The Future of Banking Is Here (Tyler Morgan Commentary)

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New technologies including artificial intelligence are offering an array of opportunities for financial institutions and their clients. But these benefits — enhanced services for banks and greater efficiency and convenience for customers — aren’t exclusive to the so-called “big banks.” Community banks can also take part, allowing us to stand head and shoulders with our super regional and national counterparts.

Much of this recent innovation came as community banks were forced to rethink and redesign many of our processes amid the lobby closures and related challenges of the pandemic. As the saying goes, “necessity is the mother of invention,” and we all found ourselves having to quickly create new solutions amid COVID-19.

Like other community banks, Farmers & Merchants had to decide on the most effective means to continue to support our customers, and technology played a significant role. That included more interactive teller machines (ITMs) and systems that enable customers to open accounts and apply for loans online, electronically sign documents, and make modern person-to-person payments. These services are more efficient and facilitate transactions without the need for physical interaction.

For example, using ITMs allows banks to expand operating hours while continuing to offer face-to-face interaction with customers. It also ensures that customers across a bank’s footprint receive consistent, focused service from its live tellers.

Those new features enhance bank services, but they require thoughtful planning around security. That means evaluating tools like biometrics, ID verification and multifactor authentication. At Farmers & Merchants, we also used machine learning to upgrade our methods for monitoring customer activity for “out of the norm” behaviors that might indicate fraud.

Community banks can also take advantage of artificial intelligence. AI, especially large language models (LLMs), have the potential to significantly boost the productivity of bank employees, accelerating the time that knowledge workers spend on core tasks like researching, writing reports and coding.

AI can also play a role in extending the services banks offer customers through features like intelligent chatbots and smart query tools. These mechanisms can provide broader self-service capabilities and promptly address a customer’s needs via mobile devices and websites. This is a win-win for a bank’s customers and its employees. But community banks must be mindful of AI’s challenges, particularly around compliance and cybersecurity.

Criminals can use AI to improve the success of fraudulent emails, text messages — even phone calls. And less sophisticated hackers and fraudsters can use LLMs to mature their attacks more quickly than previously possible. They also present data risks to banks regarding the locality of the data and how LLM providers might use the data processed by the AI. As such, community banks must continue to apply rigorous thought as to how they can use the technology securely.

Overall, modern technology provides a net benefit to community banks and an array of exciting new opportunities. These cutting-edge services can make transactions more efficient and more accessible to bank customers — and put community banks on equal footing with their larger competitors.

Tyler Morgan is the chief risk officer at Farmers & Merchants Bank of Stuttgart. He has worked in the risk management and technology fields for 17 years, including nine years in the financial sector. Email him at tmorgan@mebanking.com.