Banking Article, Banking Finance 2021, Banking Finance January 2021

Artificial Intelligence (AI) – “An Inevitable Transformation in Banking Sector”

Introduction:

Artificial intelligence (AI), sometimes called machine intelligence, is an area of computer science that emphasizes the creation and development of intelligent machines that works and reacts like humans.  So, when a machine mimics a human mind by thinking for itself, it is known as Artificial Intelligence.

Some of these activities are – Learning, Speech recognition, Perception, Planning, Reasoning, Problem solving and also the ability to operate and move objects around.

John Mc Carthy is considered one of the founding fathers of artificial intelligence along with Alan Turing, Marvin Minsky, Allen Newell and Herbert A Simon. It is Mc Carthy who had coined the term Artificial Intelligence in 1955 and organized the famous Dartmouth conference in summer of 1956.

However intelligent robots and artificial intelligence made their first appearance in the ancient Greek myths of Antiquity. Aristotle’s development of the syllogism and its usage of deductive reasoning were presumed to be a key moment in mankind’s quest in understanding its own intelligence. While the roots penetrate longer and deeper, the history of artificial intelligence as we think of it today spans less than a century.

Artificial Intelligence is now used in various fields, providing an accurate, efficient and performance oriented system. Agriculture and farming, security and surveillance, production and manufacturing, banking, healthcare and supply chain management are some of the areas where AI has made significant impact.

Disease mapping and prediction tools, conversational bots for marketing and customer services, spam filters on emails, social media monitoring tools for dangerous content of false news, Siri, Alexa and other personal assistants, Self-driving cars, drone and robots etc are some of the most popular and appropriate examples of Artificial Intelligence.

Importance of Artificial Intelligence in Banking Sector:

In present era the role of banks are very important for the development of financial life cycle for modern society as it handles cash, credits and various financial transactions. In other words we can say the banks are now financial supermarket like other shopping centers of essential items.

In past the handling of financial transactions was not that easy because entire process was dependent upon the human efforts only, a lot of paper work and a chain of human being was required to manage the regular transactions with accuracy.

To improve the traditional phenomena banks primarily used computers where they had a detailed record in their databases. In the chain of that various channels were added like ATMs, Mails, Internet Banking, mobile banking etc, that made a revolution in banking sector and provided a structured path to move on.

This smooth operation of the banking world that is done through computers and network is possible only because of the Artificial Intelligence. AI technologies are making banking processes faster, money transfers safer and back-end operations more effective and efficient.

Banks are deploying various artificial intelligence techniques to enhance the customer delight by enabling frictionless, 24 x 7 customer interaction. AI in banking applications is not just limited to retail banking services, and it also extends its benefits to the back and middle offices of investment banking and all other financial services. There are numerous aspects of AI illustrated below that will enlighten on its importance in modern banking system.

Effective decision-making: Cognitive systems that think and respond like human experts, and provide optimal solutions based on available data in real-time. These systems keep a repository of expert information in its database called knowledge database. Bankers use these cognitive systems to make strategic decisions.

Now it’s realistic to imagine a magical combination of AI and human mind that expands our mental skills and masters scientific challenges. This hybrid technology may also combine human mind with artificial devices to enable us to improve our physical or cognitive abilities without facing any time, location and other physical constraints.

Cognitive process automation: This mechanism ensures complete automation of a range of information-based, costly and risk-prone banking services. This helps in securing Rate of Interest, reduces costs and ensures precise and fast processing of services at each stage. It is a process that takes care of learning and improvising on previous experiences automatically and adopts an advanced approach without human intervention for its performance through constant machine learning.

Customer Satisfaction: Customer satisfaction is the first and foremost important factor of any bank. The banks provide personalized and most efficient services to each and every individual customer. AI helps in increasing revenue, faster decision making and having a good customer relationship.

Having AI not only ensures that the customers are happy but it also helps the banks to maintain and have well organized back offices. Based on past interactions, AI develops a better understanding of customers and their behavior. This enables banks to customize financial products and services by adding personalized features and intuitive interactions to deliver meaningful customer engagement and build strong relationships with its customers.

Detection of Frauds & Prevention: Fraudulent activities are one of the most fearful concerns amongst the people and banking industry. Especially when a financial fraud occurs, the effected individual finds it very difficult to cope and recover from such losses.

Whenever any fraudulent activity noticed by bank and if it is immediately brought to the attention of the bank, then the bank authorities takes prompt and necessary action to handle the incident in a very organized manner, and this is because of the artificial intelligence .This quick response has helped the customers to built their trust with the bank as well as it helps the bank to retain their loyal customers.

This helps banks to identify fraud, detect anti-money laundering pattern and make customer recommendations. Money launderers, through a series of actions, portray that the source of their illegal money is legal. With its power of Machine Learning and Cognition, AI identifies these hidden actions and helps save millions for banks.

AI has enormous ability to detect and minimize banking frauds. It reduces fraud and financial crimes by monitoring behavioral patterns of users for any kind of abnormal changes or anomalies. The tool that is used for AI gets smarter and smarter day by day. In other words AI has developed a better immune system in banking sector to resist and fight with the fraudulent and suspicious activities.

Vaticination of future outcomes and trends: AI has the power to predict future scenarios by analyzing past behaviors, it helps banks predict future outcomes and trends. AI is able to detect suspicious data patterns easily among humungous volumes of data to carry out fraud management. Further, with its key recommendation engines, AI studies past to predict future behavior of data points, which helps banks to successfully up-sell, cross-sell and also for other financial activities.

Digitalization: While it is understood, the growing customer’s demands have forced banks to embrace digitization, build easy to use simple user interfaces, and offer better customer support integrating bots & human interactions; a lot more can be done to further enrich a customer’s relationship with a bank. Artificial intelligence is widely perceived as a catalyst that could help the banks strengthen relationships with their customers.

AI provides numerous benefits in the form of reduced operational costs & improved customer relationship by using digitalization in banking industry like-

  • It helps in enhancing customer experience.
  • It is time saving for both the customers as well as the bank.
  • It helps to improve accessibility to information.
  • It helps to reduce the human error or as risk mitigator.
  • It helps in the movement of large cash inflow and out flow.
  • It helps in dealing with cashless transactions from any place and at any time
  • It reduces the cost of transaction for the banks.
  • It strengthens monitoring of financial transactions and other banking activities.
  • It helps in implementation of Government’s schemes and policies.

 

Role in Marketing: Artificial intelligence (AI) in marketing is a very powerful tool, it allows marketers to crunch huge amounts of marketing data analytics from social media, emails and the web in a relatively faster time. Moreover the insights they get in a shorter time frame will help marketers boost campaign performance and return on investment faster. This gives marketers and businesses more time to focus on other quality important tasks. Some of the major contributions of AI in respect of marketing are enumerated here under-

  • Gain a deeper understating of customers.
  • Optimize digital advertising campaign.
  • It Boost cross-selling rate by using customer journey analytics.
  • It facilitates identification of future outcomes.
  • It cushions marketers to track the performance of their contenton a real-time basis.
  • It helps in deciding what content to fashion and when to distribute it.
  • It predicts customer behavior and identifies and nurtures the needs of the customers.
  • It guides in developing customized products and services.

Enhanced Digital Advertising: In the present era of banking, it is one of the biggest challenges in our banking industry to deliver effectual advertising for their strong appearance in the market. Digital advertising is routed through various online and digital channels.

It leverages mediums such as emails, social Media, mobile applications, search engines and websites to display advertisements and messages to the suitable market by using AI as a catalyst. It will act as a powerful mechanism to bring about a drastic change in the way business advertise their products and services. Today digital advertising strategies would be impossible without a rudimentary form of AI.

Utility in Credit and Monitoring: In the past, banks were not able to assess the previous credit history of an applicant during their lending process. Transunion CIBIL Limited, India’s first   credit information company, referred as credit bureau.

It collects and maintains the records pertaining to loans and credit cards of individuals and commercial entities. In the form of score CIBIL implies the past repayment history, length of account, types of credit facilities and inquiries made by the applicants.

It helps immensely in effective deployment of credit through a robust appraisal system and thus ensures the minimum deterioration in quality of assets. Also credit monitoring is very essential for the Banks to keep borrower’s account safe from fraud and unwanted slippages. AI plays a vital role to receive early warning signals for the accounts with potential stressed. It may help the banks identify and detect fraud cases with higher accuracy and at large scale.

Application of AI in HR: Artificial Intelligence plays a significant role in transforming HR and workforce. Some of the applications are illustrated below-

  • It improves relationship between the employees and the organization.
  • It reduces the human bias.
  • It rationalizes the training need analysis.
  • It develops conducive workplace learning environment.
  • Scientific distribution of work amongst employees.
  • Business outcome focused performance appraisal system.
  • Operational requirement based staff deployment.

The future of AI in Banking Sector:

Now we have understood the benefits and importance of AI in banking industry.AI has reached the stage where it is sufficiently advanced and affordable to warrant practical implementation in financial services. Banks are busy exploring ways in which they can harness the power of AI to streamline internal process and improve the customer experience.

If we look the development in the field of technology, we see that it is getting smarter day by day, this gives us assurance that in the future we can only see that technology of AI going stronger and stronger, which will help the customer to have a secure banking experience.

In today’s low-trust environment, artificial intelligence offers a new way to tackle financial fraud, build trust, and create a secure financial atmosphere. New forms of AI are being introduced to catch fraudsters with exceptional speed and efficiency. Other potential future applications of AI in banking and finance lie in the area of customer service and sales of financial products.

EASE 3.0(Enhanced Access & Service Excellence), which is PSBs reforms agenda for FY 2020 – 2021. It sets the implementation roadmap for this financial year. EASE 3.0 aims to drive transformation in mass banking landscape by way of adopting digital driven services offering backed by robust IT support system in marketing, loan underwriting, monitoring, dynamic rating and best customer services.

It is fully focused on AI as it emphasizes highly on Digitization, Data Analytics, and Governance etc through all its 5 themes, 27 Action Points and 38 Evaluation metrics. In brief EASE 3.0 seeks to enhance ease of banking in all customer experiences using technology, alternate data analytics, Dial-a-Loan for doorstep loan facilitation.

Credit@click for end to end digitized lending, analytics based and Technology –enabled Retail and MSME credit outreach and Due diligence through digitally populated data. Prudent lending through IT- based system for scoring, rating and pricing of risk. On the spot EASE banking outlets at frequently visited places like Malls, stations, office complexes etc. Palm banking, digitalized branch experience and tech enabled agriculture lending are the key highlights of EASE 3.0 action points.

Covid-19 pandemic has accelerated digital transformation at banks. Pete Swabey, Editorial director of Europe, the Middle East and Africa (EMEA) at the Economist Intelligence Unit (EIU) said “Retail, corporate and banks were already under pressure to deploy new technologies quickly and charge their cultures to compete with big tech firms and payment players to deliver an engaging digital experience. Now as digital banking surges as a result of Covid-19 crisis, this task is more pressing than ever”.

As per the various reports and survey artificial intelligence will become the primary channel through which financial institutions and their clients will interact in coming days. Let us look at some of the areas in which AI will rule in future.

 

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