The banking sector can benefit heavily from new technologies such as generative artificial intelligence. Institutions that take advantage of these opportunities are likely to gain a competitive edge.
Since the launch of ChatGPT nearly a year ago, interest in artificial intelligence (AI) has surged. Not just generative AI but AI and machine learning (ML) in general have an ever-increasing impact on all industries. In the financial services sector, they have the potential to significantly improve employee productivity, operational efficiency, and customer experience.
In the banking sector, where technology is increasingly critical in addressing numerous financial, regulatory, and competitive challenges, generative AI (GenAI) can improve entire processes.
Heavy Regulation Weighs
However, banking is one of the most heavily regulated industries. The extent of regulatory scrutiny is also one of the reasons why the adoption of GenAI in the banking sector has been far slower than expected, as the US rating agency Moody's notes in its study «The Era of GenAI-Powered Banking.»
Yet the banking sector, in particular, can benefit significantly from GenAI, given its complexity, heavy reliance on data, and the presence of text in many banking processes, such as regulation and reporting. AI and ML are already used in marketing, fraud detection, and credit scoring. The study authors write that GenAI is more of an evolution than a revolution for quite a few banks. Given its transformative potential to increase productivity, deploying this technology is not a matter of if but when and how.
Varying Adoption Levels
The banking sector expects GenAI to transform entire organizations, as there are opportunities to use the technology in various work processes. Desired outcomes of using AI technologies include increased revenue from personalized customer interactions, fewer errors, increased efficiency, better use of resources, and more significant creative potential to explore new opportunities and data-driven decision-making.
However, the level of adoption of GenAI is not uniform and depends on several factors, including the use case, function, and level of digitization within a banking institution. Neo and digital banks, for example, often find it easier to adopt this technology than established commercial banks.
Crucial Competitive Advantage
Customer service centers and processes with a high proportion of repetitive and standardized tasks, such as processing loan applications or legal forms, are also considered suitable areas for the use of generative AI.
According to Moody's, the main differentiator for the level of adoption is an institution's strategy and maturity level concerning digital transformation. Some banks have quickly adopted and experimented with the technology to gain a competitive advantage. Institutions that lag in integrating GenAI technologies into their core strategy could be overtaken by companies that take an AI-first approach, the study said.
