The inception of online banking has revolutionized customer access to accounts and transactions through personal computers and smart devices. Subsequently, mobile banking emerged in the 2000s, empowering customers to conduct transactions conveniently on their smartphones. In today’s banking industry, diverse forms of AI, notably machine learning (ML), play a pivotal role in automating tasks such as fraud detection, credit scoring, and customer service through automated responses.
At this juncture, a significant transformation is underway as artificial intelligence (AI) continuously demonstrates its ability to match and even exceed human skills in various domains. Accenture’s recent report titled “A New Era of Generative AI for Everyone” highlights the potential of generative AI to become the ultimate “co-pilot” for augmenting human capabilities, leading to a radical shift in work and business practices.
For banks, the focus now lies not in questioning the profound impact of generative AI on their industry but rather in understanding how it will shape their operations. The crucial aspect is how banks can effectively leverage this tremendous opportunity to create value and thrive in this new landscape. In this blog, we explore what generative AI is and how it can impact the banking industry.
Rise of Generative AI in the Banking Industry
Generative AI represents a cutting-edge and novel form of Artificial Intelligence, distinguished by its capacity to learn from extensive datasets and independently generate responses. By analyzing large volumes of existing data, it can identify patterns and trends, enabling it to make informed decisions. In contrast, Robotic Process Automation (RPA) is a software technology focused on automating repetitive tasks like data entry and document processing.
The primary distinction lies in their learning and adaptive capabilities. Generative AI has the ability to process historical data, learn from it to make intelligent decisions, and adjust its approach according to changing conditions. On the other hand, RPA is limited to automating tasks predefined in its programming. As per the Accenture report, 90% of all working hours can be impacted by these large language models like Generative AI.
Top Generative AI Use Cases in Banking
The realm of AI and RPA in banking presents a wide array of applications, revolutionizing tasks that were once cumbersome. These encompass transforming customer service through AI-based Chatbots like ChatGPT, implementing AI for advanced fraud detection, leveraging machine learning to forecast financial trends, and tailoring banking services to suit individual preferences.
As per the research by Accenture, by 2028, the banking industry will see 30% of employee productivity gains across front-office to back-office banking operations. Some of the Generative AI use cases in banking are-
AI plays a vital role in the banking sector, particularly in preventing fraud. With cybercrime costs soaring globally, reaching $6 trillion in 2021 and predicted to hit $10.5 trillion by 2025, data security has become a top priority for banks.
Traditionally, many banks maintain large fraud detection departments, which can be expensive to operate and may not always be fully effective. However, Generative AI can track transaction details such as location, device, and operating system, flagging any unusual or atypical behavior that deviates from regular patterns. This automation reduces the need for manual scrutiny of transactions, which is time-consuming and prone to errors.
Moreover, Generative AI can continuously analyze synthetic data, updating its detection algorithms to stay ahead of evolving fraud schemes. This proactive approach enables banks to anticipate and thwart fraudulent activities before they occur. Additionally, Generative AI can be used to impose additional verification measures for user account access. For instance, an AI chatbot can prompt users to answer security questions or undergo multi-factor authentication (MFA) to further bolster security.
For banks, having a robust risk management plan is crucial to maintain an optimal level of risk exposure, identify potential risk areas, and implement measures to safeguard profitability. Inadequate handling of liquidity, credit, operational, and other risks can lead to significant losses.
Apart from employing specific software systems to mitigate risks, the integration of generative AI offers a potential solution to minimize losses arising from insufficient risk management practices. By leveraging historical data, Generative AI has the capacity to detect and recognize potential financial risks, offering early alerts on fraud that allow banks to adapt and avert or minimize potential losses.
Generative AI offers banking agents a powerful tool to evaluate creditworthiness through the analysis of customer credit scores and financial history. Moreover, it can assess the risk associated with loan applications by scrutinizing data from multiple sources, including credit reports, income statements, tax returns, and other financial data.
The Generative AI can also examine borrower behavior, bank statements, and account activity to identify any shifts in financial circumstances that may indicate potential default or delinquency risks.
Furthermore, for retail and small ticket-size loans, Generative AI enables real-time loan decisions, streamlining the process and reducing the time and costs typically associated with traditional methods.
Training AI on historical financial data offers two significant advantages to banks: financial forecasting and synthetic data generation.
Generative AI can discern patterns and correlations within the data, facilitating simulations based on hypothetical scenarios. This capability allows banks to assess a spectrum of potential outcomes and make informed plans accordingly.
In essence, Generative AI also utilizes the knowledge from the past to empower banks in making well-informed financial decisions for the future while also producing synthetic data for comprehensive analyses.
The utilization of synthetic data presents a promising solution to address the challenges posed by data privacy in the banking industry. When customer data cannot be shared due to privacy concerns and data protection regulations, synthetic data can serve as a viable alternative for creating shareable datasets. Moreover, synthetic customer data proves to be highly valuable in training machine learning models to aid banks in determining a customer’s eligibility for credit or mortgage loans and assessing the appropriate loan amount.
Generative AI offers valuable support to loan underwriters in their decision-making process. By analyzing customer data, the technology can provide personalized risk assessments and tailored recommendations. Notably, generative AI can automate specific sections of credit memos, such as the executive summary, business description, and sector analysis, streamlining the underwriting process.
Marketing & Lead Generation
For banks, investing in targeted marketing is essential to stand out in a competitive landscape and attract new customers. However, this process often involves extensive customer analysis and creative efforts, which can be both costly and time-consuming.
Fortunately, Artificial Intelligence comes to the rescue by expediting marketing endeavors. It achieves this by analyzing customer preferences and online behavior, segmenting leads into distinct groups, and allowing for the creation of tailored marketing campaigns for each segment.
Generative AI plays a significant role in this process, aiding in the development of targeted marketing materials and tracking conversion rates and customer satisfaction. By conducting A/B tests to gauge the effectiveness of various strategies, banks can continually refine their marketing approaches, ultimately leading to improved marketing ROI over time.
As technology advances, the future holds the promise of witnessing even more sophisticated applications of Generative AI in the banking sector. As a result, customers can expect an enhanced banking experience characterized by efficiency, security, and personalization, fostering greater trust in the industry.
Generative AI plays a pivotal role in minimizing the risk of errors by detecting inconsistencies and enhancing the overall quality of financial practices and work associated with banks. Professionals in the banking industry benefit from valuable insights into complex financial matters, as Generative AI can identify patterns and trends within banking data.
Moreover, Generative AI contributes to improved client services by facilitating quick and precise legal research, enabling banks to provide more accurate and efficient assistance to their clients.