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What Are Chatbots and How Can They Be Used in Digital Banking?

by Pamela Michaels Fay

It’s likely that you’ve used a chatbot, whether you realized it or not. They’re pretty good at what they do. But what is that exactly? They deal with a wide range of user issues, and oftentimes the user inquiry is answered in real-time with no hassle. Say your user wants to know your branch hours or their account balance. Before chatbots, they might have had to wait on hold for an associate to answer or follow the prompts on an interactive voice response system. 

There’s nothing wrong with interactive voice systems, by the way. They can coexist with chatbots as part of your omnichannel strategy. It’s just that chatbots allow you to differentiate yourself from your competitors and take the next step in creating a personalized and engaging user experience. In today’s digital environment, it’s all about the user.

With a well-designed chatbot program, your user may never know that they aren’t interacting with an actual person. But it’s never a good idea to trick people, so while the chatbot experience should be a good one, remember that the goal is always to help, not to deceive. Authenticity still counts, even when — perhaps especially when — face-to-face interactions are minimized.

What Are Chatbots?

So, what are chatbots? Simply defined, they are computer programs that can interact conversationally with people, either through voice communications or text messages. They are generally used for customer service and to provide quick answers that don’t necessarily require human intelligence. They are customizable to work for any bank or credit union. 

If you’ve used Alexis or spoken to Google Maps in your car, used speech-to-text software on your mobile phone or interacted with a host of other smart systems, you’ve already benefited from NLP. It’s no wonder that many companies, including financial services institutions, are using NLP to improve employee productivity, streamline operations and support the user experience. 

In fact, the number of chatbots deployed by banks is on the rise. Some 13% of midsize banks and credit unions were using chatbots heading into 2021. This represents a threefold increase over the prior year, according to Cornerstone Advisors.

How Do Chatbots Work?

A chatbot isn’t actually a robot. It’s a computer program — software — that uses artificial intelligence to mimic human conversation. Users communicate via a computer interface such as a messaging application, website or mobile app, or by voice. The chatbot is programmed to provide a predetermined answer based on the user’s input. The concept can be described easily, but the behind-the-scenes process is complex. It’s not nearly as simple as the old telemarketing scripts where if the person on the line says A, you respond with B. 

Rather, the chatbot has to understand the question, contextualize it based on the data provided and retrieve information from one or more back-end applications before it can deliver a satisfactory response. 

Types of Chatbots

There are two different types of chatbots. The first is similar to those telemarketing scripts. Rather than typing in information, users select from preset queries that will lead them to a script. These bots, since they are less sophisticated, are relatively easy to implement. Still, they provide value to businesses by saving time and resources. They can also improve the user experience, particularly since users can get immediate answers to their questions.

The second type of chatbot is based on leading-edge technologies. These chatbots use artificial intelligence (AI) and natural language processing (NLP) to deliver a more human experience. AI-based chatbots have the ability to “learn” over time. This technology is constantly evolving and becoming more robust. NLP, which is a branch of AI, uses rule-based modeling of human speech. This is what allows computer programs to understand spoken commands, translate languages and summarize large quantities of data. 

Chatbots Have a Tough Job

Because people can communicate in ways that are diverse and nuanced, a chatbot has a big job to do. There are many ways, as well, that users can confuse a chatbot with normal speech patterns. A chatbot may not know what to do when the user says “uh” or “um” or “eh.” Some users may even deliberately try to mess with the bot just to see what happens. 

For example, users may try to break the bot by asking rhetorical or nonsensical questions when they don’t know how to request a customer service representative. Of course, they don’t actually break the chatbot, and they may be routed to live help. But it’s not the experience you want your users to have. That’s why it’s so important to put together a sound strategy and develop your chatbot program with an experienced provider. 

5 Steps To Develop a User-Centered Chatbot Strategy

As with any major operational move, you’ll want to develop a strategy. There are many things to think about as you put your chatbot strategy together. But five elements are critical:

  1. Understand your user. Determine who your digital users are and what they want to do. Beyond that, you must understand what they need and how you can help them. 
  2. Keep it user-centered. Your chatbot strategy must be developed around your understanding of your users, not built around archaic processes. 
  3. Define your goals. What do you want for your users? What does the optimal user experience look like? How does the chatbot fit into your overall omnichannel strategy? Does your chatbot differentiate you in the market? What type of information do you want to collect from your users?
  4. Develop metrics. How does success look? These metrics will include activity, bounce and retention rates, use rate, conversation duration, service times and more.
  5. Gather feedback. Continue to improve your chatbot conversations and interactions. Build in mechanisms and processes that allow you to gather real-time feedback.

How Financial Services Are Using Chatbots

Banks and credit unions are fully embracing chatbots and using them for a variety of purposes, such as customer service, education, marketing and more. In the digital banking arena, chatbots can automate the user experience and greatly reduce the cost of serving users. Many banks, both large and small, are using chatbots, for example, Erica from Bank of America, Eno from Capital One and Royal Credit Union’s Val.

These chatbots can help users pay bills, track money transfers, set up payments, automate savings and access account balances. They can also alert users when their balance is low or when there is a change in their credit score. 

Technology may, however, be the easier part of chatbot implementation. More importantly, you’ll want to ensure that the chatbot captures your bank’s personality in the way that it interacts with your users. Chatbots allow customer service representatives to focus on the more value-added, high-yield products and services. Your chatbot shouldn’t be a source of frustration. 

The Bottom Line

The right chatbot strategy can help banks and credit unions save money and streamline operations while giving users the service they’ve come to expect. By far the most important thing for banks and credit unions in the digital age is to combine high-tech and high-touch strategies to optimize the user experience. 

If you’re ready to take your bank or credit union to the next level, contact Lumin Digital. We can help you create the experience online that your users have come to expect. 

Sources – Chatbot: What is a Chatbot? Why are Chatbots Important?

Cornerstone Advisors – What’s Going On In Banking 2021

Credit Union Insight – Chatbots are the rage with credit unions, but can they do it all?