From customer service to fraud detection and financial planning, artificial intelligence (AI) is changing the financial sector. Banks have been progressively implementing AI into their operations and processes in recent years in an attempt to provide more personalized, fast, and secure services. But what use cases do we see for AI in banking, and how does its implementation differ from that in fintech?
While artificial intelligence in fintech refers especially to the use of AI tools and algorithms by banks to improve operations, reduce risks, and enhance the overall customer experience, artificial intelligence in banking usually refers to a wide spectrum of financial technology applications. From data-driven decisions to automation, AI is increasingly implemented in bank operations. Here we will look at the role of artificial intelligence in banking and how its application is the evolution of the broader banking sector, also contributing to AI in business.
How Is AI Used in Banking?
From operational efficiency to customer support automation, artificial intelligence is affecting all aspects of banking. There are several major use cases for AI in banking and they disrupt operations across multiple verticals:
- Automating Repetitive work: When it comes to AI and banking, artificial intelligence shines at managing repetitious work, freeing banks to make better use of people’s time. AI has been applied by some banks to automate tasks including loan applications, consumer verification, and transaction processing.
The OCBC Bank in Singapore uses degenerative AI in its Know Your Customer (KYC) system to automate customer verification. KYC processes are usually labor-intensive and involve manual checks of user documentation and data. OCBC shortened the time needed to finish KYC procedures by 90% using artificial intelligence, sped up customer onboarding, and lowered compliance risks connected with human mistake.
- Improved risk assessment and product suggestions: One of the uses of AI in banking and finance is to support data-driven decisions and insights to help operatives in processing vast amounts of data.
Capital One analyzes data using machine learning techniques to ascertain the creditworthiness of candidates. Including artificial intelligence in their credit decision-making process helps the bank go beyond examining conventional credit scores for more complete risk analysis. Capital One’s AI-driven credit algorithm has enabled the bank to provide loans to more people responsibly, increase customer retention, and control risk.
- AI chatbots and virtual assistants offer 24/7 help: Providing fast and efficient resolution of client problems is critical for user retention. AI is crucial in achieving better, more tailored customer experiences.
Bank of America launched Erica - a virtual assistant driven by artificial intelligence that assists consumers in tracking expenditure, account management, and answering banking concerns. Within Bank of America's native mobile app, Erica helps with a variety of chores—from bill payment to budgeting advice. Bank of America has been able to offer 24/7 service using Erica, enabling over 10 million consumers to conveniently handle their money. Erica's effectiveness has dropped call volumes, freeing human agents to concentrate on more difficult tasks.
- Advanced Fraud Detection: For banks, fraud detection and prevention are vital since fraudulent conduct erodes their financial security, customer sentiment and brand reputation. A major role of artificial intelligence in banking is to protect consumer money by flagging unusual transaction trends and alerting the bank of possible fraud.
Citi put in place an artificial intelligence-powered Anti-Money Laundering (AML) system designed to spot unusual trends in transaction data. This system alerts for possible money laundering activities and analyzes enormous amounts of transactions for more insights. In addition to improving compliance accuracy, Citi's AI solution has helped lower false positives and simplify AML compliance procedures.
- Personalizing services and products for better product positioning: AI can be used to identify spending patterns in consumer behavior to help banks tailor their product offerings, improving client loyalty and satisfaction with personalized advice.
Wells Fargo debuted a predictive banking tool using artificial intelligence inside its banking app to examine consumer financial behavior. When the program spots unexpected activity, it informs or advises users based on their spending trends. The technology will, for instance, offer payment plans or move money if it detects that a customer is in danger of overdrafting their account. This proactive strategy improves consumers' financial management skills, therefore enhancing their commitment to Wells Fargo.
- Enhanced investing and wealth management: Robo-advisors find wider applications in improving analytics and advice to help customers meet their financial goals with minimal human intervention.
Charles Schwab unveiled Schwab Intelligent Portfolio, an automated investment consulting service that leverages custom AI solutions to generate customized investment portfolios depending on a person's financial goals, risk tolerance, and timeframe. Schwab's AI-driven portfolio management tool provides affordable investment recommendations, making wealth management more widely accessible. The popularity of their new product is a testament to how much AI-driven financial services can help to democratize wealth management. This is a clear example of how AI product development is enabling innovative solutions within the financial sector.
- AI-based credit scoring and underwriting algorithms: AI in banking helps with the analysis of a larger spectrum of data points, including non-traditional indicators, therefore enabling more accurate loan decisions.
HSBC uses artificial intelligence to simplify loan approval procedures with fast and precise analysis of consumer data. By evaluating candidates against both conventional and additional criteria, AI models speed the loan approval process and minimize manual work. Faster and more accurate loan approvals made possible by this technology have helped HSBC to increase customer satisfaction by drawing more borrowers.
From increasing customer satisfaction to cost savings and improving security and pattern recognition, the success examples above are just a few examples of uses of AI in banking and finance. We are certain to see the wider implementation of AI as we transition to a fully digital economy where the banking sector will need to remain competitive as the financial environment becomes more interconnected, decentralized, and global.
Benefits of AI in Banking
Adoption of AI in banking and finance brings various benefits that improve operational efficiency as well as the client experience:
Better Customer Support
Virtual assistants and artificial intelligence-powered chatbots are transforming consumer service. These digital assistants answer simple questions including account balance checks, contact information updates, or problem debugging. AI in banking and finance lowers wait times and guarantees consistent service by attending to basic demands, therefore freeing human agents to concentrate on more challenging customer needs. Faster reaction times help clients, and banks raise satisfaction and loyalty by means of this.
Increased Operational Efficiency
By helping banks automate time-consuming and repetitious activities, artificial intelligence lowers human error and increases output. Now automated tasks such as data entry, transaction validation, and compliance checks free staff members to focus on important projects. Eventually, this operational change results in lower costs and higher output, therefore helping the bank and its clients alike.
Smarter Risk Insights
By analyzing vast amounts of data to evaluate creditworthiness, identify early indicators of financial difficulty, and support regulatory compliance, artificial intelligence is increasingly helping to improve risk management. Faster than humans, artificial intelligence systems can discover possible hazards and guide decision-making processes from intricate data patterns. These predictive features enable banks to better control their credit portfolios, hence reducing lending-related risks.
Safeguarding Against Fraud
Fraud prevention is one of AI’s most significant contributions to banking. By analyzing transaction histories and user behavior, AI-driven systems can detect unusual patterns, flagging potentially fraudulent activities. Machine learning algorithms become more effective over time as they analyze more data, resulting in more accurate and timely fraud detection. This proactive approach helps protect both the bank and its customers from financial losses and security breaches.
Challenges of Implementing AI in Banking
AI is still a relatively new technology and its application in banking presents difficulties that need to be navigated carefully:
- High Implementation Costs: Especially for smaller institutions, using artificial intelligence technology calls for a significant financial outlay. The need for reliable infrastructure, frequent upgrades, and skilled personnel to operate AI systems can quickly add up to costs.
- Data Privacy and Security Concerns: Given the sensitivity of financial and user data, artificial intelligence programs have to be thoroughly safeguarded from malicious attacks. To safeguard consumer data, banks must satisfy legal requirements, which can make integration of artificial intelligence challenging. Maintaining client confidence depends on upholding data privacy and following laws like GDPR, which can be difficult but necessary.
- Ethical and Bias Considerations: When it comes to loan approvals and risk analyses, AI choices have to be open and equitable. Training AI algorithms to be free of bias is necessary to avoid discriminating results. To guarantee ethical requirements are satisfied and so promote justice and openness, banks have to closely monitor their AI systems.
The Future of AI and Banking
Though its influence on banking is still in its early years, artificial intelligence has limitless ability to transform the sector. The incorporation of artificial intelligence into banking is projected to get much more noticeable as it develops. Forecasts show that AI-driven technologies including financial advisers, predictive analytics, and decision engines will become mainstream offerings, therefore moving banks closer to really customized, data-driven services that increase operational efficiency and client experience.
Standard in the banking sector, AI-driven financial advisers are expected to give consumers tailored suggestions based on spending patterns, financial goals, and past data. Often seen through robo-advisors, this type of service—which is already popular in wealth management—will eventually find traction in all branches of banking. By analyzing real-time financial data and offering customized insights, these AI-driven advisers will enable clients to make wiser lending, savings, and investment decisions.
One very important area where artificial intelligence will be transformational is regulatory compliance. Strong rules apply to banks, which call for ongoing observation and documentation. Many of this compliance process can be automated by artificial intelligence systems, therefore relieving compliance teams of most of their work and lowering human error. By helping banks spot possible compliance problems before they arise, artificial intelligence's predictive powers also enable proactive risk management.
AI and banking will be closely intertwined in the future with almost every facet of banking activities including some kind of predictive analytics or machine learning. With banking and finance among the sectors most invested in, the International Data Corporation (IDC) projects global AI expenditure of $500 billion by 2024. Even as AI changes and automates employment in banking and finance, the World Economic Forum projects that by 2025 artificial intelligence would create a net gain of 97 million new jobs.
