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Banking / Financial

How AI Will Transform the Banking Industry – Now and in the Future

As artificial intelligence (AI) transforms industries ranging from healthcare to manufacturing to customer service, its development also seems to have a myriad of applications for the banking and financial services industries, not the least of which is in improved efficiency, fraud protection and innovation. As banks of all sizes across the Garden State slowly deploy generative AI to improve day-to-day operations for employees as well as enhance the customer experience, they are continuing to learn how to balance its potential with an ongoing commitment to developing personal, human relationships with their customers.

“AI has the potential to significantly impact the banking industry by enhancing security through advanced fraud detection, improving service with chatbots and virtual assistants and increasing efficiency through automation of routine tasks such as transaction processing,” explains Ravi Vakacherla, executive vice president, chief digital and innovation officer at Provident Bank. 

While the machine learning aspect of AI has been around for quite some time, Sanjay Sidhwani, chief data and analytics officer for Valley Bank, says it’s the more recent development of generative AI that may have the greatest impacts on the industry in the future. “Since generative AI can analyze data and predict what’s next, financial institutions are already starting to use that capability for efficiency purposes when it comes to their internal documentation,” he explains. “Not only does this help make employees more efficient, but it allows them to focus more of their time on customer-facing activities.”

Russ Barrett, chief operations officer for Valley Bank, agrees that because banks produce such an extensive amount of data, AI will enable their institutions to start to leverage that data to better anticipate customers’ needs while at the same time serving the needs of employees. 

While the future possibilities of AI within the banking industry are seemingly endless, Vakacherla notes that AI is currently influencing areas such as customer interactions, fraud prevention, and data analysis. “Looking ahead, we anticipate continued growth in AI applications, especially in risk management and predictive analytics,” he adds.

Bank of America is already implementing AI-driven solutions like Erica, the first widely available virtual financial assistant, to help with customers’ banking needs and simplify their financial lives. A Bank of America spokesperson says that the institution is seeing more clients engaging with their finances digitally overall; in 2023, 67.1% of Bank of America clients in New Jersey were digitally active, and nearly one-third, or 28.9%, of clients interacted with Erica. The 24.1% increase year-over-year indicates the appetite for client-centered AI solutions, the spokesperson notes. However, data also shows that while customers are using digital tools more than ever, many still prefer to handle more complex transactions within the financial centers. 

Clients across Bank of America businesses, including Merrill and Private Bank, are also increasingly using EricaⓇ to help resolve questions and simplify their finances. “The technology can assist by proactively detecting duplicate charges on an account, notifying clients of increased spending or low account balances and addressing transaction-related questions,” she adds. “Bank of America is investing in AI to better understand individuals’ financial decisions as well as deliver tailored insights, personalized advice and relevant resources in real-time.”

But perhaps one of the greatest impacts of AI in the banking world will be within the realm of fraud – an area that financial institutions of all sizes continue to grapple with on a daily basis. “The reality is that fraudsters tend to be very sophisticated these days, and what AI will hopefully be able to do is make customers more sophisticated than the fraudsters,” Barrett explains. 

Another key impact of AI in the banking industry lies in reinforcing the trust between both banks and customers as well as banks and regulators. Barrett notes that improvement in the quality of credit underwriting or risk management processes all plays into the capabilities of what AI can do for banks. “The bedrock of banking is trust, and these capabilities relate to the repeatability, consistency and quality that AI can accomplish to help create that atmosphere of trust,” he says. “It certainly won’t be the most elegant of all the potential applications, but I think it’s the one that’s going to be the most meaningful for the banking industry.”

As with any new technology, the implementation of AI within financial institutions could also present some challenges along the way. Vakacherla explains that these challenges may include navigating complex regulatory landscapes, addressing potential biases in algorithms, and ensuring responsible use of customer data. “Balancing innovation with ethical considerations and data privacy remains a focal point for the industry,” he adds. “Striking the right balance between automation and human oversight is crucial to mitigate risks.”

According to Sidhwani, the size of the institution seems to be playing a role in which banks are already investing in AI. He predicts that its usage will become more widespread as banks determine the optimal ways to take advantage of its capabilities. “AI is a transformative technology, and much like the development of the Internet or the mobile phone, it took a while to figure out the best ways to use it. …We probably can’t even imagine all the ways to incorporate AI into banking yet,” Sidhwani adds. “It’s a really exciting time to be in this space and see how AI’s capabilities will improve both the experience of our customers as well as our efficiency.”

Another ongoing concern across many industries has been how the more widespread usage of AI will impact human interaction with customers. To that end, the state’s financial institutions are striving to blend the developing technology with a renewed commitment to providing a personal touch in their customer interactions. 

“A lot of the automation that happened over the last 15 or 20 years felt as though it came at the expense of service to customers. While community and mid-sized banks still maintain that high level of human interaction with customers, this next chapter of leveraging AI is going to offer employees an incredible amount of insight and support as well as an increased ease of doing business,” Barrett says. “We believe strongly that we will be able to use AI’s automation to deepen relationships, deepen trust and make life easier for customers … and if it’s not going to work that way, then we aren’t going to use it.”

Vakacherla reiterates that the primary goal for banks is to incorporate AI to enhance security and improve efficiencies, while not using it to replace human interaction. “Provident plans to take a very deliberate and thoughtful approach to adopting AI, while maintaining the personalized touchpoints our customers are accustomed to and continuing to manage risks effectively,” he says.

Along with the technological aspects of integrating AI into day-to-day operations, Vakacherla explains that it’s crucial that banks prioritize customer needs, safeguard their data, and uphold privacy standards. “An emphasis on fostering a balanced approach – where AI complements human touchpoints rather than replaces them – helps in providing a customer-centric banking experience,” he concludes. “This approach ensures that advancements in technology align with the trust, transparency and personalized experiences that customers expect from banks and other financial institutions.”

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