The benefits of AI are quickly changing the banking sector
The highly competitive banking sector is seeing some of the most transformative effects of AI, with mostly larger banks such as Wells Fargo, JP Morgan, Bank of America, Citibank putting it to work across key areas of their business operations. Adoption of AI is within the business interest of these banks, as it has the potential to bring huge value. According to McKinsey, AI technology could delivery up to US$1 Trillion of additional value each year.
The Benefits of AI in Banking
Analysts predict that if AI is properly deployed, it has the potential to reduce banks’ costs by 25% and increase revenues by 30% within 5 to 7 years. AI fits extremely naturally with banking as it thrives on data. And as banks deal with enormous amounts of data, these technologies can transform all aspects of how banks work, from how they operate on the backend, to how they interact internally and externally.
This is the biggest benefit of AI in the banking sector – its ability to not only organise the large amounts of data amassed within banking, but to make sense of it, turning it into valuable insights for the company.
More sophisticated fraud detection abilities are another major benefit that AI is bringing to the banking sector, as fraud attempts themselves get more advanced. This is a particularly important issue for banks, as it is predicted that worldwide losses due to fraud will reach USD 44 billion by 2025, and 72% of business leaders cited fraud as a growing concern, according to research done by IBM.
So, what are some other main concerns is AI addressing, and what AI-driven applications are being used to tackle them? Here are 3 ways AI is showing global traction in the banking industry:
Alongside new technology comes new ways of communicating, and these days it’s common to stumble across a voice or chatbot that delivers a surprisingly personalized customer service. And with the growing availability of choice when it comes to financial institutions, it’s more and more critical for banks to deliver excellent customer service on-demand to build loyalty.
Chatbots, interactive voice response (IVR) and virtual assistants are popular AI-enabled tools. And as the capabilities of AI such as natural language processing and speech recognition increase, banks will continue to adopt these solutions. Banks are not only employing these solutions to minimize costs, by up to 30%, but also to reduce end-to-end communication time with clients. For routine inquiries, bots are shown to improve response times by 99%, reducing time-to-resolution from hours to just a few minutes. The end result? A happier customer, faster.
Royal Bank of Canada’s (RBC) NOMI is a great example of an AI-driven virtual assistant that is improving overall customer experience. The assistant responds to customers’ requests and queries and also provides other support features, such as: informing about available funds, alerting to anomalies or unusual activity and providing personalized insights and advice on financial management. Results from NOMI show not only increased usage of the banks’ mobile app and opening of savings accounts by 20%; but also a wealth of invaluable insights into their customer base.
While not all banks are introducing virtual assistants to help with the multitude of customer demands, chatbots are a common and more simplified option, helping with everyday requests and decreasing response time. Other banks who have similarly implemented virtual assistants and chatbots include Bank of America, with Erica, and Wells Fargo has been piloting an AI-driven chatbot through Facebook messenger, both delivering a highly personalized customer service.
A key solution provided by AI-powered tools is process optimization. And a valuable use case in banking is using AI to enhance robotic process automation (RPA), the process in which software mimics human actions rather than AI which simulates human intelligence. When these two technologies are implemented together, the result is powerful: AI enables RPA to perform more complex automation such as interpreting, decision-making, and analyzing across various processes. The big benefit? It gives back time, reducing employees’ hours spent on mundane and repetitive tasks, and allows for more focus on high-value projects.
Banking is among one of the biggest adopters of these initiatives and there are several applications being used to transform departments. A great example of a company using AI to optimize processes is American bank, JP Morgan. Their internal IT team use bots to respond to requests such as changing an employee’s password. With over 1.7 million minor requests year on year, these bots are highly valued especially for one of the largest banks in the US.
JP Morgan has also launched a program called COiN (short for Contract Intelligence). The system reduces the time to review documents and has also proven to limit human error that occurs in loan servicing. Prior to the implementation of COiN, JP Morgan would review 12,000 commercial credit agreements taking nearly 360,000 hours. When dealing with large amounts of documents, mistakes could often arise; but now, thanks to their machine learning system, this task can be completed with a higher performance rate and in a matter of seconds.
AI has shown tremendous potential to increase process optimization. Banks are already seeing successful outcomes, moving their employees’ time from small insignificant tasks to more valuable opportunities, essentially bringing more critical thinking into banking businesses. Not to mention, a more engaged and motivated workforce.
Compliance and Risk Management
Keeping up with the challenging environment of banking compliance and risk management is not only time consuming but also costly. And with the average bank spending $120 million annually on compliance and customer onboarding procedures, as well as tackling the increased frequency and complexity of cyber-attacks, there is enormous potential for AI technologies to support this area.
Banks need to respond to large amounts of unstructured data that emerge from difficult regulatory demands. AI has proven particularly effective in dealing with this data in daily tasks such as automating legal, compliance and risk documentation, as well as analyzing data sets that train machine learning algorithms to track credit card fraud or money laundering. A lot of these tasks involve excessive manual work; by moving them to an AI-powered system instead, banks can free up employees to deal with more complex decisions.
Global financial group, Citibank, partnered with data science company, Feedzai, leaders in the market for real-time risk management in banking, to implement a transaction monitoring platform. Powered by machine learning technology, the system adjusts automatically to monitor discrepancies and changes in payment behaviors, thus enabling banks to manage risk and keep their customers safe from fraudsters.
Compliance and risk management has always been an important focus area for banking, and thanks to AI, there have been game changing developments. As AI continues to make considerable inroads in these areas, banks will be able to focus on more analytics, rather than spending their time avoiding risk or dealing with increased compliance regulations.
How is Artificial Intelligence Changing the Banking Sector?
As you can see from the above examples and use cases, AI is changing the banking sector with its ability to process and interpret large volumes of data. This gives banks the ability to make their customers happier, reduce operational costs and mitigate risks.
Beyond the hype, AI is showing clear development with ample use cases and substantial return. And as banks continue to fight for customer loyalty, having the right technical solutions on the backend will be key to sustaining a competitive advantage. With AI use cases starting to appear from leading banks, others soon will follow suit. Over the next few years, we can expect to see further widespread adoption of AI in banking, and from not just the bigger players.
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