The banking and finance sector has seen significant evolution over time as the industry continues to adapt to the changing world, with the role of technology in banks constantly growing.
The most revolutionary and transforming aspect of this technology was brought about by the introduction of artificial intelligence (AI), with AI now on its path to becoming the focal system in the finance world.
According to IBM, one of the world’s leading technological corporations, AI leverages computers and machines to mimic the problem-solving and decision-making capabilities of the human mind. AI programming relies on three fundamental skills: learning, reasoning & self-correction.
Nearly 40-50% of banking and financial service providers are currently using AI in their processes, and the use of artificial intelligence can help make banks trustworthy, more efficient and understanding, while also strengthening the competitive edge of modern banks during this digital era, by minimising operational costs and also improving customer service through automation. According to research conducted by Forbes, regarding the reasons for businesses investing in AI, 84% of enterprises worldwide believe that adopting Artificial Intelligence will allow them to obtain a competitive advantage in the market.
AI-based chatbot services are one of the main applications of artificial intelligence in the financial industry and help modernise how a firm provides customer service. These chatbots can provide a personalised experience for customers, and offer accurate responses to any queries, while being available 24/7. Consequently, the implementation of AI optimises service quality, helping create a brand mark in the market. Implementation of machine learning algorithms can also enable companies to monitor user behaviour and identify search patterns to acquire valuable insights in order to deliver an individualised service to their customers. As a result, 70% of commercial banks are looking to venture into mobile banking apps, with integrated ML (machine learning) algorithms to take advantage of the golden opportunities that arise from automation.
On top of that, AI can make data collection and analysis seamless and extremely efficient, through its ability to process huge sets of data, sets so substantial that for a human mind to analyse would be inconceivable. The data can provide insights for banks, to help them predict the future of their business and market trends with greater ease and accuracy, enabling them to make more effective business decisions.
Data analysis through AI can also turn out to be incredibly beneficial for central banks. For decades, policymakers have relied on data released by official statistical institutions to evaluate the economy. This data collection requires substantial effort and time and can create a lag of a few months or even years. However, the leap in technology and software used to analyse the data (Artificial Intelligence) has increased the amount of readily available data. Therefore, the Bank of England can take advantage of AI’s ability to analyse and collect huge sets of data without human error, to create more accurate market forecasts and baseline projections, influencing the level of monetary policy set, especially applicable during today’s deep inflationary crisis.
Risk management in commercial banks can also be impacted by developments in AI through the loan system. Banks can utilise AI bots to perform risk analyses, by using machine learning, combined with complex pattern matching to analyse borrowers and assess their payback abilities, to determine whether a loan should be granted or not. This helps remove the risk-taking aspect of commercial lending, taking the decision out of human hands. The prospect of money laundering and fraud has also plummeted since the greater implementation of artificial intelligence. AI is now capable of analysing an endless number of transactions to detect potential fraud patterns, to make the banking sector more productive.
Although it is evident there are numerous benefits that AI brings about in the banking industry, some problems and challenges also arise with the use of such technology.
A challenge that banks may face with greater use of AI is the bias problem. AI bias simply occurs because human beings choose the data that AI algorithms use and then process, and also decide how those algorithms will be applied. Therefore, without the use of several diverse teams and extensive testing, unconscious bias can easily enter machine learning models, and there is bound to be a decline in the accuracy of the technology. Banks can significantly be impacted by the likelihood of inaccurate risk analyses or future market trends, leading to the risk of an incorrect decision being made. Furthermore, with the vast amount of data that AI processing makes use of, some of it can be sensitive information. Therefore, violation of privacy is incredibly common in AI models.
However, Artificial Intelligence still seems to be developing every day, but there's no doubt that it is shaping the future of the world we live in and will continue to act as an innovator for the foreseeable time ahead.
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