The financial services industry is undergoing a significant transformation driven by advancements in artificial intelligence (AI) and machine learning (ML). These technologies, coupled with recent developments in Large Language Models (LLMs) such as ChatGPT, are reshaping the landscape of the financial sector. Financial institutions are exploring AI and ML’s myriad possibilities with potential applications from enhancing consumer financial literacy to implementing risk mitigation algorithms.
A recent survey conducted by FIS reveals that most executives in the United States and the United Kingdom are committed to investing in AI and ML technologies. Specifically, 92% of respondents plan to increase or maintain their investment in AI and ML for processing, while 91% are equally committed to investing in generative AI.
Transitioning to a Testing Phase
Melissa Cullen, the Global Head of Strategy, Product, and Commercialization of Banking Solutions at FIS, notes that financial services have long relied on technology to address their most pressing challenges. AI is gaining substantial attention as the industry faces increasing pressure to manage costs and grow assets. Financial institutions are transitioning from a “wait and see” approach to a more proactive “test and explore” mode, making deliberate investments in preliminary use cases.
While AI’s most common applications still revolve around data collection and analytics, there is a growing trend of testing it to improve customer experiences and reduce operational expenses.
Navigating regulatory challenges
Unlike some industries, financial services operate in a highly regulated environment, given their pivotal role in the modern economy. Joe Robinson, CEO of Hummingbird, emphasizes the importance of a cautious approach. Financial institutions must navigate the complex rules and regulations governing their operations.
Robinson suggests that financial institutions can leverage AI while ensuring regulatory compliance through explainable algorithms, auditable decision-making processes, and human-in-the-loop reviews. He advises starting small, observing outcomes, and scaling up thoughtfully and pragmatically.
Cullen adds that building the necessary talent infrastructure is critical. Identifying areas for hiring and augmentation, especially in response to evolving regulatory requirements, is essential for successful AI implementation.
AI’s wide-ranging applications in finance
According to FIS research, financial services providers invest in AI for good reasons. Consumers demand streamlined experiences in investing, payments, and money management processes. In response, executives focus on improving customer experience (CX) and automation.
However, there appears to be a disconnect between what consumers define as streamlining and improved CX and what financial services companies prioritize. While consumers seek a single platform to manage all their financial activities across providers, financial institutions want to add new tools and capabilities or enhance existing ones.
On the consumer side, LLMs like ChatGPT can be utilized to educate consumers about various financial products and services, ultimately enhancing financial literacy. Imagine having a trusted, smart assistant that meets consumers at their knowledge level and helps them understand core personal finance topics. LLMs can already provide this, with the potential to convince consumers of its benefits, if they believe the technology has been adopted safely and responsibly.
Back-of-House Applications
In back-of-house operations, AI can be a game-changer. It can help financial institutions increase the adoption of their products and services, mitigate risks, and boost operational efficiency. For instance, applying AI to Know Your Customer (KYC) compliance can lead to a more thorough and efficient understanding of customers, helping financial institutions avoid hidden risks.
Cullen emphasizes the “huge opportunities” for utilizing AI in customer onboarding and ongoing support. For consumers to embrace AI-powered interactions, they need to be useful, accessible, reliable, and contextualized. The expectations of a financial institution entrusted with life savings are even higher, given the desire for highly personalized experiences.
The crucial role of human oversight
While AI and ML offer immense potential, maintaining human oversight is essential to win and retain consumer confidence. While consumers may tolerate incorrect information when shopping online, the consequences of incorrect data in insurance underwriting or investment advice could be disastrous. Therefore, a careful balance between AI and human oversight is vital for the financial services industry.
The financial services industry is on the cusp of a technological revolution driven by AI and ML. Despite the challenges posed by regulations, financial institutions are embracing these technologies to streamline operations, enhance customer experiences, and improve overall efficiency. However, they must tread cautiously, ensuring that AI implementation meets regulatory requirements and consumer expectations. As AI continues to evolve, financial services are poised to transform significantly, offering consumers more accessible and personalized financial solutions.