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Artificial Intelligence in Banking: Revolutionizing Efficiency and Customer Engagement

Jerry Adona, CTP, Senior Solution Consultant

Alkami

In the fast-evolving world of banking, artificial intelligence (AI) and robotic process automation (RPA) are leading transformative shifts that promise to enhance both operational efficiency and customer service. As banks and credit unions look towards future-proofing their operations, understanding the breadth and depth of artificial intelligence in banking applications can be a game changer.

 

Understanding Artificial Intelligence and its Banking Applications

Artificial intelligence in banking extends beyond simple automation, incorporating advanced technologies that mimic human cognitive functions and improve various aspects of banking operations. Here’s a closer look at how different artificial intelligence technologies, such as supervised machine learning, unsupervised machine learning or generative artificial intelligence, and robotic process automation, are being implemented in the financial services sector:

 

Supervised Machine Learning:
  • Definition and Use: This type of artificial intelligence involves training a model on a labeled dataset, allowing the algorithm to learn to predict outcomes based on past data.
  • Applications of Artificial Intelligence in Banking: Supervised machine learning is extensively used for credit scoring, fraud detection, and account holder segmentation. It analyzes historical data to make predictions about loan repayment probabilities, identify suspicious transactions, and group customers or members with similar behaviors for targeted marketing.
  • Benefits: Increases accuracy in decision-making processes, reduces risks associated with credit and fraud, and enhances personalized customer service.

 

Unsupervised Machine Learning/Generative Artificial Intelligence:
  • Definition and Use: Unlike supervised learning, unsupervised machine learning does not require labeled data. It identifies patterns and relationships in data sets on its own. Generative artificial intelligence can create new data instances that are similar but not identical to training data.
  • Applications of Artificial Intelligence in Banking: Used for discovering novel customer or member segments and investment opportunities without predefined categories. Generative artificial intelligence in banking is particularly useful in developing new financial products, creating realistic financial scenarios for stress testing, and enhancing account holder interaction through chatbots capable of generating human-like responses.
  • Benefits: Drives innovation by identifying hidden patterns and relationships, supports product development, and enhances account holder engagement through more natural interactions.

 

Robotic Process Automation (RPA):
  • Definition and Use: RPA uses software robots to automate highly repetitive tasks traditionally performed by humans.
  • Applications of Artificial Intelligence in Banking: Automates routine tasks such as data entry, compliance reporting, and basic customer service inquiries. It is also employed in back-office operations like claim processing and account maintenance.
  • Benefits: Significantly reduces processing times, minimizes errors, cuts operational costs, and allows human employees to focus on more complex and value-adding activities.

By leveraging these artificial intelligence technologies, banks and credit unions can not only enhance their operational efficiencies but also provide a more personalized and secure service to their customers or members. Each type of artificial intelligence in banking brings its own set of advantages to the financial sector, pushing the boundaries of what’s possible in terms of automation and intelligent decision-making.

 

Artificial Intelligence Adoption Trends in Banking and Credit Unions for 2024

The landscape of artificial intelligence integration within banking and credit unions is poised for significant change in 2024. Financial institutions are increasingly recognizing the strategic advantages of incorporating advanced technologies like artificial intelligence and RPA into their operations.

 

According to Ron Shevlin at Cornerstone Advisors, the artificial intelligence “revolution” is upon us. Since the pandemic of 2020, banks’ and credit unions’ investments in AI technologies like robotic process automation, chatbots and machine learning have increased. Heading into 2024, roughly a third of credit unions have already deployed RPA and chatbots, with banks a few clicks behind.

 

Below you will see the trends and plans for artificial intelligence adoption, providing a snapshot of how banks and credit unions are preparing to harness these technologies to drive growth, enhance customer experiences, and improve operational efficiencies.

 

Bank Artificial Intelligence Plans for 2024
Have already invested in or deployed Planning to invest and/or implement in 2024 Have discussed at the board or executive team level Not on our radar
Robotic Process Automation 27% 16% 24% 34%
Chatbots 20% 13% 42% 24%
Machine Learning 16% 17% 37% 30%
Generative AI 6% 14% 53% 27%

Source: What’s Going On In Banking 2024 – Cornerstone Advisors

 

Credit Union Artificial Intelligence Plans for 2024
Have already invested in or deployed Planning to invest and/or implement in 2024 Have discussed at the board or executive team level Not on our radar
Robotic Process Automation 35% 29% 29% 6%
Chatbots 32% 20% 24% 24%
Machine Learning 21% 18% 45% 16%
Generative AI 7% 24% 57% 12%

Source: What’s Going On In Banking 2024 – Cornerstone Advisors

 

These figures underscore the commitment within the industry to not only keep pace with technological advancements but also to actively leverage them to redefine the banking experience for account holders and streamline internal processes. The data illustrates a clear trajectory towards wider artificial intelligence in banking adoption, reflecting an acknowledgment of its critical role in shaping the future of financial services.

 

Navigating the Challenges

While the benefits of artificial intelligence in banking are substantial, the adoption of these technologies comes with its own set of challenges:

  • Data Privacy: Ensuring that personal and financial information remains secure and is used ethically.
  • Security Concerns: Protecting systems from cyber threats that can compromise the integrity of automated banking services.
  • Investment in Technology and Training: Allocating resources not only for technology acquisition but also for training staff to effectively use artificial intelligence tools.
  • Ethical Considerations: Addressing potential biases in artificial intelligence algorithms to prevent unfair decision-making processes.

To mitigate these risks, financial institutions are advised to adopt clear strategies for artificial intelligence implementation that include comprehensive data governance and continuous monitoring of artificial intelligence systems to ensure they are working as intended without compromising account holder trust or data integrity.

 

The Future of Artificial Intelligence in Banking

As artificial intelligence in banking technology continues to advance, its potential applications in the financial services sector will expand, offering even more opportunities to enhance operational efficiency and account holder engagement. Banks and credit unions that embrace artificial intelligence and incorporate it into their strategic planning will be better positioned to meet the evolving needs of their account holders and stay competitive in the digital age. Embracing artificial intelligence in banking is not about replacing the human element but rather augmenting it to address the challenges of the 21st century, enhancing customer or member satisfaction, streamlining operations, and ensuring competitiveness in a rapidly changing financial landscape. Implementing artificial intelligence and RPA is essential for financial institutions aiming to improve efficiency and effectiveness in their operations today.

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Alkami Technology Digital Banking Solutions
Alkami Technology, Inc. is a leading cloud-based digital banking solutions provider for financial institutions in the United States that enables clients to grow confidently, adapt quickly and build thriving digital communities.
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