Artificial Intelligence in the Banking Sector – A Critical Analysis

Abstract

“Computers will overtake humans with AI in the next 100 years. When that happens, we need to make sure the computers have goals aligned with ours.” The pros and cons of AI is evident in this statement made by Stephen Hawking.The last decade had witnessed tremendous changes in how each industry functions. The rapid growth of technology, internet and infrastructure has fuelled this disruption at a 10X speed.Talk of the town in digital disruption is Artificial Intelligence. Number of mentions of AI or Machine Learning in earning calls by public company executives shows an exponentially rising trend since 2015 as per the data by CBInsights. AI has brought in groundbreaking changes in the global banking industry. The future of AI in banking is enormous as the power of advanced data analytics can combat fraudulent bank transactions and improve compliance. AI technologies reduce costs in the banking sector by increasing productivity. According to Open Text survey of financial services professionals, 80% of banks are highly aware about the potential benefits that AI can bring to the business. What are the potential benefits of AI in financial institutions? Does adopting AI come with risks and costs? What are the regulatory constraints which could be the impediments for implementing AI in the Banking sector? This conceptual paper deals with risks, rewards, use cases and ways to adopt AI in the banking sector. This article also tries to identify the paybacks and also the key uses of some of the tools which are used by both financial institutions and central banks. It also indicates the main constraints of the technology and its likely consequences for the correct functioning of the financial system.