Pepper Money

If the term ‘Artificial Intelligence’ or ‘AI’ isn’t already on your radar, then you’ve been living under a rock, but chances are you’ve previously encountered AI seamlessly in your daily routine, often without conscious awareness. From personalised recommendation algorithms shaping your online experiences to voice-activated virtual assistants, AI has ingeniously become an intrinsic part of our daily lives.

Now, as we navigate the complexities of a global economy and current economic conditions, the seamless integration of AI has emerged as a game-changer, revolutionising the financial and brokering sectors, automating tasks, enhancing decision-making, and improving customer experiences.

The rise of ‘smart’ finance

AI has ushered in a new era of smart finance, where algorithms and machine learning models process vast amounts of data at speeds incomprehensible to human capabilities.

This intelligent automation not only accelerates decision-making processes but also enables lenders to gain insights, mitigate risks, and identify opportunities with unprecedented velocity. It also plays a role in risk management, fraud detection, ensuring regulatory compliance, and enabling real-time data analysis.

Tightening up efficiencies and a faster time to ‘yes’

Examining the lending value chain reveals inefficiencies that AI aims to address, enhancing both value and speed, whether it’s streamlining loan applications, offering personalised rates, or leveraging AI for credit assessments, innovation drives differentiation and therefore customer loyalty. 

AI offers substantial advantages in the lending industry by providing constructive feedback on credit applications, assisting in financial analysis and forecasting, assisting creditworthiness assessment, generating assisted memos, and improving overall industry processes contributing to greater certainty of outcome for a broker and a faster time to 'yes' for the borrower.

Consumers have become accustomed to increasingly personalised online experiences thanks to online pioneers such as Amazon and Google. Now consumers' expectations extend into the world of finance and banking where they increasingly expect personalisation throughout their loan application journey. This is where AI also has the potential to excel; synthesising vast amounts of information in real-time to deliver a hyper-personalised end-to-end customer experience.

Finding the right way to implement AI software that will have the right impact for customers is a balancing act. The challenge lies in navigating the double-edged reward and risk sword of AI, leveraging its advantages responsibly while avoiding potential risks while the technology continues to evolve and mature.

Navigating regulatory changes

Despite the obvious benefits of AI, equally there are concerns about its potential misuse, particularly in the context of cybersecurity and data privacy. While the adoption of AI by financial institutions promises efficiency gains, there is a need for caution. The darker side of AI involves its exploitation by cyber criminals, leading to even more sophisticated scams, phishing campaigns and a multitude of other breach opportunities. When these exploits are used for financial gain, it can be catastrophic for individuals directly impacted but also on a wider scale as we have witnessed here in the Australian market.

As AI becomes a more integral part of the way we manage and get access to finance, making sure we have the right regulations in place is important to foster a responsible use of advanced technology in the sector. We are already beginning to see AI regulation introduced in the UK and emerging viewpoints from the Australian Federal Government on high-risk use cases and plans for greater regulation, which we are all going to need to closely observe as the Technology and innovation opportunities continue to accelerate.

What will happen to brokers?

In the evolving digital financial landscape, it doesn’t appear to me that AI is about to completely replace human expertise; it's about elevating and augmenting it. The synergy between human insight and AI capabilities creates a drive that propels the broker and finance industry forward.

It’s about creating a harmonious balance across the whole finance ecosystem – including intelligent machines, lenders, aggregators, brokers, and customers. Certainly, from my perspective in the non-bank sector, the focus continues to be on enhancing the experience between us, our broker network, and the customer. Ultimately, we know trust remains vital in the experience of getting a mortgage, and consumer confidence in AI hinges on its consistent ability to add value.

While business efficiencies allow brokers to spend more time on things that matter to their customers, AI, when fed incorrect information, has the potential to 'hallucinate' and provide inaccurate results. This emphasises the need for careful consideration when implementing it into processes and customer experiences, especially regarding any advice-related scenarios.

There’s a reason why brokers continue to be the preferred channel and trusted guardian for over 70 per cent of borrowers who sign up for a mortgage¹. Humans like interacting with other humans – especially when it comes to making a significant financial decision like buying a home. So, there’s an opportunity to realise the full potential of a broker's emotional intelligence, empathy, and experience, combined with the use of AI tools, to play a significant role in successful credit assessments and loan management for customers.

From my perspective, AI is on a pathway to enhance the broker proposition rather than replace the role, with a strong focus on enhancing certainty, speed, and positive customer experience. Added to this is the brokers' obligation under Best Interest Duty which can be enriched by AI capabilities.

Non-banks are quick to innovate

The finance sector, continually faced with legacy processes, is witnessing a transformation of its own in recent years. However, in many cases high investment has yielded low returns, as highlighted in KPMG’s 2023 report “Dream to Delivery” which concluded that Australian banks have invested around 4 years modernising legacy systems, improving customer interfaces, and optimising operations, with more than 52% of initiatives failing to meet stakeholder expectations².

The traditional bank lending market continues to be ripe for disruption as more than 600 non-banks and alternative lenders have entered the Australian market in recent years, and a focus on fintech continues to drive competition.  Non-bank lenders are often at the forefront of pioneering with technology compared to larger traditional financial services institutions. Their nimbleness allows experimentation with cutting-edge technologies, including AI, at an accelerated pace, enhancing customer experiences, automating processes, and making data-driven decisions.

Almost one in four (23%) of commercial banking executives say product innovation is the number one factor in changing the competitive banking landscape¹, and non-banks excel in this area, introducing novel lending products, flexible terms, and customer-centric features. 

Ultimately, the convergence of innovation from both non-banks and traditional lenders benefits the entire finance and mortgage industry, fostering better services and improved financial inclusion.  In this dynamic landscape, collaboration, adaptability, and customer-centricity will define success.  As the industry evolves, the balance between tradition and innovation will shape the future of lending.

What’s on the horizon?

As AI continues to evolve, its optimal performance relies on access to extensive and high-quality information. While the current AI advancements represent a new level of potential for the industry, there is a need to focus on foundations.  Shoring up AI-ready security and ensuring our data is AI-ready by being ethically governed, secure, free from bias, enriched and accurate.  Organisations must take risks progressively to avoid the pitfalls of being blinkered by marketplace “sizzle”.

The meticulous management of data becomes a critical starting point for lenders, aggregators, and brokers looking to unlock the full potential of AI in the non-bank lending space. Striking the right balance between AI and human qualities is essential for the industry's continued success.

Notwithstanding all these considerations, AI is unequivocally the next technological revolution for business.  In non-bank lending, I’m hopeful that through advancement in not only the technology itself but also the regulatory frameworks, we will one day see complex loan scenarios and full loan origination coming together with other industry advancements like the Consumer Data Right and Digital Identity to offer brokers and customers unprecedented levels of speed and certainty.

Steven Meek

Steven is the Chief Information Officer at Pepper Money and was most recently recognised as one of Australia's Top 10 CIO’s by the CIO Review. 

He has more than 20 years of diverse experience leveraging technology to drive business growth, operational performance, customer experience and innovation in dynamic organisations including Macquarie Group and Coca-Cola Amatil.

Prior to Pepper Money, Steven led the global digital and technology transformation of Macquarie Group’s Principal Investing and Capital Solutions business and was previously the Head of Digital & Emerging Technologies for Coca-Cola Amatil. Steven is a strategic business partner who combines divergent thinking, product and service development, data insights, and digital solution delivery to create positive results for customers and business performance.