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Will AI Revolutionize the Future of Banking

Will AI Revolutionize the Future of Banking?

AI has gained a lot of hype lately. With a majority of the AI tools currently available evolving to their even more advanced versions and helping in surprising ways, the finance industry is among the pioneers in integrating it into their operations. Banks and other financial institutions have openly welcomed the integration of AI-based tools like chatbots and more to make the customer experience better. Yet, the question arises as to what extent can AI influence the banking industry. And as to what extent can the industry itself adapt to the changing methods that the ever-evolving technology like AI has to offer? Similar questions are expected to be asked at the upcoming NexGen Banking Summit on Future of Banking, which will be held later in November this year.

The Impact of AI in Banking Data

According to a study published in the Journal of the Korea Review of International Studies, the banking industry is predicted to save $1 Trillion by 2030. And these savings can be credited to the implementation of AI leading to branch closures. Experts at the Summit on Future of Banking suggest that increased trust in AI-based technologies for banking can be attributed to recent technological advancements that have allowed banks to automate cognitive computing tasks.

Despite making a case for the implementation and adoption of AI in banking, the study also mentioned that some corporate leaders are still unsure about how to strategically implement AI in their organisations. Despite 85% of corporate executives seeing AI as a crucial tool for offering them a sustainable competitive edge, research revealed that only 39% of company leaders had a strategic plan for AI use.

According to McKinsey’s global AI survey study, virtual assistants and conversational interfaces used in front-office settings account for about 32% of all AI technology. Also, with internet usage increasing by up to 50% during and post-pandemic, more and more customers have ceased visiting branches. It is, therefore, crucial to build and maintain a user-friendly digital banking platform.

Moreover, AI is seen to have a significant impact on how banks use data. Below are some key areas:

Enhanced Fraud Detection

AI tools can help analyze transaction data, which can further help identify patterns to detect fraudulent activity. Several experts in the AI Summit for Banking agree that this will help prevent financial losses and protect customers from financial fraud. With solutions like SAS AML and Ayasdi AML, AI can help develop a well-suited plan to keep crimes or frauds at bay.

Improved Credit Decisions

Banks can use AI algorithms to assess a borrower’s creditworthiness by considering a wider range of data points than traditional methods like credit agency scores and information from a borrower’s application. This leads to a more accurate risk assessment and allows banks to offer loans to a broader range of customers.

Reduced Human Errors

AI tools can also help minimise errors caused by humans, such as miscalculations, and typos. According to a study presented at the Summit on Future of Banking, human errors account for as much as 38% of loss of revenue. Upon elimination of such errors, banks can increase their net income.

Cost Benefits

According to a study conducted by Autonomous Next, banks saved an estimated $447B in 2023, due to AI applications. A major chunk of these savings, about $416B were from front and middle office costs. Another study by the same body estimated that traditional financial institutions may save up to 22% in expenses by 2030 through AI implementation.
This benefit in the costs is a significant factor driving the implementation and use of AI tools in banks and other financial institutions.

Challenges for Adoption of AI in Banking

The promise of AI in banking is undeniable. With benefits like fraud prevention, accurate data analysis, calculated loan decisions, and customer service that feels personal and efficient. Yet, the path to this AI-powered future is not without obstacles.

AI-based systems require a lot of training data as input. Since, banks already struggle with a mountain of data trapped in outdated systems, gathering high-quality, integrated data that AI models crave becomes a herculean task. Even with pristine data, there’s the specter of bias- algorithms can unintentionally perpetuate existing prejudices, leading to unfair loan rejections or skewed credit scores.

Security is paramount, as financial data is the lifeblood of the industry. Banks will have an additional responsibility to ensure that AI models handling sensitive information are secure. Additionally, the lack of transparency in how AI will reach decisions can raise concerns about accountability.

Even more complex is meeting the shortage of trained professionals. Skilled data scientists and AI specialists are needed to develop and maintain AI models. And hiring and retaining such professionals amid talent scarcity and high costs makes it difficult for small banks.

Finally, a Summit on Future of Banking revealed that meeting the regulations surrounding the use of technology in banks is a constant struggle. The regulatory landscape is ever-changing, with data privacy and security rules constantly evolving, forcing banks to adapt their AI practices on the fly. These challenges can make banks hesitant to fully embrace the AI revolution.

The Way Forward

Amidst regulatory, security, and operational concerns surrounding the use and implementation of AI in banking, the technology has been generating quite some hype. From enabling banks to offer digital banking services to reducing errors in data, running accurate credit analysis, offering cost savings, and more, the benefits are far more in number than the downsides.

However, navigating the complexities of AI adoption requires not just awareness of its potential, but also a deep understanding of the challenges and practical solutions. Industry summits like the Advanced Banking Technology Summit can play a crucial role in this process. These events bring together leading experts, innovators, and practitioners in the field of AI and finance. Through keynote speeches, panel discussions, and interactive workshops, open banking summits like NexGen Banking Summit offer bankers and financial institution managers a valuable platform to gain insights from real-world case studies and explore options for collaboration on the implementation of AI in banking data and related strategies.

By actively participating in such industry events like this Summit on Future of Banking, banks, and financial institutions can bridge the knowledge gap and approach AI adoption with a sense of strategic clarity. This will not only help them overcome the related challenges but also harness the immense potential of AI to transform the financial landscape for the future.