The Effect of the Use of Artificial Intelligence and Operational Risk Management on Banking Performance with the Implementation of Regulation as a Moderation Variable

Abstract

The Industrial Revolution 4.0 motivates banks to digitalize banking. Banks must innovate using technology and need to pay attention to the business operational risks that arise due to the technology implementation. Several previous studies have described the benefits of AI in banking in qualitative research; not many have proven it empirically. This study aims to analyze the effect of Artificial Intelligence (AI) and operational risk management on banking performance by implementing regulations as a moderating variable. The data was obtained through a survey of 170 bank employee respondents who had implemented banking digitization. The data were processed using the SmartPLS 3.0 program with multiple linear analysis methods. The results show that the use of AI does not affect banking performance.Meanwhile, operational risk management has a positive effect on banking performance. Implementation of regulations has been proven to strengthen the influence of AI on banking performance. However, not for the impact of operational risk management on banking performance. This research has managerial implications for banking that banks need to analyze the importance of using artificial intelligence and active risk management in improving performance. RegTechs (Regulatory Technology) is an urgency to be implemented in anticipation of potential fraud, which can be in the form of knowing your customer (KYC), fraud detection, regulatory compliance, and risk management, done digitally by utilizing technologies such as databases, artificial intelligence to the blockchain. This research also has implications for the government, particularly the OJK and BI, in evaluating banking policies or laws, especially those related to the implementation of banking digitization in Indonesia, regulations related to customer data security and cyber resilience.