Summary. As AI technology continues to evolve, it is to have an increasingly profound impact on the banking and Fintech industries. Banks and other financial service providers that are able to leverage AI technology effectively will be well-positioned to gain a competitive advantage in the marketplace. On the other hand, those that need to catch up with the rapid changes in technology are surely to fall behind.
Artificial intelligence (AI) is poised to revolutionize the banking and financial technology (Fintech) industries. With all the constant advancements in AI, the technology is to have a profound impact on the way that banks and other financial service providers (FSPs) operate.
According to a survey from The Economist Intelligence Unit, 77% of bankers believe that the ability to unlock the value of AI will be the difference between the success or failure of banks (Forbes).
In this article, we will explore some of the key ways in which AI is expected to significantly impact the banking and Fintech industries - sooner or later.
Automation
By 2025, 30% of outbound marketing messages from large organizations will be synthetically generated, up from less than 2% in 2022, Gartner states.
Moreover, AI is extensively advancing through the automation of tasks currently performed by humans, including customer service, fraud detection, and compliance monitoring, to name a few. This adoption of automation allows different teams to focus on more complex issues, leading to improved attention to consumer needs and stronger relationships.
Evolution:
Embracing AI technology helps you reduce costs, improves efficiency, and enhances your customer experience. The benefits of AI in financial services also extend to the ability to increase ROI, across customer service, lending, recruiting, and internal auditing.
Benefits to consider:
- Robotic process automation with AI: By automating repetitive processes, people in the FSP industry can engage in more meaningful work, while eliminating the risk of human factor mistakes. Robotic Process Automation (RPA) is a software algorithm that replaces keystrokes or data entry, extracting information from invoices or applications, making tasks independent of human involvement. As Automation-as-a-service (AaaS) is gaining popularity, a recent survey reveals untapped opportunities in the areas of process monitoring and process mining too. “Already 64% of respondents use some form of AaaS, most often for end-to-end development, followed by management and maintenance of automations, then development of automations. This remains an area of unexploited potential for the 36% who reported they are not using AaaS.” (Deloitte).
Advanced Analytics
Another key way in which AI will impact your industry is through the development of more advanced analytics and decision-making tools. AI-powered analytics and decision-making tools help banks and other financial service providers to gain a deeper understanding of customer behavior, identify new opportunities for growth, and make more informed decisions.
Evolution:
Thus, banks and other financial service providers will better target their products and services to the needs of the customers, and manage risk more effectively .
Benefits to consider:
- Credit scoring and loan prediction: Fintechs and banks improve decision-making related to lending loans to customers by utilizing artificial intelligence to identify patterns in historical data. Machine learning algorithms are employed to create client profiles based on their risk score, making credit scoring one of the most significant AI advancements.
Customer Service
One of the most promising areas for the application of AI in banking and Fintech is the field of customer service. AI-powered chatbots and virtual assistants with generative AI handle a wide range of customer service tasks, such as answering frequently asked questions, providing account information, and even helping customers complete transactions.
Evolution:
By using these tools, banks, and other financial service providers improve the customer experience by delivering fast and accurate services, while also reducing costs by automating repetitive tasks and eliminating human errors.
Benefits to consider:
- Sentiment analysis: AI-driven sentiment analysis is being utilized to enhance customer service to address gaps in the client experience. With self-learning capabilities, AI systems discern patterns from voice and speech characteristics and forecast a customer's mood, providing valuable insights to guide agents toward appropriate solutions.
- Personalized banking services: Personalization increases client trust and brand loyalty. Banking apps utilize AI to collect and evaluate customer data, offering customized financial advice and pre-approved items. This leads to improved communication and higher levels of consumer satisfaction, boosting profitability.
Fraud Detection
Another area where AI makes a significant impact in banking and Fintech is in the field of fraud detection. AI-powered fraud detection systems analyze large amounts of data from multiple sources, such as customer transactions and account activity, to identify patterns of suspicious behavior.
Evolution:
AI has the potential to revolutionize fraud detection by leveraging machine learning algorithms to analyze vast amounts of data in real time and identify fraudulent patterns and anomalies that humans miss. AI-powered fraud detection systems also adapt and improve over time as they learn from past incidents, making them more effective and efficient at identifying and preventing fraud.
Benefits to consider:
- Real-time automated fraud detection: AI enables the automation of certain tasks and streamlines fraud detection processes, reducing the time and resources needed to detect and investigate fraudulent activity. Artificial intelligence helps Fintechs and banks respond more quickly and accurately to potentially fraudulent activities. Often, superior AI systems detect suspicious activity even before it leads to a scam.
- AI authentication: Authentication using face recognition, voice recognition, and fingerprints increases financial security. As a result of this extra security, hackers are more difficult to exploit compared to standard passwords. Although usernames and passwords are still improving, AI-powered security solutions may eventually replace all of them in the future by providing AI-powered algorithms that can analyze and match unique biometric markers.
Compliance and Regulatory Requirements
AI is increasingly being used to enhance compliance and regulatory adherence in the banking industry, enabling automation of monitoring and reporting to ensure compliance with rules and regulations.
Evolution:
While traditional compliance processes require significant time and resources, AI streamlines the process and reduces the burden on internal compliance teams, allowing more efficient and cost-effective compliance management.
The use of AI software accelerates the skills of compliance officers and allows them to scale their operations.
Benefits to consider:
- Automating compliance monitoring and reporting: AI-powered systems automate the monitoring and reporting of compliance activities, allowing financial institutions to identify and address compliance issues in real-time.
- Improving KYC processes: AI helps banks to streamline KYC processes by automating customer identity verification and due diligence checks.
- Enhancing risk management: AI-powered systems help banks to identify and mitigate risk by analyzing data and providing real-time insights into potential risk factors.
New Business Models and Services
In addition to these specific application areas, AI also has a broader impact on the banking and Fintech industries by enabling new business models and services. For example, AI-powered robo-advisors provide personalized financial advice to customers at a fraction of the cost of human advisors. Similarly, AI-powered lending platforms provide instant loan approvals and personalized loan offers based on an individual's financial situation.
Evolution:
AI is already boosting entrepreneurship immensely. It is quite tempting for financial service providers to create new models and with the advancement of AI, the change in that direction is inevitable.
Another huge step towards engagement and high personalization of financial services is the developing integration between AI and AR/VR.
Additionally, with ChatGPT, LLM technologies and generative AI leading the way in driving innovation in the banking industry, we are soon to see unimaginable opportunities and changes in the sector.
Benefits to consider:
- Moonshot and expansion: The crucial role of AI in the banking and Fintech industry lies in providing advanced computational and analytical capabilities to identify, evaluate, and pursue ambitious goals and new opportunities. AI also helps leverage data and insights to optimize decision-making and maximize the chances of success in achieving these goals.
- Behavior-based investment predictions: AI is revolutionizing the financial industry by automatically recognizing, analyzing, and modifying complex data patterns, resulting in accurate and insightful forecasts about investments, exchange rates, and market trends. Additionally, AI's ability to evaluate unstructured data is particularly beneficial to Fintechs and banks, as it enables the prediction of suitable products and optimization of marketing strategies based on real-time customer behavior analysis.
To Wrap it Up
AI already immensely impacts the banking and Fintech industries and has the potential to further revolutionize them. By automating many tasks that are currently performed by humans, developing more advanced analytics and decision-making tools, improving customer service, detecting fraud more effectively, and enhancing compliance and regulatory requirements, AI helps banks and other financial service providers reduce costs, improve efficiency, and better serve the needs of their customers.
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Sources:
1. Emerj. Discovering Automation and AI Opportunities in Financial Services. Available at: https://banking.emerj.ai/
2. Gartner. Beyond ChatGPT: The Future of Generative AI for Enterprises. Available at: https://www.gartner.com/en
4. Deloitte. Artificial intelligence in banks. Available at: https://www2.deloitte.com/
5. Forbes. The Future of AI in Banking. Available at: https://www.forbes.com/
