ARTIFICIAL INTELLIGENCE IN BANKING

ABSTRACT
All that AI has achieved is to strengthen the relation with customers and
precision as well as effectiveness of managing the banks and the finance. Consequently, this
paper looks at how AI is embraced by the banking and finance industry; credit scoring, fraud
detection, investment management, and customer service. It aims at identifying the potential
benefits and difficulties that are likely to accompany the integration of AI into the financial
sector based on a critical review of the existing body of literature.

INTRODUCTION

Everyone thinks that Artificial Intelligence in banking will have a drastic impact
on the industry in the next five years, especially after ChatGPT’s success, which is an AI chat
bot that uses natural language processing to generate human like responses to questions and
prompts. This is because of a huge gap caused by limited human abilities. If we look further, we
can see the distruptive perspective of AI that will go well beyond banking, completely
transforming digital customer experience even providing superpowers to mankind.

Yes, it hasn’t happened yet, but we should start thinking already today about how
it could affect our businesses tomorrow.

ARTIFICIAL INTELLIGENCE IN BANKING

The banking sector has seen a significant transformation as a result of the use of
AI. Artificial Intelligence has revolutionized traditional banking practices by utilizing its
capacity to handle large amount of data, identify trends, and make wise choice. It has broad
applicatiton in banking that can yield benefits including improving decision making,
productivity, lower costs and improved client satisfaction.1

Chatbots, which are always available and can manage several customer
contacts at once, have made a big difference in the customer experience by guaranteeing timely

1
M. Doumpos, C. Zopounidis, D. Gounopoulos, E. Platanakis, and W. Zhang, “Operational research and
artificial intelligence methods in banking,” Eur. J. Oper. Res., vol. 306, pp. 1-16, 2022.
and personalized support. Higher customer satisfaction and greater customer loyalty are the
outcomes of this change2.

The application of AI in banking has many benefits, but it also presents

difficulties and moral dilemmas. The most important of them is data security and privact, since
AI application use significant volumes of sensitive consumer data. Strong security measures
must be put in place by financial institutions to protect client privacy and stop data breaches. To
maintain fairness and prevent discriminatory results, biases in previous data must also be
addressed. To regulate the ethical application of AI and advance accountability, justice and
transparency, frameworks and rules must be established.3

USE OF AI IN BANKING

AI is demonstrating a huge impact on the banking sector, impacting the working

of organizations at 3fundamental levels:

i. The products and service they sell.

ii. The user experiences they offer to their customers and employees.
iii. The process they adopt.

Globally, banks are already starting to adopt AI at a massive scale. According to UBS
evidence lab report4, 75% of respondents at banks with over USD 100 Billion in assets say they
are currently implementing AI strategies compared to 46% at banks with less than USD 100
Billion in assets. A Microsoft Asia and IDC Asia /Pacific study specific to the Financial Services
Industry (FSI) found that organizations in the Asia-Pacific that deploy AI expect to see 41%
improvement in competitiveness in 3 years5

2
G. Luger, “Artificial Intelligence: Structures and Strategies for Complex Problems Solving,” Fourth Edition,
Addision Wesley, 2002.
3
S. Russell and P. Norvig, “Artificial Intelligence: A Modern Approach,”Second Edition, Prentice-Hall, 2003.
4
https://www.businessinsider.in/finance/news/the-impact-of-artificial-intelligence-in-the-banking-sector-how-ai-
is-being-used-in-2020/articleshow/72860899.cmshttps:/www.businessinsider.in/finance/news/the-impact-of-
artificial-intelligence-in-the-banking-sector-how-ai-is-being-used-in-
2020/articleshow/72860899.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
5
Asia-Pacific’s FSI Organizations with AI Expect 41% Improvement in Competitiveness by 2021,
https://news.microsoft.com/apac/2019/09/24/asia-pacifics-fsi-organisations-with-ai-expect-41-improvement-in-
competitiveness-by-2021/
AI APPLICATIONS IN INDIAN BANKS

State Bank of India (SBI)

India is home to SBI, India’s largest public sector banking institutions which boasts
420 Million combined customers and it initiated it’s AI journey from the perspective of both
employees and customer ID. Chapdex, another successful participant of the first Hackathon, has
created an AI based solution that is being leveraged by SBI. SBI head of innovation Sudan
Baraokar told Emerj.

HDFC BANK

Within HDFC bank, there is “Eva”, an AI based chatbot developed by Senseforth AI

research that helps customers with their problems. Sirmeay continued, “since launching Eva
march 2017 we have been able to successfully address 2.7 million customer queries across more
half a lakh unique users having communicated with her and conducted 1.2 million
conversations”.

ICICI BANK

ICICI Bank, the country’s second largest private sector bank by assets has automated a
staggering 200+ business process spanning operations across various functions of the
organization using software robots. ICICI appears to be pointing towards what many referred to
as “robotics software”, which is essentially a specific type of software that typically deals with
the automation of office works.

AXIS BANK

Axis bank had as recently the launch of access pay, an app based money transfer and
payment application outside of court transactions features along with announcement around first
AI & NLP (Natural Language Processing) enabled app in India called conversational banking to
avail various transactions both financial and non-financial.6

6
https://emerj.com/ai-sector-overviews/ai-applications-in-the-top-4-indian-banks/
REQUIMENTS OF AI ADOPTION IN BANKING

The adoption of AI is an essential point for all companies and banks have not
been different from this topic, at Mckinsey global survey. The study went on to add that 68% of
the respondents with AI deployed in a given function indicated moderate or high value derived
from that use case; just one-fifth (21%) reported having embedded AI across multiple business
units/ functions. Even as a Indian bankers are interested in turning to AI, almost 77% agree that
most businesses have low or more arrangements for handling large scale use of AI.

THE IMPACTS OF AI IN BANKING

Personalized Offer

With AI adoption, we get a highly accurate customer credit score based on not
only the profile of our bank and its previous history regarding this particular person but also
social profiles with offline activity to offer individually prepared proposals for each client.

Investment

AI will analyze multiple business and market factors to forecast business success to
take human irrationality out of investment decisions.

Security

AI will move most of the verifications to the background. This will move it closer to
people without the need for confirming identification at every step and brings trust to digital
banking.

Advisory

Using AI to calculate forecasts based on individual profiling and big data processing
will provide insights into the struggles and the needs of every single customer. Such forecast will
enable them to regain control over their finances by making the right decisions and executing
healthier financial behavior7.

7
https://www.theuxda.com/blog/future-of-ai-in-banking-ux-upgrade
PRACTICAL REAL TIME EXAMPLES OF AI IN BANKING

JpMorgan Chase’s Contract Intelligence System

Armed with this AI driven contract intelligence technology called COIN, JPMorgan
Chase, one of the world’s largest multinational banks, set out to scale. This uses a machine
learning and natural language processing techniques to analyze legal documents, such as loan
agreements. It saves a lot of manual labor and processing time as this technology goes through
complicated contracts and extracts important information, enhancing efficiency many times
over8.

Citibank’s Fraud Detection

Citibank uses AI algorithms to help detect fraud and prevent fraudulent

transactions by their customers. AI technologies are more accurate at detecting suspicious
patterns and possible fraudulent actions by analyzing large quantities of data regarding real time
transactions as compared to traditional rule based systems. Because the bank acts proactively,
Citibank can prevent account erosion among customers as well as avoid financial losses
involving fraud.9

Wells Fargo’s Chat bot for Customer Service

It’s named Erika a chat bot utilizing the line of Artificial Intelligence that better
improves customer service in wells Fargo. The AI response to questions posted by Erika. She
provides account information and helps client with simple transactions while interacting with the
bank through the website and mobile app. Because the AI features of the chat bot, customers
could get fast, personalized service accessible to them at any time of day or night and it would
mean the experience will be much better10.

8
V. D. Soni, “ROLE OF ARTIFICIAL INTELLIGENCE IN COMBATING CYBER THREATS IN BANKING,” International
Engineering Journal for Research & Development, 2021.
9
A. Marouani, “The Impact of Artificial Intelligence on Customer Behavior in Banking Systems,” 2019.
10
R. d. Silva, “Calls for behavioral biometrics as bank fraud soars,” Biom. Technol., bol. 2021, pp. 7-9, 2021.
WHAT DO BANKS NEED FOR AI ADOPTION

AI Strategy

Second, to successfully adopt disruptive technologies, organizations must be very

clear on what they want this technology to achieve and how they would like to integrate it within
their organizations, possible feasibility and impact of the technology, and it’s possible
consequences for the internal dynamics of the organizations.

Data Collection

An organization must invest in the creation and storage of large amounts of data
used to train AI algorithms to exploit AI’s huge potential. The quality and the quantity of the
data recorded are stored by these companies determine the dividends yielded by AI.

Talent Creation

One of greatest barriers to AI adoption is talent acquisition. To gain advantage in

AI, most organizations either hire experts or train them. Due to firms’ competitions for AI
experts and unique needs of every organization, most companies prefer developing their own
talent pools.

Internal digitization

Another great impact of AI on business is the improvement and stream lining

of bulky internal processes. For organizations planning to embrace AI, adopting the main
concept is required, internal digitization, setting a pro-technology culture, and introducing new
technologies to the employees.

Developing Safe System

The banking eco system works on trust. It is therefore a crucial aspect that bank
should invest heavily in cyber security and built their AI systems. Considering the sensitivity
nature of data processed by banks, they are at the risk of suffering data branches from onlin
hackers. Banks have to learn to start investing significantly in cyber security collaborations with
technology firms regarding the detection and plugging of potential threads.11

CHALLENGES FOR AI ADOPTION

Trained Manpower

Unavailability of data science professional, this is because the number of

good data scientists available for AI projects in the country are very few. This in addition to the
lack of trained human resource, existing workforce within the banks is not aware of the new
tools and applications available.

Multiple Languages

Considering the diversity of languages in India, the most effective AI enables

communications services would be those that reach most Indians in their first/ preferred
languages. But that is still challenging at present due to the limited machine readable corpus of
vernacular languages for training natural language processing and generation algorithms.

Data Protection and Privacy

AI system require tremendous amounts of training data as inputs. Consumer

data is continuously collected by monitoring the online and offline consumer behavior, stored,
combined with other sources of data to create massive datasets and derive additional information
about consumers through profiling.

FUTURE SCOPE

The promise and hope of transformation from the future of AI in banking service
make up an important part of the industry’s face that is set to change. As the AI technology
continues to grow and gain more familiarities, banks firms position themselves in a very

11
McKinsey; AI Adoption advances but foundational barriers remain; https;//www.mckinsey.com/featured-
insights/artificial-intelligence/ai-adoption-advance-but-foundational-barrier-remain.
exclusive place to lead growth opportunities, leverage customer experience, and reduce risk
through AI.12

CONCLUSION

AI in banking has many benefits, such as increased productivity, improved

decision making, lower costs and improved client satisfaction. Future Research AI practices,
creation of legal and moral standards within the frameworks in future research to ensure that
application are ethical and sustainable in the banking industry using AI.

REFERENCE

G. Luger, "Artificial Intelligence: Structures and Strategies for Complex Problem

Solving," Fourth Edition, Addison-Wesley, 2002.

S. Russell and P. Norvig, "Artificial Intelligence: A Modern Approach," Second Edition,

Prentice-Hall, 2003.
T. Singh and N. Pathak, "Emerging Role Of Artificial Intelligence In Indian Banking
Sector," Journal Of Critical Reviews, vol. 7, no. 16, pp. 1370-1373, 2020

12
https://www.resrarchgate.net/publication/380119377_Artificial_Intelligence_in_Banking_and_Finance.