We have always known AI to always make things easy for us. And if used wisely, AI is going to provide lots of benefits.
Before, the banking field always demand its staff to do a lot of hard work. All of which demands full concentration as mistakes are not allowed.
With the invention of AI technology in the banking field. The need for serious hard work is no longer needed.
Banking officials no longer have to wait overnight because of work. They can easily close the day work in the evening and gets home to rest properly.
AI in banking has made all these happen and has also made sure that other benefits are available as well.
In a recent study, the United States recorded that 80% of banks in its vicinity are aware of the massive benefits AI have installed for them.
And that is why, the big banks in the States have incorporated AI technology into their services.
For example, banks like Well Fargos, Bank of America, JP Morgan Chase, and few others have incorporated AI either as a Chatbot or for verification of customer’s identity, etc.
Let’s dive into the pros and cons of AI in banking.
What is AI in Banking?
AI in banking is the act of using AI technology to do tasks in the banks. The bank area is a big field that has different sections in it.
In the bank, certain tasks require repetition. For example, automated tasks like security checks before entering the bank, replying to the text of customers, detecting fraudulent activities, getting data on market trends can easily be done by AI technology.
This way, staff are easily managed to do the tasks that require their full focus and time. Also, with the use of AI technology, more staff energy is saved for other activities in the bank.
Also Read: AI In Fintech: Use Cases, Applications And Future Of AI In Financial Services
What is the application of AI technology in banks?
With the integration of AI technology in the workspace in the world. A lot of organizations are already using AI. It won’t be nice for the banking field not to do so.
This is why the banking sector has started using AI to do some activities. The list of activities they use AI for will be listed in the next few lines.
1. For Detecting Fraud and Internet security
When it comes to banking, there are a lot of calculations needed. With the fact that a lot of transactions such as withdrawals, deposits, payment of bills, happens daily.
And there is a need for proper calculation in other to avoid mistakes in the funds’ allocation and balances.
All this made the introduction of technology very timely and helpful. With the invention of bank apps or online accounts, people can easily make transactions.
But even with this, we can’t deny the fact the risk of losing funds online is high as well.
That’s where AI technology comes in as well. AI technology possesses machine learning algorithms that can help to monitor the activities going on in each bank user’s account.
This way the AI technology can keep a tab of all the activities, and any time it notices any fraudulent activities it alerts the account manager of the user.
The algorithm can also track the loopholes in the bank app, and then alert the software developers of the app to modify the loophole.
This way, the security of the bank app is improved and the overall security is also improved as well.
For example, Danske Bank which happens to be a big bank in Denmark is known to have integrated fraud detection algorithms into its system.
With the additional security of the bank. The double security measures Danske Bank took caused their Fraud detection accuracy to reach 50%.
And there is also an increase in the false positive percentage, as it reaches 60%.
Since the algorithm in the AI tool of Danske uses deep learning technology as well. It can think using the data and analytics gotten from the machine learning algorithms and then make smart decisions that are favorable to the bank.
At the same time, it makes this decision, it calls the attention of the staff responsible for data analysis and decision-making.
The way, this AI tool organizes everything is just mind-blowing as it doesn’t forget to include the human staff.
In the issue of cybersecurity, AI technology can make help protect the bank’s database. And also able to protect the customers’ details through the bank App as well.
With the continuous monitoring of AI technology, it can protect the database and algorithms of the banking system not excluding the app as well.
So this way, even if there is a cyber-attack, the customer, employees, and internal systems won’t be affected as the banking system would have been able to reinforce its defense and even strike back if they want to.
2. For Chatting with customers
When it comes to chatting with customers, bank officials are not able to meet up with every customer.
So, there is a need for employing the help of AI Chatbot. With the introduction of this technology, the cases of leaving a customer unanswered become a thing of the past.
Chatbot can stay active 24/7 without going offline as it doesn’t have any particular fixed working time.
So far, there is good internet, a customer can chat with the bot for a longer time and have it answer all the questions they have.
One good thing about Chatbots is they keep improving the more they are put to use. This means their style of responding to requests, changes and gets better over time.
And the fun thing is, the Chatbot understands personalization. With this knowledge, it takes time to understand how the customer chat.
Once it understands how the customer chats, it replies to the customer in that manner as well.
This way, the Chatbot can reach out to customers easily and ensure the customer have a good time with it.
An example of a bank using AI technology is Bank of America (BOA). This bank has a Chatbot called “Erica”.
Erica is trained to not only reply to customers’ requests but she is also trained to handle credit card debt reduction.
And from time to time it does updates on the customers’ card security details.
A study in 2019 showed that Erica was able to efficiently handle over 50 million customers request. And there was no complaint of bad customer service.
3. In making smart loan and credit decisions
When it comes to decision-making as regards loan a lot of things come into play.
When a customer wants to take a loan his credit score is first of all checked, followed by his credit history, and lastly his references.
All these are checked to see if he is eligible for the loan. It doesn’t matter if it is an individual or a company, they are both scrutinized in the same manner.
And it can’t be denied that sometimes there are errors or bias included in the cross-examination of individuals and companies who wants to take a loan.
The occurrence of these errors and misgivings has made a lot of people miss loans from banks. All this made the introduction of AI technology very helpful.
With the introduction of AI technology. There is a massive drop in loans given to the wrong individuals and many other errors associated with loan grants.
AI can help look into the behavior of the customer asking for loans. Even though the customer has little credit history, AI can still check the pattern of the customer using limited information.
After AI finish with its cross-examination, it can determine whether the bank should offer a loan to the individual or not.
A fun fact is that AI technology keeps a tab on the behavior of the customer who wants to request a loan.
Once it notices any odd behavior that may increase the chances of the customer not refunding the loan.
It immediately notifies the bank of this behavior. This way the bank will know the measure to take with such a customer.
You might want to check out Best AI Credit Repair Software For Business And Personal Use
4. It can track the market trends
In analysis, AI has massive computing power that beats that of an average human being. Using the machine learning algorithms in its interface, and the advantage of free access to large data
It can analyze the bank data and the market data as well. So it can notify the bank of any market trend that aligns with their data and also, trends that are beneficial to the company. Most especially in investment, some trends favor the bank. So, this way, the bank does not miss out on any latest market trends.
AI technology is also important in the stock market. As there is a need for proper analysis before investing in stocks.
With the help of AI technology, in-depth analysis can be done and the AI technology can provide banks with speedy decisions.
The informed decisions provided by AI now form the basis that the bank’s stock analyst can use to invest.
5. It is used to automate processes
When using automation AI technology like Robotic process automation (RPA). It helps in increasing the rate at which repetitive tasks are done and it does so at a lower cost.
With the extra time saved, staff can focus on task that is more complex and requires more concentration, focus, and energy to complete them.
Currently, a lot of banking institutions in the states now use RPA technology to run their transactions, making sure the transaction is delivered faster.
Banks like JPMorgan Chase use this technology to review documents by analyzing them, before providing more informed data.
It carries out this operation at a speed faster than the speed of a human staff.
6. Risk Management
In matters of risk, every bank needs a risk analyst that can always give them accurate analysis whenever they want to take a decision.
The reason for this is there are external factors like natural disasters, currency fluctuations, or political unrest that affect the bank operation generally.
And at this point, when there is chaos, the need for an analyst is urgent.
AI technology is very good for risk management. With access to large volumes of data as regards those disasters that can affect bank operations.
The AI technology will be able to use its incredibly fast computing power to analyze various streams of data.
After which it provides the bank officials with the necessary information. It is this information that guides the decision-making of the bank officials.
This way, they will know that they are making informed decisions even if they are to make any decisions.
Also, AI technology is important in making predictions about whether a particular customer will pay back a loan or he won’t.
AI technology just uses customer behavior and financial data to make this prediction.
Pros and Cons of AI in Banking
Pros of AI in Banking
1. It helps in chatting with clients
Using AI technology to chat with customers has made it a lot easier for bank officials.
With the Natural Language Processing (NLP) model and the machine learning algorithms, the AI can think and then arrange a group of words to create a meaningful sentence.
The cool thing is that the AI takes its time to engage the customers in a more personalized manner. Such that, the customers enjoy a great and personalized experience.
Also, for the fact that it is an AI technology. There is no closing time for it. Since it can work all day long with no resting.
Customers can reach out to it at any time of the day or week and ask it any question of their choice. The question should not be beyond banking.
For example, customers can ask the Chatbot questions on information as regards their accounts, such as the balance, the account creation date, the degree of transactions made on the account regularly, etc.
2. Professional Document Management
Every bank handles large volumes of data as they have lots of customers regularly.
And with banks, a single customer can have as many documents which could include; loan applications, invoices, and customer identity documents.
When bank officials are arranging these documents. It is very time-consuming and mentally demanding as well. Any mistake can result in the bank officials rearranging the documents.
But with AI technology like optical character recognition, banks can arrange documents easily. As the document won’t be physical anymore, instead they will appear as digitalized paper documents.
And since they are in digital form, the machine learning algorithms of the AI software can locate these documents.
With the ability of the AI tool, it can easily group the data into sections and easily extract them when prompted to.
3. It ensures that the rules and regulations of banks are obeyed
In every banking sector, rules and regulations are guiding them. These rules and regulations help to keep banking officials alert.
So they will always obey the rules and won’t engage in any acts against the banking rules and regulations.
The banking sector ensures that staffs know their customers’ (KYC) regulations and also don’t involve themselves in money laundering.
AI can help identify potential issues as regards breaking the laws of the bank. Once, it identifies a law-breaker, it alerts the bank officials. This way a timely action is taken to correct the situation.
With the automated ability of the software, the smart software process documents very fast. And also, it improves the obedience of the banking staff to regulations.
Most especially the KYC requirements for new customers.
Also Read: Pros and Cons of AI in Cyber Security: Examples, Benefits & Drawbacks
4. helps in decision making
When it comes to making decisions in approving loans. AI technology can help banks with it.
AI knows how to make decisions in the underwriting and credit data of customers who wants to apply for loans.
With the algorithm in its interface, it can make smart decisions using a large amount of data in its database.
AI technology takes in data like credit scores, income, employment history, etc. Into cross-examination before it now makes a decision.
With the help of AI technology, Banks now use lesser time to approve loans. As AI technology provides informed information, banks can easily make informed lending decisions.
Thereby reducing the risk of lending funds to a customer who might not pay back. Also, the informed data provided by AI technology allows bank officials to use less time to make decisions lending out funds to customers.
5. It helps in recognizing scam
Fraud is increasing in banks day by day. As bank officials sell out customer details to fraudsters.
The fraudsters now call the owner of the account and then ask for bank details that can be used to withdraw funds from the account.
Some other fraudsters even steal the funds using the details provided by the bank officials without the customer’s knowledge.
All these occurrences have made some people lose trust in banks. Since AI technology is now put into consideration, it helps to keep the banking staff in check.
And also, it can easily detect fraudulent activities and also help investigate fraudulent acts.
So, you can say AI help to generally increase financial security with the use of advanced fraud prevention tactics.
Using the advanced data in its system, it can identify unusual transactions and then make crucial decisions of stopping withdrawals immediately without alerting the customer.
Helpful Content: Best AI Finance Tools to Manage Wealth & Businesses
Cons of AI in Banking
Just like how there are benefits of using AI technology in banking sectors. There are also cons of using it as well and you will get to know them in the next few lines.
1. Expensive to purchase
Due to the materials used in making the components of AI tools used in banking. It is very expensive to purchase.
And also it takes a lot of time, focus (mental energy), and labor to build the components of the AI tool. After building the components and the algorithm hardware.
There is a need to train the algorithm with the banking system data.
This is another task that takes a lot of time, patience, and hard work. As the software is brand new and hasn’t taken in any data before.
So we can say it is an empty model which will take a lot of effort and energy to fill up with information.
After filling it up with lots of data, there is a need to update it from time to time. All these procedures involve large sums of money. That’s why it is not every bank that uses AI technology.
2. It lacks adaptability
AI technology when used to pick up calls from customers might not be able to gauge the response of customers.
And this is something that a human bank official can put into consideration.
As there are times whereby a customer calls and based on the tone of the customer the bank speaking can easily adapt to the situation on the ground.
This is something that AI is not able to do currently. As it doesn’t have emotions or sentiments that can make it understand the other emotions of other people.
4. It helps in distributing power to certain individuals
Humans are always in constant fear of AI superseding them in intelligence. The reason for this is that the computing power of AI is very massive when compared to humans.
But that is because AI doesn’t have any distractions, unlike humans who have lots of distractions.
And since, AI technology is a creativity of a fellow human and can be controlled by humans. It can be controlled and used by fellow humans, even though it’s very powerful.
5. Unemployment in banks
Banking officials that are not working the way they should work can be relieved of their jobs. And then be replaced by AI technology.
This is a common occurrence nowadays in the banking sector. Especially in the section that involves repetition.
Once, a higher banking official noticed a bank worker that is not working the way he should work. He can easily replace him with AI technology.
Truth be told, it is painful and disgraceful to be replaced by AI technology. So, to avoid this, every worker should put in their best when doing their tasks in the bank.
See Also: Applications of Artificial Intelligence
Frequently Asked Questions
What are the real-world examples of AI technology used in banking?
Some big banks in the States have started using AI technology to improve their quality of service, speed to detect fraud, and cybersecurity threats, and to enhance customer experience.
In the next few lines, you get to know the real-world examples of banking institutions that are using AI technology to their advantage.
1. JPMorgan Chase
JPMorgan has a group of smart team who are the research team of this banking sector.
It uses an early warning system to alert banking officials once it notices any malware, Trojans, and phishing links or campaigns.
With the help of AI machine learning algorithms and the Deep learning model, it can easily detect these anomalies.
The group researchers were interviewed some time ago and they said, it takes a Trojan 101 days for it to infiltrate their banking system algorithms.
They said the warning system gives them a warning even before the Trojan starts its attack. This way there is enough time to prepare for the attack of the Trojans.
Also, if hackers try to send malicious emails or phishing links to the smart device of the staff working in this bank, it alerts the cyber security team so they can protect the staff’s smart devices.
2. Capital One Banking Sector
Capital One uses AI technology as well. The AI technology it uses is an intelligent Virtual assistant that does almost all the banking operations without any human intervention.
The intelligent Virtual Assistant is usually referred to as “Eno”. Also, Capital One uses virtual card numbers so the tendency that fraudsters will have access to it is very minimal.
Capital One is also working on adding a new AI technology to its operational system.
They are preparing of developing a computational creativity technology that can train computers to know how to create new things and also know how to explain the new things it created.
Don’t Miss: Best AI Investment Software And Apps: Our Top 8 Picks
Conclusion
The banking sector is always known for people who are very hardworking and have sound knowledge of arithmetics.
And so, therefore, the introduction of AI technology to their field is bound to not be a smooth ride.
As it is currently, AI technology is now being used in banking sectors though not for serious tasks.
AI is used in banks for tasks that are repetitive like opening the door, answering repetitive questions through calling and texting, etc.
And so far, the officials in the bank have come to terms that working with AI technology is better than not working with it at all. As AI has proven to offer more benefits than disadvantages.
Also, for the fact that AI is now being used in big banks in the United States. It is for sure that other banks will also take advantage of AI technology as well, not minding the fact that it is expensive.
And with the speed at which AI technology is developing, the future of AI technology in banking sectors is promising.
