How Artificial Intelligence is Shaping the Banking World?

Artificial intelligence (AI) in banking is evolving, contributing to the potential for higher-complexity deals that create a positive return on investment (ROI) across all areas of the business. Adoption of AI solutions in banking is widespread: Most financial services firms report implementing the technology in business areas such as risk management (56%) and revenue generation through new products and processes (52%), according to the Cambridge Centre for Alternative Finance and the World Economic Forum. As AI gains popularity in the banking sector, financial institutions are relying on existing solutions to solve increasingly complex challenges.??

Most banks are aware of the potential benefits presented by AI and machine learning. In fact, most banks are planning to generate AI-enabled solutions. Furthermore, banks with the largest global presence and prestige, such as Goldman Sachs or JP Morgan Chase, are currently implementing AI strategies. According to Business Insider, certain AI use cases have already gained prominence in bank operations, with chatbots in the front office and combating payment fraud in the middle office being the most important.?

The Benefits of Artificial Intelligence in Banking?

Banks are rapidly adopting advanced computational projects to enhance business capabilities by executing artificial and manufactured awareness to control fraud or further develop customer interaction capabilities. With the help of machine learning, artificial intelligence has succeeded in redefining banking operations.??

According to various sources, the implementation of AI in banking will generate $450 billion in revenue by 2023 and $1 trillion (about $3,100 per person in the US) in cost reduction, especially in terms of process facilitation and, subsequently, process effectiveness. It would also reduce the labor-intensive work of finding fraud by employees and redirect that energy to the development of anti-fraud software that effectively identifies fraudulent transactions with zero margin of error.?

However, for underwriting processes, the advantages of AI are invaluable, as they include automated creation of financial plans, collection of loan application statements, and the transfer of large databases, with the goal of making risk decisions based on past data and providing hedging recommendations.??

Applications of AI in Banking?

With the help of artificial intelligence, banks will be able to reduce the huge burden created by non-performing loans.AI algorithms use a wealth of internal and external data sources to create a more holistic view of the financial position a customer is in. Therefore, they can calibrate red flags and be on the lookout in case a customer's risk profile changes.?

On the other hand, a great application of artificial intelligence in banking is capital optimization, as, simply put, it ensures that the bank always maintains sufficient cash flow to meet short-term operating costs as well as short-term debt obligations.?

In general, AI algorithms approach capital optimization in two main ways: the cash approach and the long-term approach. The former is an emergency measure to reduce cash outflows, avoiding non-profit expenses and optimizing cash returns.??

In the long term, AI will seek to maintain supply chain accuracy, optimize assets and liabilities, track expenses, and refine transaction processes. Undoubtedly, AI systems help improve the reliability of error assessment by implementing a system that identifies and prevents errors that humans can make.?

In conclusion, it is fundamental to understand that technology is advancing every day and Artificial intelligence is only the first step for progress and technological innovation in the banking and financial sectors in general. Undoubtedly, artificial intelligence has had an important impact on the banking sector, in the factors of automation, facilitation of transaction processes and analysis of large databases. All this influences the present and will influence the future. IIt is imperative to increase technical and professional skills in the sector, because otherwise, the IA will take your place.?

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Julian Ramirez is a Finance and International Affairs student who has decided to focus specifically on the investment banking sector. An honors graduate of New York High School, holder of the prestigious IB (International Baccalaureate) diploma and fundamentally passionate about banking and finance in general

?Bibliography:?

The impact of artificial intelligence in the banking sector & how AI is being used in 2022. (2022, February 7). Business Insider. https://www.businessinsider.com/ai-in-banking-report?international=true&r=US&IR=T?

AI in finance 2022: 10 ways AI is transforming the finance Industry. (2022, March 29). CYVATAR.AI. https://cyvatar.ai/ai-bank-fintech/?

(2021a, April 28). Top 3 Use Cases of AI in Banking and Finance. The ChatC Group. https://chatc.ai/ai-in-banking-and-finance/?