Artificial Intelligence in Banking Sector

“Machine intelligence is the last invention that humanity will ever need to make.” -Nick Bostrom.
The world is gradually shifting to an automated and technology-driven global society. Most developed nations
of the world, including China and USA, are investing in research and development projects focused at Artificial
Intelligence (AI) and the ways it can influence education system, healthcare, business and financial infrastructure
and other systems. AI is the replication of human intelligence processes by machines. Just like a human mind, a
true AI system can learn on its own.

Artificial Intelligence (AI):

Artificial Intelligence (AI) refers to the simulation of human intelligence in machines that are programmed to
think and act like humans. The goal of AI is to enable computers or machines to perform tasks that typically
require human intelligence, such as learning from experience, recognizing patterns, understanding natural
language, making decisions, and solving problems.

Artificial Intelligence & Banking Sector:

Globally, AI is increasingly being considered as important in banking as well as financial services sector leading
to the addition of new technologies to the sector. JPMorgan Chase, the top commercial bank in the USA, is
investing more than US$9.5 billion annually in technology and innovation. Besides JPMorgan, other American
banks like Wells Fargo, Bank of America, CitiBank, US Bank, PNC Bank, Bank of NY Mellon as well as India's
top four banks like State Bank of India, HDFC Bank, ICICI Bank and Axis Bank are working to integrate AI with
their existing systems so as to improve customer services, reduce costs and improve efficiency.

Page 1 of 6
The Impact of Artificial Intelligence in Banking:

“We are entering a new world. The technologies of machine learning, speech recognition, and natural
language understanding are reaching a nexus of capability. The end result is that we’ll soon have artificially
intelligent assistants to help us in every aspect of our lives.” -Amy Stapleton.
AI’s transformative impact has been profound since its advent, changing how enterprises, including those in the
banking and finance sector, operate and deliver services to customers. The introduction of AI in banking apps
and services has made the sector more customer-centric and technologically relevant. A report by Business Insider
suggests that nearly 80% of banks are aware of the potential benefits of AI in banking. Another report by
McKinsey suggests the potential of AI in banking and finance would grow as high as $1 trillion. These numbers
indicate that the banking and finance sector is swiftly moving towards AI to improve efficiency, service, and
productivity and reduce costs.

Applications of AI in Banking and Finance:

Artificial intelligence has become an integral part of our world, and banks have already started integrating this
technology into their products and services. Here are some major AI applications in the banking industry:

Page 2 of 6
  Cyber security and Fraud Detection:
AI and machine learning helps banks identify fraudulent activities, track loopholes in their systems, minimize
risks, and improve the overall security of online finance. AI can also help banks to manage cyber threats. In 2019
the financial sector accounted for 29% of all cyber-attacks, making it the most-targeted industry. With the
continuous monitoring capabilities of artificial intelligence in financial services, banks can respond to potential
cyber-attacks before they affect employees, customers, or internal systems.
 Chatbots:
Chabot’s are one of the best examples of practical applications of artificial intelligence in banking. Once
deployed, they work 24*7, unlike humans with fixed working hours. By integrating chatbots into banking apps,
banks can ensure they are available for their customers around the clock.
 Loan and Credit Decisions:
Banks have started incorporating AI-based systems to make more informed, safer, and profitable loan and credit
decisions. An AI-based loan and credit system can look into the behavior and patterns of customers with limited
credit history to determine their creditworthiness.
 Tracking Market Trends:
AI-ML in financial services helps banks to process large volumes of data and predict the latest market trends.
Advanced machine learning techniques help evaluate market sentiments and suggest investment options.
 Data Collection and Analysis:
Banking and finance institutions record millions of transactions every single day. Structuring and recording such
a huge amount of data without any error becomes impossible. Innovative AI and banking solutions help in
efficient data collection and analysis. This, in turn, improves the overall user experience.
 Customer Experience:
Integrating artificial intelligence in banking further enhances the consumer experience and increases the level of
convenience for users. AI in banking customer service also helps to accurately capture client information to set
up accounts without any error, ensuring a smooth customer experience.
 Risk Management:
Generative AI in banking offers analytics that gives a reasonably clear picture of what is to come and helps you
stay prepared and make timely decisions. AI for banking also helps find risky applications by evaluating the
probability of a client failing to repay a loan. It predicts this future behavior by analyzing past behavioral patterns
and smartphone data.

Page 3 of 6
  Regulatory Compliance:
AI in banking use deep learning and NLP to read new compliance requirements for financial institutions and
improve their decision-making process. Even though AI in the banking sector can’t replace compliance analysts,
it can make their operations faster and more efficient.
 Predictive Analytics:
One of the most common use cases of AI in the banking industry includes general-purpose semantic and natural
language applications and broadly applied predictive analytics. AI can detect specific patterns and correlations
in the data.
 Process Automation:
Robotic process automation (RPA) algorithms increase operational efficiency and accuracy and reduce costs by
automating time-consuming, repetitive tasks. As of today, banking institutions successfully leverage RPA to boost
transaction speed and increase efficiency. For example, JPMorgan Chase’s COiN technology reviews documents
and derives data from them much faster than humans can.

Real-World Examples of AI in Banking:

As highlighted above, few big banks have already started leveraging artificial intelligence technologies to
improve their quality of service, detect fraud and cybersecurity threats, and enhance customer experience.
Here are a few real-world examples of banking institutions utilizing AI to their full advantage.
JPMorgan Chase: Researchers at JPMorgan Chase have developed an early warning system using AI and deep
learning techniques to detect malware, trojans, and phishing campaigns. Researchers say it takes around 101 days
for a trojan to compromise company networks. The early warning system provides ample warning before the
attack occurs. It also sends alerts to the bank’s cybersecurity team as hackers prepare to send malicious emails to
employees to infect the network.

Capital One: Capital One’s Eno, the intelligent virtual assistant, is the best example of AI in personal banking.
Besides Eno, Capital One also uses virtual card numbers to prevent credit card fraud. Meanwhile, they are
working on computational creativity that trains computers to be creative and explainable.

A European Bank: Appinventiv worked with a leading European bank that wanted an AI-based solution to
resolve customer queries in real-time. Within 10 weeks, the team deployed an AI-based chatbot assistant in the
bank’s web and mobile apps capable of handling complex tasks such as resolving real-time customer complaints
and reporting stolen credit card cases. With support for seven languages, the AI chatbot was ready to assist
customers worldwide. This resulted in a 20% hike in customer retention.

Challenges in Adopting AI in Banking:

“Humans should be worried about the threat posed by artificial intelligence.” ~Bill Gates.
Artificial Intelligence (AI) has brought several benefits to the banking industry, such as improved customer
service, enhanced fraud detection, personalized recommendations, and streamlined processes. However, it also
comes with its own set of challenges. Some of the key problems of artificial intelligence in banking include

 Data Security:
The amount of data collected in the banking industry is huge and needs adequate security measures to avoid any
breaches or violations.

Page 4 of 6
  Lack of Quality Data:
Banks need structured and quality data for training and validation before deploying a full-scale AI-based banking
solution. If data is not in a machine-readable format, it may lead to unexpected AI model behavior.
 Lack of Explainability:
Minor inconsistencies in AI systems do not take much time to escalate and create large-scale problems, risking
the bank’s reputation and functioning.
 Lack of transparency:
The lack of transparency in how AI systems make decisions can lead to concerns about accountability and
compliance with regulations.
 Regulatory compliance:
Banks are heavily regulated, and implementing AI solutions must comply with various financial and data
protection regulations. Ensuring that AI models meet these compliance requirements can be challenging.
 Limited interpretability:
Some AI models, particularly deep learning models, lack interpretability, making it difficult for banks to explain
the reasoning behind specific decisions to customers or regulatory authorities.
 Data quality and integration:
AI models heavily depend on high-quality data. Ensuring data accuracy, completeness, and compatibility from
various sources can be a significant challenge for banks.
 Adversarial attacks:
AI models can be susceptible to adversarial attacks, where malicious actors try to manipulate the model's behavior
by introducing slight modifications to the input data.

 Cost and resource-intensive:

Implementing AI in banking requires significant financial and technological resources. Smaller banks might find
it challenging to adopt AI at the same scale as larger institutions.
 Workforce displacement:
The widespread adoption of AI in banking may lead to job displacement for some employees, as certain tasks
become automated.
 Overreliance on AI:
While AI can be beneficial, banks must ensure that they don't overly rely on AI systems without human oversight.
Human expertise is still necessary for making critical decisions and ensuring ethical and responsible practices.

Addressing these challenges requires careful planning, continuous monitoring, and collaboration between AI
developers, data scientists, compliance experts, and business leaders within the banking industry. Striking the
right balance between automation and human involvement is essential for leveraging the full potential of
AI while mitigating its risks.
Why Must the Banking Sector Embrace the AI-First World?
Despite the current challenges, banks are in a race to
become AI-first, and that too for a good reason. For many
years, the banking industry has been transforming from a
people-centric business to a customer-centric one. This
shift has forced banks to take a more holistic approach to
meet customers’ demands and expectations.

Page 5 of 6
With their focus now on the customer, banks must begin thinking about how to serve them better. Customers now
expect a bank to be there for them whenever they need it – which means being available 24 hours a day, 7 days
a week – and they expect their bank to do it at scale. The way banks can do this with AI.

AI in Banking Sector of Bangladesh:

Eastern Bank Ltd has launched the country's first ever artificial intelligence-based chatbot to render faster services
to clients, in a development that can be viewed as a milestone for Bangladesh's banking sector. By way of
Facebook Messenger, the EBL Digital Interactive Agent will inform the bank's customers about their accounts,
credit card and prepaid cards as well as general service information. Viber and Twitter versions will be available
shortly.

Conclusion:
“Predicting the future isn’t magic, it’s artificial intelligence.” -Dave Waters.
AI has become a game-changer in the banking industry, revolutionizing various aspects of the sector and
providing benefits to both financial institutions and customers alike. While these advancements have been
groundbreaking, it's important to note that the implementation of AI in banking must be handled with caution to
address potential ethical concerns and ensure data security and privacy.

Page 6 of 6