What are the Competitive Advantages of AI in Banking?

The banking sector is undergoing substantial changes, primarily aimed at improving customer-centric practices. This article discusses AI's role in the banking sector and examines how AI boosts industry competition.

Fremont, CA: Digital disruption is transforming industries and altering business operations. Every sector explores alternatives and implements strategies to generate value in a technology-oriented environment. The banking industry is experiencing significant transformations, primarily focusing on enhancing customer-centricity.

Customers, who are increasingly proficient with technology and accustomed to sophisticated digital solutions in their daily lives, now demand that banks provide seamless service experiences. In response to these demands, banks have broadened their operational scope to include retail, information technology, and telecommunications, facilitating mobile banking, online banking, and instantaneous money transfers. Although these innovations have empowered customers to access a diverse range of banking services quickly and at any time, they have also imposed challenges on the banking sector.

The convergence of the banking sector with industries such as information technology, telecommunications, and retail has led to an increased exchange of sensitive information across virtual networks, which are susceptible to cyber threats and fraudulent activities. Such incidents undermine the profitability of financial institutions and damage the trust and relationships that banks have established with their customers.

The escalation of online security threats in banking transactions has prompted stricter government regulations. While these regulations serve to oversee online financial activities, they have also restricted banks' ability to adapt to digital transformation. Financial institutions cannot invest in new technologies due to the necessity of maintaining capital adequacy ratios by international regulatory standards. Consequently, banks are disadvantaged against agile Financial Technology (FinTech) companies, which are not limited by the exact capital adequacy requirements.

How Does AI Strengthen The Competitiveness in the Banking Sector?

Enhanced Customer Experience:

AI enhances its comprehension of customers and their behaviors through previous interactions. This advancement allows banks to tailor financial products and services by incorporating personalized features and intuitive interactions, fostering significant customer engagement and cultivating robust relationships with their clientele.

Prediction of Future Outcomes and Trends:

Artificial Intelligence (AI) can forecast future scenarios by examining historical behaviors, thereby assisting banks in anticipating future outcomes and trends. This functionality enables financial institutions to detect fraudulent activities, identify patterns related to anti-money laundering, and provide tailored recommendations to customers. Money launderers often engage in a series of transactions that disguise the illegal origins of their funds as legitimate. AI utilizes advanced Machine Learning and Cognitive technologies to uncover these concealed activities, resulting in significant bank cost savings. Additionally, AI effectively identifies suspicious data patterns within vast datasets, facilitating efficient fraud management. Moreover, through its sophisticated recommendation engines, AI analyzes historical data to predict future behaviors of various data points, enhancing banks' up-selling and cross-selling capabilities.

Cognitive Process Automation:

This capability facilitates the automation of numerous information-heavy, expensive, and error-prone banking services, such as claims management. It guarantees a return on investment, lowers expenses, and ensures precise and swift service processing at every stage. Cognitive process automation fundamentally streamlines tasks, enhancing their previous iterations through ongoing machine learning.

There are more ways in which AI could strengthen the competition in the banking sector. These include realistic interactive interfaces, effective decision-making, and robotic automation of processes.