automation has given Goldman Sachs more freedom to pursue other markets. And in early 2016, the firm set its sights on the millennial market by entering the growing online banking sector.

By avoiding the costs of brick-and-mortar retail banking locations, Goldman can keep its delivery costs down and compete with direct banks like Ally, Discover Bank, and Capital One 360 by offering attractive interest rates.

The only problem is that technology can be commoditized and other digital disruptors will always be able to rival Goldman’s product offerings. This is why financial services firms have to balance automation with human interaction—because the customer experience is your key differentiator today.

Despite its aggressive product offerings, GS Bank has seen complications in terms of customer experience. A reliance on IVR systems and the absence of branch offices have showcased the dangers of eliminating human interaction from banking.

While you embrace automation to drive your financial services business forward, you have to make sure you never lose sight of the fact that your human employees are the ones that create customer experiences. If you can create a hybrid financial management platform—one that can automate trading while giving access to humans for greater personalization and service.

Basing your hybrid financial management platform on a universal messaging experience can give you the best of these two worlds. Automation and intelligence can work harmoniously to scale personal human interaction, while delivering value to customers for whom high-touch service would previously have been too expensive.

If you want to learn more about designing a customer experience that lets computers and humans each do what they do best, contact us today for a free demo of the Layer customer conversation platform.