Artificial intelligence can usher in new efficiencies, unlock significant value, and enable a new wave of creative goods and services in every sector. Banking is no different.
How big of a deal does AI represent for the global banking industry? According to McKinsey & Company, it could generate up to $1 trillion in new value per year.
While AI holds enormous promise as a platform for helping financial institutions streamline core business operations, improve customer experience, and making more informed, data-driven decisions, not all banks have established an AI strategy.
Seventy-five percent of banks with more than $100 billion in reserves have established an AI policy, but only 46 percent of banks with less than $100 billion in assets have done so. If it’s fine to deploy a customer support chatbot here and a tailored suggestion engine there, AI success would necessitate banks establishing a cohesive plan. What it looks like can vary by organization, but there are a few core factors that banks can keep in mind while they prepare for an AI-driven future.
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Why is it important for banks to become AI-first?
Banks have continuously adapted the latest technological developments to redefine how consumers communicate with them for many decades. In the 1960s, banks launched ATMs, and in the 1970s, they introduced electronic card-based payments. The introduction of 24/7 online banking was widespread in the 2000s, followed by the widespread adoption of mobile-based “banking on the go” in the 2010s.
Few will argue that we have entered the AI-powered modern era, which has been aided by declining data storage and processing costs, increased access and accessibility for everyone, and rapid advancements in AI technology. This system can contribute to increased automation and, when used after risk mitigation, can also outperform human decision-making in terms of speed and accuracy. AI can unlock $1 trillion in exponential value for banks per year, making it one of the most valuable markets.
Commentators often mention AI as a challenge to employment while discussing the future of work.
However, those who have worked in the banking industry for a long time will recall that the ATM was meant to eliminate most bank teller jobs – but, more than half a century since the first ATM was launched in the United States, the nation has more bank teller jobs than it did then. Rather than replacing the function, the ATM enhanced it, as bank tellers started to concentrate on customer relationship management rather than the more routine activities that ATMs handled.
As banks consider AI and how it can affect their workforces, this experience is instructive. ATMs helped banks save money on labor by decreasing the number of tellers used at each branch, but this also reduced the expense of running a branch, resulting in an overall rise in the number of branches and tellers. Similarly, AI enables banks to delegate simple customer care roles to chatbots and voice assistants, leaving more complicated tasks and demands to human practitioners. This enables banks to offer 24-hour customer support without having to pay for 24-hour employees.
Furthermore, AI reduces the protection and data risks involved with human error, and system management can be delegated to third-party AI platform vendors, obviating the need for expensive new IT hires.
Meanwhile, anti-fraud and risk control professionals will also use AI to expedite audits and Know-Your-Customer (KYC) processes, thanks to algorithms that effectively flag possible red flags. This will make for more effective use of experts’ time and money, as they will be able to concentrate on the most difficult and critical cases.
Banks can also simplify much of their loan underwriting and contract-writing processes with strong consumer records, reducing the workload of back-end workers. According to a Business Insider Intelligence prediction, AI is on track to save banks $447 billion in expenses by 2023 as it streamlines operations and processes across organizations.
Of course, the fact that smaller banks have been slower to implement AI strategies means that cost considerations have been a hurdle rather than a stimulus to AI innovation for some institutions. AI is becoming more available and flexible for companies of all sizes, thanks to the emergence of no-code solutions that enable even non-specialists to create personalized AI applications.
Data is the fuel that drives AI, which is the source of transformative new technologies. Banks will have appropriate, customized deals, reviews, and advice based on rich data and consumer insights, thus fostering customer relationships and loyalty.
Banks must have a deep digital backbone, underpinned by AI technologies, to seamlessly integrate data-driven offerings and processes. Using legacy infrastructures and systems makes it more difficult to collect, understand, and potentially exploit data effectively.
Data analytics can help banks detect problems and opportunities at both the consumer and corporate levels, offering a strong scientific foundation for analyzing and fine-tuning their activities and customer outreach.
The need to reach consumers where they are is one of the most compelling arguments for banks to accept digitization and AI. Customers want all of their banking needs to be available at their fingertips in today’s digital economy – an intuition that was compounded after the COVID-19 pandemic, as people have become increasingly dependent on digital services in all areas of their lives.
According to a survey conducted by Business Insider, 61 percent of consumers would switch banks if they had a bad mobile banking experience. What steps will banks take to escape this fate? The solution is artificial intelligence (AI), which is critical for delivering personalized, frictionless digital banking journeys – from coupons, alerts, and updates to financial planning advice and security safeguards provided by mobile banking platforms.
Finance for the Future
When artificial intelligence (AI) becomes more prevalent in finance, it will be critical for organizations to uphold the human connection that sustains consumer interactions, encourages creativity, and provides an insightful, real-world awareness of market developments.
AI will revolutionize certain aspects of finance, but it will not change the fact that banking is simply about human relationships. Banks will pave the way to a world that is less artificial, but plenty insightful, with an unwavering dedication to harnessing technologies to deepen such partnerships and diligent attention to detail in plotting their innovation strategy.