How Does ChatGPT Describe the Economy and Banking?

At Bank Director's Acquire or Be Acquired conference, I had a sidebar conversation with a longtime friend and banking industry investment banker about ChatGPT, which stands for Chat Generative Pre-Trained Transformer. As described by ZDNet.com, "ChatGPT is a natural language processing tool driven by AI technology that allows you to have human-like conversations and much more with a chatbot. The language model can answer questions, and assist you with tasks such as composing emails, essays, and code."

On its website, ChatGPT describes its limitations as may occasionally generate incorrect information, may occasionally generate harmful instructions or biased content, and has limited knowledge of the world and events post 2021. It's in its "feedback" phase from the public. It is open to anyone.

Will this replace the need to get information from humans, at least beyond what ChatGPT "learns" from humans by their writing? I'm not convinced. But I wanted to give it a try with relevant banking questions. Here are the results.

Me to ChatGPT: Describe the current economic situation in the United States.

ChatGPT: The current economic situation in the United States is characterized by growth and recovery following the impacts of the COVID-19 pandemic. The economy has been supported by fiscal stimulus, including government spending and relief programs, and a strong rebound in consumer spending. The labor market has also improved, with unemployment declining and job growth picking up. However, some industries and workers continue to struggle, and inflationary pressures and supply chain disruptions have created some challenges. Overall, the US economy is on a path of recovery, but the pace and strength of the recovery will depend on the course of the pandemic and the success of vaccination efforts. 

My take: This looks like it's from one year ago, consistent with ChatGPT's disclosed current limitations. But TV talking heads should be worried.

Me to ChatGPT: What is the outlook for the US economy?

ChatGPT: The outlook for the US economy is generally positive, with continued growth and recovery expected in the near term. Factors supporting this outlook include the ongoing rollout of COVID-19 vaccines, improving consumer and business confidence, and accommodative monetary policy from the Federal Reserve. However, there are also potential challenges and uncertainties that could impact the outlook, such as the pace of vaccine distribution, the emergence of new COVID-19 variants, and the possibility of inflationary pressures. Additionally, the implementation of new policies by the government, such as changes to taxes and regulations, could also influence economic outlook. Overall, the US economy is expected to continue growing, but the pace and strength of the expansion will depend on a number of factors, both domestically and globally. 

My take: Future predictions look like canned responses. And there is similar language in the first and second inquiries.

Me to ChatGPT: What is the outlook for US banks?

ChatGPT: The outlook for US banks is generally positive, with the industry expected to continue recovering from the impacts of the COVID-19 pandemic. The improving economic conditions and the steady growth in loan demand are expected to boost revenue for banks. Additionally, low interest rates, which have been maintained by the Federal Reserve, are expected to continue supporting profits for banks by reducing borrowing costs for customers and increasing the spread between interest earned on loans and interest paid on deposits. However, the ongoing pandemic and the potential for rising defaults and loan losses in certain sectors remain risks for the banking industry. Additionally, regulatory changes and increasing competition from fintech companies could also impact the outlook for banks in the future. Nevertheless, the US banking industry is expected to remain stable and continue to support the broader economy in the near term.

My take: I could envision a bank analyst saying the same thing on CNBC at the beginning of 2022. 

I asked the "best bank in the US" and it punted, saying it was subjective and gave me some criteria people consider when determining the best. Subjective questions might be a challenge.

Overall, I believe AI will evolve into a tool to weigh against our opinions. But I'm not sure, lacking context, discernment, and other "gray" factors, if it will surpass good old-fashioned judgment and common sense. 

Potential bank use cases of generative AI, aside from the questions above: Research on certain industries to help determine credit risk, such as "How did the hotel industry perform in the 2008 recession?"; Vendor management due diligence, such as "Where can I find third-party reviews on the nCino loan operating system?"; Talent management, such as "What do Generation Z want from their employers?"; Assistance in cyber security measures, such as "Describe the 2021 Kaseya ransomware attack."; And make content writing easier by asking specific questions that used to take more research, such as "Describe the impact on small business from the 2017 tax cut."

The tool is still new and evolving. It has the potential to streamline research that helps make decisions. However, as I mentioned, it will not do well in replacing discernment, context, and gray areas where community banks tend to operate.

~ Jeff

 

Two Ideas to Lower Operating Cost Per Account

Last week I wrote a TKG Perspective's article on Bank Profitability in 2019. I congratulated community financial institutions for delivering a positive trend in business checking account operating cost per account. The challenge is, aside from residential mortgages, all other product categories showed negative trends in operating cost per account.

In the below video blog, I offer two ideas to drive down long-term cost per account in other categories. 

Click HERE to view the TKG Perspectives article. 

Click HERE to view the cited blog post on re-thinking branch staffing.

~ Jeff

The Real Benefit of Intelligent Automation

Fifty percent. That was the odds I gave myself when calling my health insurance firm regarding changing my date of birth. Fifty percent chance I could get this done in one phone call and a reasonable period of time.

Isn't that sad?

It did take 15 minutes to get the relatively simple task done. Making me wonder: shouldn't this be easier?

And easier is what me and my colleagues hunt for when we do process improvement projects at community financial institutions. Because there are a lot of complex, manual, outdated things happening in the bowels of your institution. Believe me.

In comes artificial intelligence, robotic process automation, chatbots. Mostly buzzwords to bankers. But it's growing on them. I recently attended a state bankers' convention where Fabio Sant'Anna of SRM delivered an interesting presentation on Intelligent Automation (see slides). 

One important slide was to distinguish some buzzwords and acronyms. RPA, or Robotic Process Automation, is a script or "bot" that executes repetitive tasks that are currently done by humans. Artificial Intelligence is the ability of a program to analyze data. To actually solve business problems. 

I'm sure readers can think of several use cases for their institutions. Balancing your card providers daily report to your core system? If it requires a checklist, you can automate it. Performing CIP diligence? Online banks already use automated processes. 

Think of the saved hours!

But let me tell you the real benefit of Intelligent Automation. The ability to deliver community banking services in the manner desired by your customers.

It's no secret that customers want more from their bankers. Efficient and accurate transaction processing is passé. Customers already voted with their smart phones and laptops on where they like to execute transactions.

But bankers have changed at a slower pace than customer demands. Much slower.

Take branch staffing for example. Survey after survey indicates that customers want branch bankers to help them solve more complicated problems, apply for loans, and assist them with financial tools that are available. Can your branch bankers do it? 

I'm skeptical, based on my experience. We still have efficient and accurate transaction processors. We skinnied branch staffing to achieve cost savings and improve profits. But we haven't translated less staff into more capable staff. Same skill set. Less people.

If you look at the support center expenses branches must absorb for operations, technology, compliance, etc. you would think that support functions also skinnied their ranks. Oh contraire. 

In 2013, when the median branch deposit size in our profitability outsourcing service peer group was $47.9 million, support center expenses were 1.12% of branch deposit balances. In 2018, when the median branch deposit size was $62.2 million, support center expenses were 1.02%. 

So you may think, "See! It went down! Economies of Scale!" 

But wait! In 2013, each branch had to absorb $536,000 of support center expenses per year. In 2018, each branch absorbed $632,000, an annual increase of 3.3%. Support functions got bigger!

And that, my readers, is why branches (and in most cases, lending functions) have been so slow to transform their capabilities to meet the modern customers' needs. We reduced branch staff to offset declining net interest margins and boost profitability. And we never reduced back office staff to invest in the collective abilities of branch staff.

Automating back office processes to reduce the resources needed to execute them can transform our workplace into what customers demand.

How long can we wait?

~ Jeff

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This article relates to my firm's Profit and Process Improvement and Strategic Management services. Click on the links to learn more.

https://kafafiangroup.com/services/profit-process-improvement/

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