Council Post: Does AI Make More Reliable Financial Recommendations Than Humans?

Co-founder and CEO of Own Up, a technology company changing the way people shop for and secure a mortgage.

Artificial intelligence has exploded in recent years. Once only used in defense and research, and of course, virtual chess matches, companies in all industries are implementing it to provide everything from hyper-personalized recommendations (think Netflix) to customer service chatbots. 

Covid-19 has rapidly accelerated the need for businesses to digitize at least some part of their operations, with consumers largely staying at home and companies trying to provide services while keeping employees safe. In just eight weeks, digital adoption has vaulted forward by five years, according to a study from McKinsey. 

In some industries, consumers have been quick to jump on board, and companies could continue to make updates as they go. For example, Instacart experienced some early issues with users, noting that it would incorrectly predict grocery stock. But their quick updates have appeased users with seemingly no loss in customers.

But for others, technological advancement and consumer adoption are not in lockstep. One example is the financial services industry, and particularly mortgage lending. The technology is there and, in some cases, better than people. For example, financial technology algorithms discriminate 40% less than lenders who make decisions face to face, according to research from the National Bureau of Economic Research. 

However, as beneficial as AI-based technology can be to businesses and consumers, companies in financial services need to keep one very important reality in mind: Consumers don’t trust it (yet).

This is something my company learned firsthand. Early on, my team found that customers who relied solely on AI were less trusting of recommendations, while those who spoke with a home advisor felt confident in that very same recommendation. Armed with this information, we decided to couple intelligent technology with real people to identify high-quality loan options and make personalized recommendations. As a result, customer satisfaction increased significantly. This experience pushed us to learn more about consumer behavior and understand why trust is a key element in digital services.

People Prefer People

When conducting a study on AI recommendations, professors from Harvard, Cornell and the University of Chicago found that even after learning that an algorithm made better predictions than humans, people still gave higher scores to the human recommenders. Despite the flawed recommendations from humans, people trust advice from a person over technology. 

In some cases, the distrust is negligible. Instacart saying a product is available when it isn’t is frustrating, but understandable. There’s usually a replacement, or someone simply goes without. But when it comes to financial decisions, a mistake can be incredibly costly.

At present, “only 25 percent of consumers would trust a decision made by an AI system over that of a person regarding their qualification for a bank loan,” according to research conducted by Pegasystems Inc. So though AI might be able to provide better financial outcomes than people can, consumers need to feel like they can trust the advice they receive. This means that, at least for now, trust in human counsel trumps technology.

AI With A Human Touch

In light of shelter-in-place orders, consumers are more willing than ever to try digital services, and financial technologies are no exception. Luckily, going digital and offering advice from humans aren’t mutually exclusive. 

Combining intelligent technology and human connection means companies are able to make better recommendations without forgoing the trust that many consumers require. In fact, AI has the ability to enhance outcomes by allowing advisors to spend less time processing data and more time developing trustworthy relationships with their clients.

Moreover, consumer trends show that the companies that are transparent about how they use AI-based technology to enhance decision making and create better financial outcomes for their customers will be the clear winners.

At the end of the day, it isn’t about who makes a better recommendation. It’s about which recommendation consumers will feel most comfortable believing. For financial services companies implementing AI, the balance of when to use technology and when to rely on humans is crucial. Giving customers the best of both enhances the experience at every level.

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