Filenews 25 March 2024 - by Dr Savvas Hadjichristofis
The transformation we are talking about is due to the unique capabilities of Artificial Intelligence (AI) in data processing, pattern recognition and predictive analytics.
According to Accenture, in the next three years AI could significantly boost a bank's operating income, potentially doubling or tripling it from current forecasts. This growth is driven by AI's role in increasing customer interaction time, which makes up a large portion of banking revenue, and reducing operating costs in mid- and back-office operations. The overall impact of AI on a bank's operating income is estimated to be increased by 25% to 40%.
Artificial intelligence and banking
According to The Economist, banks are increasingly trusting artificial intelligence (AI) to boost back-office efficiency, innovate their products and develop new business models. A survey shows that 85% of IT executives in the banking sector have a clear artificial intelligence strategy for product and service development. The application of artificial intelligence ranges from automating routine tasks to complex operations such as fraud detection, where it significantly reduces losses and improves customer experience. AI also plays a key role in credit risk assessment, digital marketing and wealth management, leading to personalized services and operational optimization. Let's take a closer look at how AI is evolving the banking sector:
Improving customer experience
AI-based chatbots and virtual assistants in the banking sector significantly improve customer service. Using advanced natural language processing, they can handle a variety of customer interactions, from simple questions to complex transactions. These tools provide personalized advice based on customer data, significantly improving service quality and customer satisfaction.
This shift towards AI-powered customer service not only optimizes efficiency, but also enables banks to scale their services effectively, meeting different customer needs while maintaining high service standards.
Upgrading fraud detection
In the area of banking security, AI's real-time analysis of vast transaction data revolutionizes fraud detection. Banks are increasingly using AI to detect unusual patterns that signal potential fraud.
This proactive approach significantly mitigates risks and protects client assets. By strengthening the detection and prevention of fraudulent activities, AI strengthens trust in banking systems, consolidating its role as a critical tool for maintaining financial security and integrity.
Enhancing operational efficiency
The role of AI in enhancing operational efficiency in the banking sector is transformative. It automates routine and repetitive tasks, leading to significant time savings and reduced errors. This automation frees up human resources to focus on higher-value tasks such as strategic planning and customer engagement. The efficiency gained from AI not only translates into significant cost savings but also boosts overall productivity. As a result, banks can reallocate resources towards more innovative and customer-centric initiatives, leading to further growth and efficiency in the sector.
Data-driven decision-making
The impact of AI on decision-making in the banking sector is substantial, as it significantly enhances the ability to process and analyse large datasets. This capability is crucial in areas such as credit scoring, where AI can more accurately assess a customer's creditworthiness, and risk assessment, where it helps identify potential financial risks. AI also plays a key role in financial forecasting, allowing banks to predict future trends and market movements more accurately.
This data-driven insights enable more accurate, timely and informed decision-making, leading to improved financial outcomes and minimizing risks.
Streamlining regulatory compliance
In the highly regulated banking industry, artificial intelligence is emerging as an essential tool for regulatory compliance. AI systems are capable of handling the extensive and complex data required for compliance reporting. They enhance accuracy and efficiency, thereby significantly reducing manual workload. This capability is crucial for banks to maintain regulatory compliance, minimising the risk of financial penalties and ensuring that industry standards and legal requirements are met.
Democratisation of investment
Artificial Intelligence significantly enhances the efficiency and personalization of investment services. AI-based tools, such as robotic advisors, make professional investment advice more accessible to a wider audience. These sophisticated systems analyze extensive market data and individual investor profiles, providing personalized investment strategies.
This personalized approach ensures that investment recommendations are closely aligned with an individual's financial goals, risk tolerance, and personal circumstances. The democratization of investment advice through artificial intelligence is not only making fund management more efficient but also more inclusive, breaking down traditional barriers to professional financial guidance.
The future of artificial intelligence in banking
The future of AI in banking and finance is highly promising and characterised by continuous developments in AI technologies. These developments are expected to lead to more innovative, safe and customer-centric banking services. The evolving capabilities of AI will have a significant impact on the banking industry, leading it to more efficient and effective financial solutions, thus shaping the future landscape of the banking and financial sector in profound ways. Banks are recommended to form dedicated teams focused on the strategic implementation of AI, combining business acumen and technological expertise to reach its full potential.
Professor of Artificial Intelligence, Neapolis University Pafos, Vice-Rector for Research and Innovation
