The banking and financial services industry has long been interested in the potential value of artificial intelligence. Indeed, AI technology has been used as a means of pursuing efficiency gains and cost reductions in the sector for some years already.
What’s changed more recently is that AI has suddenly become much more sophisticated in terms of its potential use cases, across a wide range of industries. For financial service firms specifically, the potential upsides in deploying AI are becoming more obvious, with efficiency gains still very much on the agenda, but product innovation and new business models also now an increasingly central part of the picture.
Reimagining what’s possible
Looking ahead, it’s clear that the banking sector landscape will continue to be transformed by AI, with 91 per cent of financial services companies either already using the technology or assessing its potential utility. That’s according to the tech giant Nvidia, whose recent research suggests that some 97 per cent of finance companies globally plan to increase their AI investment levels in the near future.
“It is becoming evident just how much of an impact AI is likely to have on industries and economies worldwide,”
says Denys Boiko, an entrepreneur and investor with a wide-ranging finance and banking background and founder of the Erglis investment company.
“Goldman Sachs has even suggested that generative AI could eventually increase global GDP by as much as 7 per cent per year. With hundreds of billions of dollars now being poured into developing the technology, financial service companies will expect to be at the forefront of these evolutions and there’s good reason to believe that they will be.”
Generative AI is the biggest gamechanger and that’s where much of the emphasis currently rests for financial service firms in terms of investment levels and innovation. The use of chatbots in support of customer experiences is becoming ever more commonplace and the ways in which people engage with their banking services are being consistently reimagined and upgraded.
The potential benefits of those advancements are not lost on finance companies themselves, with Juniper Research estimating that yearly investments in ‘GenAI’ by banks will be worth around $6 billion in 2024 but closer to $85 billion by 2030.
The incentives for making such investments are now clear enough, with the McKinsey Global Institute (MGI) predicting that generative AI could soon add between $200 billion and $340 billion annually across the global banking sector, which equates to between 2.8 and 4.7 per cent of total industry revenues. According to MGI, much of that value is expected to be added through increased productivity as banks become able to “supercharge customer facing chatbots,” while also preventing fraud more consistently and speeding up an array of currently more time-consuming processes from report creation to code writing.
Treading carefully
While the upsides by now are self-evident, there are challenges still to overcome for operators looking to benefit as AI continues to reshape the banking sector. AI is helping to dramatically streamline and prevent fraud within digital payment processes, for example, but there is also growing scrutiny from regulators worldwide on the ways in which data is being used in these contexts.
Notably, Nvidia’s recent research shows that while previously the biggest challenge to AI’s progress was perceived to be finding enough experts in the field to maximise opportunities, by 2024 the biggest challenges are cited as relating more to issues of data protection and security.
Denys Boiko’s perspective
Denys Boiko is convinced of the enormous potential that AI has to continue changing the banking sector for the better.
“The impact of AI on the financial services sector has already been very significant and we will increasingly see those impacts as consumers and end users of banking services. For businesses, there will be challenges to address around data protections and finding employees with the right skill sets but that’s all part of what makes AI perhaps the most exciting field in fintech right now.”
On the likelihood of increased regulatory scrutiny of the banking sector as AI use advances, Denys Boiko is unperturbed.
“It makes perfect sense that the use of AI in financial services will be monitored extremely closely by regulators globally because the industry is always going to be one of the most keenly observed and that isn’t going to change, and nor should it. But that won’t slow down the pace of change, I don’t believe, because the benefits that we all stand to gain are so tangible already and so enticing as we look ahead to the future.”
Featured image credit: pexels
