AI under microscope in finance

AI Tools for Finance: What is the Role of AI in Community Banking?

Posted by Fiscal on February 09, 2024

Technology plays a critical role in shaping how financial institutions operate, enhancing efficiency and precision –  among these technological advancements, Artificial Intelligence (AI) has sparked much discussion, including around financial statement spreading. But amidst the buzz, it's essential to address the concerns and expectations of smaller institutions, who value community and personal relationships over cutting-edge technology. 

As we strive to stay on top of all the latest technologies, we’ll explore AI's role in financial statement spreading, offering a balanced view that respects the ethos of what community banks and credit unions are designed to do. Let’s discuss the benefits, drawbacks, and practical tips for any institutions looking to explore AI in their processes.

Why Consider AI Tools for Finance?

For smaller financial institutions, the integration of AI into financial management practices, including statement spreading, represents a strategic decision rather than a leap onto the latest trend. AI tools can make manual tasks more efficient and reduce errors in processes such as initial data entry, yet they're not a substitute for the human expertise that underpins lending decisions and community relationships.

The Balanced Approach to AI in Finance

Understanding the cautious approach of community banks and credit unions towards new technologies that enter the industry, it's crucial to find the right balance between innovating and taking unnecessary risks. AI can significantly reduce the time and labor involved in manual financial statement spreading by simplifying data entry and error detection. 

A few ways that AI could enhance internal processes include:

  • Time Consumption: Manual spreading requires significant person-hours, which can be better allocated to more analytical and decision-oriented tasks.
  • Error Proneness: Human intervention is susceptible to errors, especially in repetitive tasks. These mistakes, even if minor, can compound over time, leading to significant miscalculations or misinterpretations in financial statements.
  • Inconsistency: Different individuals may interpret and enter financial data differently, leading to inconsistencies that can affect comparative analyses and long-term financial tracking.
  • Lack of Adaptability: Manual processes often need help to keep pace with rapid changes in financial reporting standards and business-specific accounting practices.

However, every AI-assisted task should undergo a thorough review by experienced professionals, ensuring the reliability and integrity of financial analyses. Having this balanced view is important when figuring out the use of this new tool in your day-to-day business operations. 

A Measured Perspective on AI Tools for Finance

In the realm of financial analysis, AI has certainly introduced a streamlined approach to handling the more monotonous aspects of the process with notable efficiency. One of the key areas where AI has made significant strides is in the streamlined extraction of financial data from documents. This automation greatly reduces the likelihood of manual entry errors, ensuring that the data feeding into financial analyses is both accurate and reliable. 

Further, AI's capability extends to pattern recognition, where it meticulously scans through financial data to identify any discrepancies and trends. Such capabilities are invaluable as they can highlight potential areas of risk or opportunity, providing a more nuanced understanding of a company's financial health. This measured perspective on AI's role emphasizes its function as a tool that enhances the precision and insight of a trained lender or credit analyst, making it a helpful and complementary tool in the modern landscape of financial analysis.

However, with all of this in mind, we have to evaluate what AI shouldn’t be used for…

Understanding the Limitations of AI

While AI offers numerous advantages, it's not without drawbacks. 

From the need for a substantial volume of quality data for training AI models, to the complexity of explaining AI decisions (especially important in compliance and regulatory contexts) and the initial cost and effort required to integrate AI into existing systems, there’s a lot to consider before diving head first into AI for your financial institution.

The primary role of AI in financial statement spreading is to handle menial and repetitive tasks, thereby freeing up loan officers and analysts to focus on more complex and qualitative aspects of their work. AI excels at processing large volumes of data, identifying patterns, and performing routine calculations quickly and accurately. However, it is not designed to replace the nuanced understanding and judgment that human beings bring.

The key limitations of AI include:

  1. Dependence on Quality Data: AI systems require substantial volumes of high-quality data for effective training. In the context of financial statement spreading, this means that the input data must be accurate, comprehensive, and representative. AI's performance is only as good as the data it processes.
  2. Complexity in Decision Rationale: AI can sometimes make understanding the rationale behind its decisions challenging, especially in complex financial contexts. This is particularly pertinent in compliance and regulatory scenarios, where transparency and the ability to explain decisions are crucial.
  3. Integration Efforts: Implementing AI into existing financial systems can be resource-intensive, requiring both initial investment and ongoing efforts to ensure seamless integration and operation.

But above all, AI cannot and should not be used for one thing…

AI Cannot Dictate Lending Decisions

As we evaluate the potential uses of AI in financial processes, one thing is clear: AI should not dictate lending decisions. 

The value of personal relationships, understanding local market conditions, and supporting community businesses cannot be replicated by algorithms. In this context, AI is a tool for enhancing efficiency, not replacing the personalized service that defines community banking.

AI’s Role in Supporting Human Financial Expertise

AI in financial statement spreading should be seen as a powerful tool that enhances and simplifies certain aspects of financial analysis, but not as a complete substitute for human expertise. Its role is to augment human capabilities, making credit analysts and lenders more efficient and effective rather than replacing them. The future of finance lies in this symbiotic relationship between AI and human intelligence, each playing to their strengths to drive better financial management and decision-making.

But when it comes to community banking, this transformation must be done with the utmost care – and will likely take on a different timeline than major financial institutions that are introducing AI into their processes already.

Other Use Cases for AI

As we consider other ways AI will support the future of our industry, it’s equally important to consider its effects on banking patrons. AI has other non-lending potential use cases to our industry that could further improve the relationships community banks and credit unions have with their customers. Here are a few examples where AI could impact our day-to-day in the year(s) to come:

  • Customer Interest Identification: AI may make it simpler to identify customers who could be interested in loan or deposit products based on similarities to other customers who have those products already. The technology would recommend them to human staff for review, spurring potential business gains. 
  • Spotting Potential Problem Accounts: When it comes to a customer’s loan portfolio or deposit relationship, AI has the potential to spot and flag warning signs like increased credit line usage or recurring non-sufficient funds. This will spur banking staff to review the account and evaluate the appropriate next steps for the customer. 

But, with all of this in mind, the same sentiment still remains true: people are at the core of what we do, and AI is just a tool to support existing partnerships that are built on trust and human connection.

Looking Ahead: AI Tools for Finance in Community Banking and Credit Unions

The journey towards integrating AI into financial practices is just beginning. With a cautious yet open approach, AI can play a role in automating time-consuming tasks, allowing financial professionals to dedicate more time to their clients. It's about enhancing, not replacing, the human element that is so valued in community banking.

In exploring the potential of AI, it's essential to proceed with a mindset that prioritizes the unique values of community banks and credit unions. By doing so, we can ensure that technological advancements serve to support, not overshadow, the personal touch that is the hallmark of these institutions.

If you're grappling with the complexities of financial statement spreading, facing challenges in data accuracy, or spending excessive time on manual processes, it may signal the need for a strategic shift. FISCAL Forward can support you. To explore a solution that transforms your financial analysis, while having a team that understands your needs as a smaller financial institution, we invite you to schedule a demo with us today.