My grandkids love to tease me about how technologically behind I am. While they can type on their tiny smart phone keyboards at a speed that would rival a concert violinist, my fat fingers can barely plunk out a text message without several mistakes. Although I’ll never be as quick on using all the flash and boom apps to which they instinctively gravitate, I take comfort in doing some things the old-fashioned way. It’s not that I don’t want to use technology, but I prefer having more control over certain tasks, even if it takes longer.
But now here I am faced with all of this new artificial intelligence and how it can be programmed to take over my ability to think, reason, and perform. In fact, the more I read, the more concerned I am that it can duplicate my way of talking to a near perfect sound and cadence. I guess it won’t be long until I am strictly a hologram in the office doing collections. Does any of this worry you?
I was mentioning my concerns to several colleagues and the more we discussed this newfangled innovation, the more I began to actually feel at ease. The main thing to keep in mind is that we are still the masters of this advanced permutation of technology. Let’s use it where we can and leave it out when the depth of our professional and personal experiences, not to mention common sense, can be the defining trait in difficult and complex decisions. Let’s look at a few of the pros and cons of AI as it relates to the credit and collection function.
Pros
Enhanced Data Analysis: AI programming (or as they say in computer talk — algorithms) can process vast amounts of data much faster and more accurately than us humans. This capability enables AI to analyze customer data, credit scores, financial statements, and other relevant information to assess creditworthiness more effectively. Honestly, this is a very good thing because I really don’t want to be pouring over a lot of financial data anymore.
Improved Decision Making: AI credit risk models can generate more accurate predictions and risk assessments based on historical data and real-time information. This can lead to better decision-making processes regarding credit limits and risk mitigation strategies. In my view, if AI can help me predict the future, I’m happy!
Automation of Routine Tasks: AI can automate and rationalize repetitive tasks such as data entry, document verification, and compliance checks. This would certainly free up all of us to focus on more urgent and complex aspects of credit risk management.
Personalized Risk Management: AI algorithms (there’s that word again that simply means “programmed formulas”) can customize risk management strategies based on individual customer profiles, behavior patterns, and credit histories.
Cons
Algorithm Bias: AI models may exhibit bias if they are created on biased data sets that are not objective. This can lead to inaccurate risk assessments, impacting both customers and the company’s ability to make fair risk evaluations.
Lack of Transparency: Some AI models can be complex and difficult to interpret. This lack of transparency raises concerns about how credit risk decisions are made and whether they can be explained or justified to customers and management.
Over reliance on AI: Relying too heavily on AI without human oversight and intervention can lead to errors or unforeseen consequences. It’s essential to have protocols in place for monitoring AI systems, validating results, and addressing issues as they arise.
Regulatory Compliance: Implementing AI in credit risk management requires compliance with various regulatory frameworks and guidelines. Financial institutions in particular must ensure that their AI systems adhere to legal requirements regarding data privacy, fairness, transparency, and consumer protection.
So, in conclusion, while AI offers significant benefits for credit risk management, we still need to manage it in a way that doesn’t attempt to replace our common sense and ability to navigate the nuances and complexities of human relations.
Nancy Seiverd, President
CMI Credit Mediators, Inc.
All Rights Reserved
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