Understanding The Role of Artificial Intelligence in the Banking Sector
In the era of technological developments, Artificial Intelligence has managed to take the center stage.
From startups to MNC’s all the organizations are incorporating AI as an integral part of their business at a large scale.
According to a report published by Adobe, the share of jobs requiring AI has increased by 450% since 2013.
In the digital era, with every industry getting disrupted by technological advancement it becomes more and more crucial that consumers get a seamless experience for their banking process.
Since the growth in the working population and increase in disposable income are acting as catalysts for boosting the demand for digital banking. In this blog, you will learn about how the role of Artificial Intelligence is helping the banking sector.
- The growth in the working population and increase in disposable income is acting as a catalyst for boosting the demand for digital banking.
- 54% of financial services organizations with over 5000+ employees have adopted AI.
- Some of the advantages of adopting AI in the Banking sector includes Risk Management, Fraud Detection, enhanced Customer Service Experience, Quick Resolution Time and Digitization.
Adoption of AI in the Banking sector
Artificial Intelligence has taken the banking industry by storm with its offerings and services. Not long ago your nearest vegetable vendor was accepting only cash as a mode of payment. Now you will notice QR scanners for online transactions at almost every shop you visit, which tells us that technology adoption is taking place at a rapid pace due to high internet penetration.
India recorded an internet penetration of 41% this year. According to a report from 2016, a lot of Banks have collaborated with Fintech Startups to provide innovative solutions and a seamless banking experience to their customers.
According to a report published by the Economist Intelligence Unit, 54% of financial services organizations with over 5000+ employees have adopted AI. Even though AI presents a huge opportunity for the banking sector to step up its game, we are still in the stage of taking baby steps.
How is AI Revolutionizing the Banking industry of India?
Artificial intelligence is changing the face of the Indian Banking sector with Top Banking firms of India such as Bank of Baroda, State Bank of India, Axis, HDFC and others adopting AI into different domains of their financial infrastructure. The Indian Banking sector is one of the largest which is well-capitalized and regulated.
As per a report published in 2020, the Indian banking sector has a total of 22 private sector banks, 56 regional banks, 46 foreign banks, 96,000 rural cooperative banks and 1485 urban cooperative banks. A majority of the data gets churned out during the process of Back Office Banking Operations.
It refers to the process of managing huge volumes of data and customer databases in order to gain insights that will help in order to help financial institutions function smoothly.
AI is playing a massive role in this domain by assessing the creditworthiness of the borrowers, detecting frauds, money laundering and even enhancing the relationships with the customers.
Types of AI that is being utilized in the Banking sector
Although there are 7 different types of AI, yet Artificial Intelligence can be broadly classified into 2 types, namely:
- Weak AI
- Strong AI
Weak AI refers to the type of Artificial Intelligence which is primarily used to perform a task to solve a specific problem. These intelligent systems are fed with pre-defined sets of functions to perform a particular task smartly.
Therefore, they are termed as Weak AI or Narrow AI.
Whereas, on the other hand, Strong AI refers to the type of Artificial Intelligence to put it into simple words, the function of a Strong AI is to broadly mimic the human brain.
This means that it has been designed in such a way that it can carry out any task that an actual human being can.
Advantages of AI in the Banking sector
So far we have understood the adoption of Artificial intelligence in the Banking sector. Now, let’s understand the various benefits AI can offer to this sector in this section.
- Risk management: One of the most crucial parts of dealing with Banking is Risk Management. Credit Risk Management refers to a situation when the borrower fails to repay the loan and other contractual deals within the stipulated time frame. AI will help with this aspect as Artificial Intelligence will help in tracking mobile banking apps to track and analyze how a user is dealing with their money. This will eventually help the bank to understand the risks associated with sanctioning loans to people and other credit risk management.
- Fraud Detection: Every year we are bombarded with news about scams and other financial frauds worth crores of Rupees. In 2020 alone 47% of companies have witnessed fraud. With the technological advancements, even the scammers are finding new ways to get their way through and fool the system. Therefore, to ensure that we reduce the rate of frauds that take place, banking sectors have started using ML-Driven Fraud Analytics. Machine Learning works on the concept of “learning from experience”. By using ML algorithms machines can be trained to find the difference between legitimate and fraudulent transactions. Which will ultimately help in preventing any kind of abnormal activities from taking place.
- Seamless Customer Experience: AI in Banking offers a seamless customer experience through Personal Finance with smart features such as chatbots, subscription services and customized notifications. With the help of chatbots, customers can easily be assisted for queries regarding past transactions, spending analysis, savings and finance-related information irrespective of Bank closure or National holidays. This instant dissemination of information will not only help save time but also help the customer to understand the products and services provided by the bank in a better way.
- Digitization of the process: With the expansion of internet penetration across the country, digitization of the banking process is becoming a must. One of the biggest challenges that can be resolved through the digitization of the banking process is avoiding the hassle of standing in long queues for getting the bank work done by turning most of the procedures “paperless”. One of the most popular initiatives is the Know Your Customer (KYC) registration process which has become completely online now.
- Quick Resolution Time : Artificial Intelligence-powered chatbots are helping the Banking industry in a massive by reducing the operational cost and enhancing the customer experience with quick resolution time. Since now, AI Chatbots function on the concept of “Learning from Experience” which helps in reducing human errors by a huge percentage.
In the digital era, “data” is the most important form of currency. With so much of data available everywhere it becomes more important for organizations to make use of it effectively and efficiently.
The technology that is revolutionizing the Fintech industry currency is none other than “Artificial Intelligence”. AI is providing financial institutions with a platform to help people, data and services function coherently.
The role of AI in banking is continuing to gain prominence and the global spending on AI is predicted to touch $300 billion by 2030. While a report published by IBEF estimates that India’s Digital lending would reach US$ 1 Trillion by 2023 as it will be driven by a five-fold increase in digital reimbursements.