How technology may be able to do some heavy lifting for banks in 2024
- A confluence of macroeconomic factors and technological innovations like Gen AI may lead to some important changes in the world of banking.
- If the current proof of concepts are any indication, Gen AI will impact how banks deal with policy changes, legacy infrastructure and impact their bottom line through dynamic pricing.
A confluence of macroeconomic factors and technological innovations may lead to some important changes in the world of banking. Endangered bottom lines, regulators, and the promise of AI may put banks closer to achieving goals that have been on their list for a long time.
Achieving dynamic pricing
For banks, an improvement in profit is a lot better than an improvement in cost, according to Accenture. If all other things are constant, a 1% rise in revenue results in an approximately 40 basis points enhancement in pre-tax Return on Equity (ROE). Conversely, a 1% reduction in costs only yields an improvement in ROE of around 25 basis points.
But this kind of advantage is harder to realize in the real-world where a banker has to set pricing that suits the majority, knowing that for a portion of her customers a price may be too high and for others it could be lower than what they could have paid. The issue here is the lack of responsive and personalized pricing, and with interest rates remaining static for over a decade, there wasn’t much incentive to improve the sensitivity of pricing models.
This may change in 2024, and Gen AI may play a role, according to Accenture. To find whether the price is right for a consumer, banks will be able to subset consumers in smaller segments and utilize both structured and unstructured data to find the best price for the group. Ideally, this should lessen the chances of losing revenue over customers that can afford to pay more, as well as whittling down attrition from setting prices that are too high for customers that are priced out.
Why is this important going into 2024:
