How AI and machine learning are changing the banking industry

Digital transformation is extremely crucial given the unprecedented times we are in.  To modernize banks and legacy business systems, without causing any disruptions to the existing system is one of the major challenges. However, artificial intelligence (AI) and machine learning (ML) has evolved as the crucial enabler in conducting hassle and risk-free digital transformation. An AI and ML-led approach to system modernization will allow businesses to collaborate with other fintech services into adapting modern demands and regulations while increasing safety and enabling security.

In the world of banking, the increasing pressure in managing risk along with growing governance and regulatory requirements it is mandatory for banks to enhance their services towards more exceptional and better customer service. Fintech brands are increasingly using AI and ML in a range of applications across multiple channels to leverage all the available client data to predict how customers’ needs are evolving, what services will prove to be beneficial for them, what kind of fraudulent activity has the highest possibility to attack customer’s system etc. Banks can leverage the power of AI and ML in banking, along with data science acceleration, to enhance customer’s portfolio offerings.

Role of artificial intelligence and machine learning in banking and finance:

Mitigate risk management – One of the best examples to showcase the benefits of Machine Learning can be described here. Back in the days, while providing loans to customers, banks had to rely on the client’s history to understand the creditworthiness of that respective customer. The process was not always accurate, and banks had to face difficulties in approving the loans at times. But with the digital transformation, the machine learning algorithm analyses the customer in a better way to process the loan in a much convenient manner. 

Protecting fraudulent activities – Banks are already one of the most highly regulated institutions and must comply with strict government regulations in order to prevent defaulting or not catching financial crimes within their systems. This is one of the major reasons for the banking processes to go all digital in such a short span of time. To mitigate fraudulent activity, it is very important to understand the risk before any suspicious activity has begun. During the traditional process, for banks to protect customers from fraudulent activity, they had to violate some pre-set protocols. While ML can sense suspicious activity even before the external threat violates the customer’s account. The underlying benefit from this is, machines can perform high-level analysis in real-time which is impossible for humans to perform manually.

The functionality of chatbots – Chatbots are basically AI-led software that clones human conversation. The technology imbibed in chatbots makes it extremely convenient for banks to serve customer queries quickly. The chatbots are proving extremely beneficial for financial institutions to serve large scale customer issues in a matter of a few hours.

Algorithm-based marketing – The ability to recognize the past behaviour of the customer and to craft targeted campaigns is a boon for both customers and banks. This customized campaign creates all the necessary information the client would require making both save a lot of time and energy. Modern customer also enjoys services that are customized according to their preferences and enhance their banking experience. 

With the surge of fintech companies and the rapid change in the use of technology, it was a matter of time that AI and ML would enter the modern banking and change the dynamic forever. Use of AI and ML will offer predictive data analysis as banks and financial institutions will look to offer better services with more actionable information such as patterned data sets of customers behaviour and spending behaviour.  AI adoption for financial institutions will be the key to gain a competitive edge as they will be able to offer a fast, secure, and personalized baking experience to the customers.  

Ramki Gaddipati

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Ramki Gaddipati is co-founder and CTO of Zeta, a fintech in the business of providing a full stack, cloud native, API-first neo-banking platform. The views in this article are his own.