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Artificial intelligence in banking.docx

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Summary
 Author: Dr. Farookh Shaikh
Email Id: [email protected]
Co-author: Adv. Jignesh Bhatia
Email Id: [email protected]
College Name: Narsee Monjee College of Commerce & Economics, Vile Parle

“Artificial intelligence in the banking sector: transforming customer

service and enhancing risk management”

Abstract:
13
This article highlights the significance of artificial intelligence and its role in enhancing
customer experience by improving the quality of services in the banking sector. The research
provides a comprehensive review of existing literature on the various emerging applications
18
of AI and its impact on the banking industry. After a thorough examination of current studies,
the application of AI in banking is discussed in detail. Millions of customers and
professionals in the banking sector are experiencing improved services due to artificial
10
intelligence. With the advancement in digital technology, banks need to create customer
experiences that build trust and loyalty. To establish a strong foundation in digital banking,
banks must simplify and accelerate their processes. The research aims to assess how
12
effectively banking operations can utilize artificial intelligence to enhance customer
satisfaction and engagement.

Keywords:

AI Technology, Online Banking, Virtual Assistants, User Experience.

3
Introduction:

Artificial Intelligence (AI) is rapidly becoming the go-to technology for businesses around
the globe to personalize customer experiences. As 2technology continues to progress and
evolve, new areas for AI applications are emerging. The banking sector is among the early
adopters of AI. Similar to other industries, banks are exploring various applications of this
technology. Common uses of AI in banking include smarter chatbots for customer assistance,
7
personalized services for individual users, and the implementation of AI robots for self-
service at branches. Beyond these standard applications, banks can utilize AI to enhance
productivity in their back-office operations and reduce the chances of fraud and security
issues.

Objectives:
1. To examine the ways in which banks are using artificial intelligence.
 11
2. To research on the application of artificial intelligence in the banking sector.

Scope:
19
The report focuses entirely on technological progress within the Indian banking sector.

Methodology:
4
The study is descriptive, relying on secondary data. Information was collected from a range
of sources, such as websites, news articles, publications, journals, and portals from banks and
the Reserve Bank of India.

India's Artificial Intelligence Industry: A Current Overview

An article from The Economic Times in October reported that funding for startups in India
rose by 108% in 2018. The article highlighted that artificial intelligence was one of the
sectors experiencing the fastest growth in industry adoption. Currently, around 400 startups
4
are active in the fields of machine learning and artificial intelligence. Since 2016, private
investors have poured approximately $150 million2
into India's AI market, with this figure
consistently increasing. Despite this progress, India lags behind countries like the US and
China in terms of investment. With a vast pool of STEM talent and a young population, India
is poised to use AI to enhance its economy and improve living standards for its citizens.
2
To enhance customer service, several start-ups located in cities such as Bengaluru, New
Delhi, Mumbai, and Hyderabad are incorporating artificial intelligence techniques. Their
offerings include automated analysis of customer data, support for online shopping, and
multilingual chatbots. These companies operate in various sectors; include finance, education
technology, healthcare, and e-commerce. Although they are in their initial stages, the
progress of these businesses has been promising.

Technology and Indian Banks

1
An essential factor in the integration of new technologies in the2 Indian banking sector is the
balanced approach of the Reserve Bank of India. In recent years, especially during the
leadership of Raghuram Rajan and Urjit Pater, the RBI has taken a careful yet3 pragmatic
approach to adopting new technologies. When it has identified opportunities to enhance
customer experience and efficiency through a specific technology, it has often compelled
banks to incorporate it via regulations. The RBI has actively encouraged the adoption of
innovative technologies, going beyond just establishing policy frameworks.4 To enhance
processes and improve effectiveness, it has merged advocacy, regulation, and collaboration
with the industry.

A notable instance is the creation of the National Payment Corporation of India, which has
1
significantly lowered the expenses associated with electronic transactions. The Institute of
Development and Research in Banking Technology, which 3
serves as the academic and
research brand of the regulator, is continually exploring the opportunities and challenges
4
in
new technology areas. The active participation of both organizations in testing blockchain
proof of concept is intentional.
 1
India occupies a significant position in this context. It is undoubtedly a hub for technology.
Not only is it a favoured destination for technology outsourcing, but it also hosts suppliers
that control
1
a large share of the global core banking sector. The headquarters of TCS and
Infosys, two of the leading three providers of core banking solutions, are located in India.
Recently, the Fintech sector has experienced considerable growth in the country, solidifying
its status as a global Fintech centre. While Fintech and traditional banks have often had a
1
complicated relationship in many advanced economies, modern institutions in India, such as
ICICI Bank, Axis Bank, and HDFC Bank, have actively collaborated with Fintech
companies.

They have organized hackathons and competitions and made their APIs available to these
Fintech companies. SBI, the largest bank in India, announced the launch of Bank Chain on
February 8, 2017. The consortium, led by SBI, includes
1
over thirty members such as banks,
non-banking financial companies (NBFCs), and the National Payments Corporation of India
(NPCI), which was formed by Indian banks to support retail payments. In essence, Bank
Chain is a network of banks focused on creating, testing, and implementing blockchain
applications. Prime Chain Technologies, based in Pune, is assisting Bank Chain in
developing these solutions. Currently, there are eight active projects and 37 members
involved.
1
The Role of Artificial Intelligence in Banking and Finance

Customized Financial Services

As automated financial advisors and planners gain expertise in guiding financial choices,
personal connections will reach new levels.
8
They evaluate the market conditions and provide
suggestions for stocks and bonds based on the user's financial goals and unique portfolio.

Smart Wallets
Major companies like Google, Apple, and PayPal are developing their own payment systems,
leading to the rise of digital wallets as the future of payment technology for everyday
transactions. This shift reduces dependence on physical money and expands the versatility of
financial transactions.

Underwriting
As the insurance sector moves towards increased automation, it is also facing significant
changes. Companies now have access to more detailed information, allowing them to make
better decisions by employing AI technology to streamline the underwriting process.

Banking with Voice Assistance

The need for physical interactions is diminishing as technology allows users to access
financial services using touch screens and voice commands. Natural language
2
processing can
understand user inquiries to provide information, answer questions, and connect users to
various financial services. This advancement reduces human error and improves overall
efficiency.

AI applications for data-driven lending choices

AI applications are utilized for making data-driven lending decisions. Servers at financial
institutions, personal devices, and end-user gadgets can all feature applications that process
extensive data and create tailored financial forecasts, calculations, and recommendations. By
exploring
2
various personalized investment choices, loans, interest rates, fees, and related
areas, these applications can also develop financial plans and strategies while tracking their
progress.
 2
Client Support
As voice processing and natural language processing technologies continue to develop, we
are approaching a time when computers can handle most customer service inquiries. These
progresses will likely lead to greater customer satisfaction by reducing wait times.

Digitalization as a replacement for physical branches

Banking has traditionally involved lengthy processes, often hindered by long wait times and
slow responses. The experience of opening a bank account was often frustrating, as busy
customers hurriedly completed necessary paperwork while moving around the bank. By
digitizing documentation, this frustration is alleviated, providing a comprehensive platform
for interaction between service providers and customers.

Blockchain accelerating payments

The digital age,1particularly with the rise of social media and smartphones, is leading to a
notable change in the buying habits and preferences of the consumers that banks serve.
Customers are increasingly seeking more flexibility and control in their banking experiences.
With Blockchain poised to enable real-time payment processing, outdated slow payment
methods will soon be eliminated. This advancement will enhance the speed of transactions
and boost customer satisfaction.

Banking with Artificial Intelligence in India:

3
In 2016, worldwide investment in AI applications1 amounted to USD 5.1 billion
(approximately Euro 4.3 billion), as reported by PwC's Fintech
1
Trends Report (India) 2017.
Alongside PNB, other Indian financial institutions such as SBI, HDFC, ICICI, HSBC, and
Axis banks have also adopted artificial intelligence.
2
The State Bank of India (SBI) organized a nationwide hackathon called "Code For Bank" to
motivate developers, startups, and students to generate innovative ideas and solutions for the
banking sector, focusing on areas such as blockchain, fintech, digital payments, Internet of
Things (IoT), artificial intelligence (AI), machine learning, bots, and robotic process
automation. Currently, the bank is implementing an AI-based solution developed by
Chapdex, the winning team of its first hackathon, which assists in understanding customer
behaviour through the analysis of clients' facial expressions.

HDFC Bank, in collaboration with Senseforth based in Bengaluru, developed an5 AI chatbot
named "Eva" (Electronic Virtual Assistance). So far, Eva has addressed over 2.7 million
customer inquiries, interacted with more than 530,000 unique clients, and held 1.2 million
conversations. In the initial days after its launch, the chatbot handled over 100,000 questions
from numerous customers
6
across 17 countries, providing responses in under 0.4 seconds.
Additionally, the bank is experimenting with in-store robotic solutions called IRAs
(Intelligent Robotic Assistants).

ICICI Bank has introduced software robotics in over 1200 business processes across various
departments within the organization. The bank labels this technology as "robotic software,"
claiming to be the first in the country and among the few globally to utilize it for automating
and executing time-intensive, repetitive, and high-volume business tasks.
 1
Axis Bank has launched a conversational banking application that utilizes AI and natural
language processing to help customers with various financial and non-financial tasks, answer
common questions, and facilitate loan applications.

The Difficulties India Encounters in Advancing Artificial Intelligence

1. The private sector has played a significant role in the development of AI applications
so far, mainly focusing on consumer goods. Government entities need to pay attention
to this technology because
1
of its newness and potential effects.
2. India should consider the public 17
and private funding models for AI research that have
emerged from the successes seen in the US, China, South Korea, and other nations.
3. In the current economic environment, where job roles are rapidly evolving and skills
can become outdated within a few years, the traditional pathway from education to
employment is no longer adequate.

The benefits of AI in identifying fraud within the banking industry:

3
Using anomaly detection can enhance the effectiveness of credit card fraud detection and
anti-money laundering measures.

Customer support and help desk: Interfaces for humanoid chatbots can help reduce
expenses and enhance effectiveness in customer interactions.

Risk management involves analysing historical data, performing risk assessments, and
minimizing human mistakes in manually created models to provide tailored products for
customers.

To prevent and possibly foresee security breaches, it is essential to examine unusual

behaviour, analyze logs, and investigate fraudulent emails.

Using OCR to14 scan document data can greatly shorten back-office processing times.
Following this, machine learning or artificial intelligence can be employed to gather insights
from the extracted text data.

Wealth management for everyone: Robo-advisors can handle personalized portfolios for
clients by taking into account expected investment returns, personal lifestyle, and willingness
to take risks.
3
To detect and prevent fraud and criminal activity at ATMs, real-time camera images and
advanced AI methods, such as deep learning, can be employed for image and facial
recognition.

Conclusion:
15
In summary, the banking sector stands to gain numerous benefits from the implementation of
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artificial intelligence. In India’s banking scene, AI is revolutionizing customer service and
operational processes. It is also utilized to assess individual credit risks, detect fraudulent
9
activities, and ensure compliance with regulations. The incorporation of AI has the potential
to streamline business functions, offer tailored services, and support broader goals such as
financial inclusion. Certainly, traditional banking models are being significantly influenced
3
by the on-going push towards digital formation. However, this shift has also increased the
institutions exposure to rising cyber security threats. To create a robust defence against
cybercrime, banks are increasingly exploring advanced technologies such as blockchain and
data analytics.

References:

 M. Bhuvana, P.G. Thirumagal and S. Vasantha, Big Data Analytics –A Leveraging

Technology for Indian Commercial Banks, Indian Journal of Science and Technology,
Vol 9 (32), August 2016.
 -Banking in the age of disruption, |EY, February 2017.
 http://www.latinia.com/IF/Documentos/Intelligence_Digital_Banking.pdf
 Shivkumar Goel and Nihaal Mehta A Survey on the Role of Artificial Intelligence in
FinTech, International Journal of Innovative Research in Computer and
Communication Engineering, Vol. 5, Issue 6, June 2017.
 Driving AI for Financial Services – Simularity Whitepaper
 https://www.livemint.com/AI/v0Nd6Xkv0nINDG4wQ2JOvK/Artifical-Intelligence-
in-Indian-banking-Challenges-and-op.html.
 Similarity Report

30% Overall Similarity

Top sources found in the following databases:
21% Internet database 1% Publications database
Crossref database Crossref Posted Content database
27% Submitted Works database

TOP SOURCES
The sources with the highest number of matches within the submission. Overlapping sources will not be
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ftp.legalserviceindia.com
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Ngee Ann Polytechnic on 2022-09-23

2 7%
Submitted works

researchgate.net
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Internet

National Law University, Orissa on 2022-05-24

4 3%
Submitted works

University of Wales Institute, Cardiff on 2024-06-01

5 2%
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mediaindia.eu
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Goa Institute of Management on 2019-09-09

7 <1%
Submitted works

University of Bradford on 2019-11-17

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University of Petroleum and Energy Studies on 2019-11-24

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ESLSCA Business School (Cairo) on 2023-11-28

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Srishti Swain, Saikat Gochhait. "ABCD technology- AI, Blockchain, Clou...

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