Chatbots in Banking: Banking On a Safe Bet

A study conducted by Zendesk has shown that 80% of people are willing to take their business to a competitor if they have more than one negative customer service experience. Now, more than ever, people are trigger-happy when it comes to leaving a brand, and customer service agents worldwide have their work cut out for them.

Businesses that handle large volumes of customer inquiries, like banks, stand to lose the most unless they play their cards right. Enter chatbots – a game-changing solution that's already taking the reins for most of the routine customer service tasks but is at the same time rapidly evolving and becoming so much more.

Banks adopting AI-powered chatbots isn’t a fad, it’s a shift in how services are delivered. Nowadays, they can do more than answer simple questions. They can offer solutions, guide financial decisions, and secure accounts. As reliance on them grows, they’ll change the way banks do business, making personalized, round-the-clock banking the new standard.

What are Chatbots?

AI chatbots are computer programs that talk to customers online through apps or websites. Their role is to help answer questions and solve problems quickly. For this they use natural language processing (NLP) to pinpoint what people are asking (even if the question isn’t easily understandable) and machine learning (ML) to adjust their answers based on previous communication.

There are three types of chatbots:

• Rule-Based Chatbots: These follow simple rules. If you type certain words, they'll reply with pre-written answers. They’re great for easy questions but can’t handle anything too complicated.

• Intent-Based Chatbots: These are a bit smarter. They figure out what you mean and give better answers, even when questions aren’t worded perfectly.

• AI Assistants: These are the smartest. They learn from past conversations, get better over time, and can help with all kinds of tasks.

In the banking sector, the role of chatbots is to make it easier for clients to get help with their money without having to wait for an actual person to respond.

How Banking Chatbots Work

If designed well, banking chatbots are like sharp virtual helpers that make managing money a breeze for customers.

For example, when a client inquires about their account balance, the chatbot figures out what they mean using NLP (natural language processing) and quickly finds the answer in the bank’s system. It can also help with tasks like sending money, paying bills, or explaining how to apply for a loan.

Ideally, chatbots are connected to the bank’s central system, so they always have the most recent information. Their role is to save time and make banking less complicated, both for customers and staff, while keeping user information safe.

Benefits of Chatbots in Financial Institutions

Thanks to chatbots, customer service is evolving. They enhance the customer experience by offering personalized, 24/7 support. Owing to their ability to automate routine tasks, chatbots help banks reduce costs and operate more efficiently.

On top of this, they improve engagement by making it easy to open accounts and providing customized product suggestions. These advantages make chatbots valuable tools for banks aiming to improve service and stay ahead in the industry. In the following sections, we'll take a look at how chatbots make a difference in these areas.

Enhanced Customer Experience Through Personalized Interactions

Waiting for regular business hours to hop on a customer service line and solve an issue can be a drag. And if it's a sensitive issue like an unauthorized transaction or fraud, every minute can seem like forever.

Chatbots offer a way out. They provide around-the-clock support and tailored communication so customers can get help whenever needed.

Self-service options are another nifty feature banking chatbots can offer. They can send notifications about upcoming bills, recommend savings plans, educate customers about investing and deliver a slew of solutions customized to each user’s needs.

And it gets better. The more advanced ones that fully embrace machine learning can use customer feedback and previous interactions to refine their suggestions further. The additional customization make them even more relevant for each user.

Reduced Costs and Increased Efficiency in Customer Interactions

Chatbots are changing customer service in banking by automating the mundane, routine work and reducing the need for more staff. They can handle everyday tasks like balancing checks or providing a transaction history without supervision. This saves costs and ensures fast and accurate service.

Thanks to chatbots, banks can avoid hiring more people during peak periods. They're a scalable solution that adapts to customer demand without the added cost of onboarding new staff.

Having chatbots makes it easier to allocate resources. They can handle most of the routine interactions. In the meanwhile, human agents can focus on complex issues that need personal attention. Dividing up the workload in such a way increase productivity and get customers timely, high-quality support. Banks get to kill two flies with one stone and save on overhead costs while delivering better service.

Improved Customer Acquisition and Engagement

Chatbots can provide financial institutions with new ways of attracting and engaging customers. For example, they could simplify opening an account by guiding users through filling out forms, collecting necessary information, and answering questions in real-time.

After collecting this info, chatbots can take the interaction further. By using the previously gathered data, they can recommend financial products, like savings plans or a credit cards. Because the chatbots are offering personalized solutions, customers feel that the bank understands their requirements. Such dedication builds trust from the get-go.

And long after the onboarding process has been completed, chatbots continue to provide value by sending updates, providing reminders, and answering additional queries. In other words, they keep customers engaged and increase loyalty by making them feel supported.

Use Cases for Banking Chatbots

Chatbots make everyday banking tasks faster and easier. They can assist with basic things like checking balances or transferring funds, answer frequently asked questions to save time, and even help customers apply for loans and mortgages.

Beyond these, they're playing an increasingly important role in preventing fraud. They do this by identifying unusual activity and offering security tips. So, let’s explore these key roles chatbots play in banking.

They Assist With Essential Banking Activities

AI chatbots can make everyday routine tasks faster and easier for customers. Looking up an account balance or reviewing a transaction can be as simple as looking something up on Google.

Additionally, chatbots can handle fund transfers between accounts or to external recipients. They can prompt customers to provide the necessary info and complete the transactions securely. This is especially useful for those managing multiple accounts or making frequent payments.

Their ability to handle high volumes of inquiries and transactions efficiently ensures that essential services are always accessible. Users get the chance to stay on top of their finances without relying on traditional methods.

Answer FAQs

Most customer queries revolve around routine stuff like finding out when the local branch opens or how to fill out a credit application form. However, nowadays, people can't be bothered to navigate a website to look up FAQs.

Having customer service agents work in three shifts to answer generic questions isn't reasonable and hurts the bottom line. Chatbots can easily handle most of these routine inquiries. By doing so, they free up human agents to provide customers with stellar service on complex tasks.

Help Customers Apply for Financial Products

Banking chatbots can take on more complicated things than FAQs, paying bills, and other everyday banking tasks. They can act as virtual assistants and guide customers in applying for financial products like loans and mortgages. Collecting necessary information like income, employment history, and loan preferences is made simple and efficient through straightforward questions.

Once they've gathered the data chatbots can provide clear and simple explanations about loan terms, interest rates, and qualification criteria. This helps the customers a great deal as they don't need to sift through a Moby-Dick's worth of pages every time they apply for a loan nor do they need a law degree to understand what it is they're signing.

The simplicity of the process and easy-to-understand explanations reduce the barrier to accessing financial products and ensure customer satisfaction.

Detect and Prevent Fraud

If there's something artificial intelligence is great for, then it's analyzing data and looking for patterns. AI-powered chatbots can efficiently examine a customer's transactions and spending habits. They can easily spot shady things like weird transaction locations or unusual withdrawals. Furthermore, they can urge the customer to do something about it in real-time.

With technology becoming more sophisticated, fraud is not lagging behind. Fraudsters will increasingly exploit our virtual presence, and human agents can't be relied on to monitor obscene amounts of information efficiently.

On the other hand, chatbots can not only single out a suspicious transaction in a sea of valid ones, but can also offer safety tips and guidelines and help clients recognize phishing attempts and secure their passwords.

Key Features of Effective Banking Chatbots

If banking chatbots are to provide a stellar customer experience, they need to excel in three areas. Firstly, they should feel conversational and personal by offering a personalized experience.

Secondly, chatbots must protect sensitive information and follow strict regulations like GDPR and PCI-DSS. Lastly, they have to be available across multiple platforms and integrated with banking systems to provide seamless, accurate, and convenient interactions.

Conversational Capabilities

Nobody addresses emails with "Dear Sir or Madam" anymore. That's because they'd end up in the trash faster than you can say generic.

According to a Salesforce study, 84% of customers agree that being treated like a person and not a number is crucial to winning their business.

We've been spoiled with tailored content, and there's no going back. AI chatbots are the pinnacle of tailored experience. Using personal data and natural language processing, banking chatbots can provide customers with a personalized experience that all but stops short of genuine human interaction.

Secure and Compliant With Banking Regulations

According to a study by IBM, data breaches cost companies worldwide an average of $4.88 million in 2024. To avoid financial and, more importantly, reputational damage, chatbots need to be designed with security and fraud prevention in mind.

They must be reinforced with strict protocols, including encryption and multi-factor authentication. That way sensitive information remains safe during every interaction.

They also need to comply with banking regulations and adhere to standards like GDPR (European Union) and PCI-DSS, which ensure secure handling of payment card information. Adhering to guidelines helps build customer trust by demonstrating that data privacy and security are taken seriously.

Focusing on safety and following rules ensures that chatbots can serve as reliable tools in modern banking. It shows they can provide convenience without compromising trust.

Multichannel and Integrated With Existing Software

Having a chatbot but requiring customers to log into a different portal to use it is sloppy UX (user experience). To the risk-averse, it would feel scammish. To the regular Joe, it would be just another unnecessary complication.

For chatbots to resonate with users, they must be accessible across various platforms. This includes messaging apps, websites, mobile banking interfaces, and voice assistants. That way, customers can interact with their bank wherever it’s most convenient for them using whatever they have at hand (phone, laptop, smart speaker, etc.)

Integrating the chatbot with the core banking systems and finance CRM software is also a step in the right direction. Giving advanced chatbots that fully utilize ML (machine learning) access to real-time account information, transaction history, and customer profiles means customers would be treated to accurate and personalized responses.

Implementing Best Practices for Banking Chatbots

It takes more than AI to create a successful chatbot. Knowing what customers need and ensuring the chatbot reflects the bank’s identity is crucial. Regular updates are also a must so as to keep information accurate and reliable.

Additionally, balancing chatbots and live agents ensures a smooth customer experience and allows for addressing routine and complex inquiries efficiently. In the following sections, we'll look at how banks can get these essentials right.

Know What Your Customers Want and Align Your Chatbot With Your Brand

Banks need to understand their customers' needs before building a chatbot. They already know who their customers are, what they ask about, and which services they use the most. It's just a question of using the data to create something intuitive and tailored to user expectations.

For example, demographic data, like age, can be used to adjust the communication style. Younger users are sure to enjoy an informal, conversational tone. Corporate clients, on the other hand, not so much.

Being on brand is also required. Chatbots are extensions of the bank's identity and need to reflect the bank’s tone and values in every situation.This consistency builds confidence among customers, who expect the same level of service whether interacting with a chatbot or a human representative.

Regularly Review and Update Information to Ensure Accuracy

Chatbots need accurate, up-to-date information to be of use to customers. Regularly reviewing and testing your chatbot ensures it functions as intended and remains relevant to your target audience. Outdated responses or glitches will frustrate users at best and can hurt the bank's bottom line and reputation at worst.

Though not an example from the financial sector, a court ruling from 2024 found Air Canada guilty of negligently representing its bereavement airfare policy. It happened because a chatbot generated and presented a piece of policy to a customer that wasn't in line with the company's official policy.

Though the financial penalty was negligible, the company's reputation suffered. To avoid similar scenarios, banks must update product details, policies, and service options. Regular updates prevent misinformation and build trust with users.

Balance Out Live Agents and Chatbots for Seamless Interaction

Routine inquiries are a chatbot's bread and butter. They can answer them precisely, swiftly, and en masse. But what if it's a sensitive issue like a major service failure that requires a human touch? Or if the customer demands to interact with a human agent?

A system needs to be put into place that defines when customers are directed to chatbots versus live agents. If the bank manages to solve this issue and create an efficient handover process, it can expect to save a great deal of money on agent hours and staffing.

Furthermore, reviewing performance metrics for chatbots and live agents helps refine the system. It ensures both customer expectations and business goals are met.

Overcoming Pain Points in the Banking Industry

Long hold times and limited access to real-time updates are frustrating for banking customers. Chatbots solve these by providing instant responses and 24/7 availability. They handle routine questions efficiently and ensure customers get help instantly.

Additionally, chatbots can deliver updates like transaction alerts or payment reminders customized to individual preferences. These tools not only improve response times but imbue banking with a more proactive and personalized approach.

Long Hold Times and Common Questions

Nobody likes to be put on hold. It's a waste of time, and the waiting music is rarely any good. In fact, a study conducted by Zendesk shows that over 50% of customers consider long hold times one of the hallmarks of bad customer service.

AI chatbots are an effective antidote for this as they offer round-the-clock availability. This reduces the impact of peak call volumes as chatbots can provide support whenever customers need it.

By addressing frequent inquiries en masse, chatbots free up human agents. This ensures personalized customer service for those who need it most.

Looking for Updates and Support

Chatbots are becoming the go-to tool for timely updates and personalized support in banking. Customers want quick access to info like deposit confirmations or transaction alerts – something chatbots can deliver in seconds.

By customizing notifications to individual preferences, chatbots can make sure users only get the info that matters to them. Whether it's a payment reminder, low balance alert, or details of a recent transaction, this level of customization is convenient and keeps customers informed.

Such interactions are common in the financial sector, where real-time updates often make a big difference in customer satisfaction. Apart from beeing a speedy solution, chatbots bring about a proactive approach to solving issues, which customers appreciate.

The Future of Chatbots in Banking

The next wave of banking chatbots will further change how customers manage their money. With voice-activated technology and generative AI, tasks like checking balances or applying for loans will be as simple as asking Siri what the weather is like.

These chatbots will also provide highly personalized financial planning by analyzing user data and connecting fully with banking systems. As chatbots develop and become more intuitive, they’ll offer faster, more accurate support. Banking will be made effortless and universally accessible.

Generative AI and Voice-Activated Banking

The number of people in the US projected to use a voice assistant at least once a month by 2027 is about 163 million. Voice search is rising steadily, with Gen Z leading the charge.

Needless to say, this impact will rub off on banking as well. Generative AI and voice-activated banking will change how people use banking services. With voice technology, people will increasingly check their balances, send money, or pay bills just by speaking with chatbots. It presents a convenient and easy way to handle things, especially for those who want to get things done quickly without typing.

Generative AI makes this even better by giving answers that precisely match each client's exact needs. Topics as complex as taking out a loan or refinancing a mortgage will be less and less of an issue. Chatbots will provide helpful and accurate information right away.

Personalized Financial Planning and Integration With Existing Infrastructure

Unfortunately, many people lack a basic financial understanding and the discipline required to make sound financial decisions. A recent survey showed that 6 out of 10 people in the US who weren't contributing to their 401(k) had no idea that they were, in fact, not setting any money aside for retirement.

Small details can have significant repercussions when it comes to our personal finances. A well-designed chatbot could take care of these details, making financial planning relatively straightforward.

By analyzing user data and preferences, banking chatbots will get better and better at providing advice on budgeting, saving, and investing. Such a personalized approach will help customers better manage their finances and achieve their goals.

Chatbots will increasingly integrate with a bank’s existing systems, like core banking platforms and finance CRM tools. This will allow them to access real-time account information, transaction histories, and customer profiles, ensuring even more accurate and relevant recommendations.

Real-World Examples of Banking Chatbots

Chatbots are already making a significant impact in banking. Erica, Bank of America’s virtual assistant, has had over 2 billion interactions by April of 2024. It helped clients track spending, find savings opportunities, and manage their finances more effectively.

Another chatbot making waves is DBS Bank’s digibot, which provides 24/7 customer support in multiple languages. It handles millions of interactions annually and can assist users with tasks like fund transfers and card activation.

J.P. Morgan Chase’s COiN (Contract Intelligence) chatbot is a specialized one that boosts efficiency in legal and financial operations. It reviews and analyzes contracts much faster than an army of caffeine-bolstered interns, saving the bank valuable resources.

Conclusion

Banking chatbots are changing how financial institutions operate and interact with customers, and they're doing it fast. They're already doing most of the grunt work and are quickly becoming more and more sophisticated. Each day they're providing a convenience that, with the advances of technology, is becoming less of a perk and more the norm.

As AI continues to improve, chatbots will get better and better at understanding user needs and delivering tailored solutions. Banks that invest in these tools will prosper. The rest will be left stuck in the mud.

The potential for chatbots to inspire customer trust and loyalty in the financial world is huge. Their role in reshaping banking is only growing stronger. Institutions ready to embrace this shift will, at worst, remain competitive in an industry that's increasingly leaning into AI.

What's Next ?

The future of business is fast, personalized, and driven by AI.

Your customers want speed. Your business demands scale. Your competitors?

They’re already eyeing the future.

And so should you be.

Chatbots are today's X-factor but they're tomorrow's imperative. And tomorrow always comes sooner than you think.

Not sure where to start? Contact brigit.dev now, and let's talk about building the best chatbot your customers could ask for.