Can XAI in banking help small businesses?

Small businesses (SMEs) are no longer as well served by traditional banks, yet this is one niche sector where they have an opportunity to shine.

To date, banks have provided SMEs with a mix of retail and corporate services, however, as a Finextra blog explains, “this no longer fits the evolving needs of small businesses.”

Services for this business sector need to think about more holistic solutions. These may include more collaboration with a range of digital service providers if they are to retain the confidence of SME clients by addressing their pressing needs.

Temenos, a firm specialising in enterprise software for banks and financial services has been reimagining how banks could better serve SMEs using the available technology. For example, “banks can implement innovative design-centric and data-driven products, as well as services that can transform the SME customer experience.”

The customer’s digital experience is now critical, as is the use of data, because these will be the driving force in future SME banking services. And this is where artificial intelligence (AI) can be of enormous help. It can enable banks to leverage data from multiple sources “to make faster, and more accurate decisions and provide individualised, frictionless customer experiences.”

Utilising AI, or XAI (explainable AI) would be another major step, primarily because “one of the key issues for banks using AI applications that there is little if any discernible insight into how they reach their decisions.” Transparency is required for customer confidence, especially concerning lending.

If banks looked at more than an SME’s credit score, and took a more holistic approach by viewing a range of attributes, they would be able to make more “nuanced and fully explainable decisions that lead to 20% more positive credit decisions and fewer false positives.” Furthermore,  this can be done in real-time using APIs to connect to third-party data sources.

Banks using XAI can show how the decision was made and then suggest alternative products or provide advice about how to improve the chances of getting a loan. In this particular period of time, with the Covid-19 pandemic having negatively affected so many small businesses, there has been an increased need for SME loans. As a result, banks need to support this with more digitisation and smarter decision-making. Using XAI seems like a good place to start.

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