Last week, TD Bank, the second largest bank in Canada, announced that it is acquiring Layer 6, a prediction and personalization platform.

The deal highlights the growing importance of artificial intelligence (AI) to banks that are trying to stay ahead of the curve as they face digital disruption from fintechs.

While Layer 6’s AI tech is used by clients in a number of industries, TD Bank ultimately decided that the company’s technology was critical enough to its business that it made sense to buy its vendor out.

According to TD Bank Group CEO Bharat Masrani, “Anticipating and meeting customer needs are at the heart of our promise, and we are excited to further accelerate our innovation agenda to deliver well into the future.”

Masrani’s comment refers to TD Bank’s use of Layer 6’s AI tech to create “predictive and personalized” customer experiences, which it says are at the heart of its digital transformation strategy. Layer 6’s platform can be used to generate product recommendations, deliver personalized pricing, predict customer complaints and attrition and identify next best actions.

All of those can be integral to creating user experiences that keep customers happy and strengthen TD Bank’s relationship with them. Increasingly, some of these user experiences are taking place in a variety of new channels, such as chatbots and voice assistants, that will realistically require good AI to function well.

Case in point: TD Bank was the first bank in Canada to launch a Twitter chatbot and it recently launched an Alexa skill that allows customers to bank by voice using one of Amazon’s Echo speaker devices.

While TD Bank is trying to position itself as an innovator and is clearly ahead of many banks, the reality for the industry is that AI is likely to be a necessity, not a differentiator, in the very near future. 

Accenture’s Banking Technology Vision 2017 report found that four in five bankers believe that AI will “revolutionize” the way they gather customer data and interact with customers, and Accenture believes that AI-based applications will become the primary channels through which they interact with them within a few years.

The reason: according to Accenture’s banking practice chief, Alan McIntyre, AI-powered applications “will give people the impression that the bank knows them a lot better, and in many ways it will take banking back to the feeling that people had when there were more human interactions.”

He added, “The big paradox here is that people think technology will lead to banking becoming more and more automated and less and less personalized, but what we’ve seen coming through here is the view that technology will actually help banking become a lot more personalized.”

Banks need an AI strategy, and soon

If AI is key to the customer experiences that banks need to deliver to win, 2018 will be a critical year for banks to incorporate AI into their digital strategies. This not only involves determining where and how to adopt AI but who should develop or provide it.

There are numerous challenges, including the widespread use of legacy systems within banks and the more stringent compliance requirements they must adhere to.

Additionally, AI talent has never been more in demand, creating a challenge for banks hoping to build in-house AI capabilities. And while the number of companies offering AI platforms is growing, not all AI platforms are created equal. 

TD Bank’s acquisition also highlights the risk that large players in financial services or other industries that are embracing AI could acquire a platform outright, making outsourcing AI capabilities to a third-party somewhat risky. After all, the wisdom of relying on an AI platform owned by a competitor is questionable.

Given just how critical AI could be to banks’ ability to deliver the kinds of experiences their customers will demand, each bank’s AI decisions could determine whether it thrives or falters in the coming years.