Cash News
– By Vipul Chandra
The banking and finance sector forms the spine of our global economic system by facilitating capital pooling and allocation, international and domestic trade etc. Given its strategic importance and connects with general population, it is also a highly regulated sector. The sector constantly faces numerous operational challenges including data management, decision-making, and customer service. The advent of AI technologies, particularly Generative AI (GenAI), has emerged as a groundbreaking solution to address these challenges. It is set to reshape the anatomy of operations in banking and finance, paving the way for a smarter and a more resilient future.
GenAI is rapidly gaining traction in the finance industry, leveraging cutting edge algorithms to process data and generate valuable insights that aid in making informed financial decisions. Its applications are set to redefine traditional approaches, offering advancements in various areas. From personalized customer experiences to risk assessment and fraud detection, it is revolutionizing how financial institutions operate and serve their customers. A key driver of GenAI’s transformative power in finance is its use of deep learning and reinforcement learning. These sophisticated algorithms enable models to be trained on vast datasets generated daily by the market and help with generating trading signals, aiding in portfolio optimization, fraud
detection, and numerous other critical functions.
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According to the McKinsey Global Institute (MGI), GenAI is poised to make a positive impact across all industries, with the banking sector potentially experiencing the most significant revenue growth. It estimates that GenAI could add between $200 billion and $340 billion in annual value to the global banking sector, representing 2.8 to 4.7 percent of total industry revenues, primarily through increased productivity.
Generative AI use cases in banking and financial services
Fraud detection and prevention:
GenAI enhances the adaptability and precision of fraud detection systems against evolving threats. It can refine and test these systems and play a crucial role in training machine learning models for superior fraud prediction. By generating realistic, synthetic data that mimics real-world fraud scenarios, GenAI can be used to train machine learning models to identify even the most sophisticated attempts, thereby preventing fraud.
Personalized customer experience:
GenAI can revolutionize customer engagement by analyzing vast amounts of data to generate personalized recommendations tailored to each customer’s unique requirements, fostering trust and loyalty. It can also aid the customer service agents with real time inputs on the customer being serviced so that the agent can focus on the conversation with customer. It can offer tailored suggestions for credit cards, loans, insurance, and investment products, which can result in enhanced customer satisfaction while presenting cross-selling and upselling opportunities for financial institutions, ultimately driving increased revenue and customer lifetime value.
Risk assessment and credit scoring:
GenAI can drive innovation by generating synthetic data for model training, enabling institutions to simulate diverse risk scenarios and identify correlations, dependencies, and emerging risks. In creditworthiness evaluation, GenAI can analyze customer portfolio data to identify key patterns, improving loan approval decisions and credit scoring accuracy. It can help
optimize capital allocation, reduce turnaround times through automation, and streamline risk assessment workflows.
Chatbots and virtual assistants:
GenAI is pivotal in empowering virtual agents to generate contextually relevant and human-like responses, facilitating seamless conversations with 24/7 assistance. By analyzing vast datasets, it enables virtual agents to provide personalized responses, reduce wait times, and handle high volumes of inquiries simultaneously, significantly enhancing overall customer satisfaction.
Compliance and regulatory reporting:
Financial institutions face extensive regulations, often involving manual effort and errors. GenAI can automate regulatory analysis, monitor transactions, and provide real-time alerts, improving compliance efficiency and accuracy. This can reduce manual errors, streamline processes, and save costs.
Loan underwriting and mortgage approval:
GenAI can transform loan underwriting and mortgage approval processes with precise model training. It can help automate document verification and risk assessment, reducing manual effort and processing time while retaining human control. Furthermore, it can improve the customer experience by speeding up approvals and providing personalized loan
recommendations. This would result in higher loan approval rates, fewer defaults, and greater customer satisfaction through a streamlined application process.
Reducing costs:
By automating critical processes that were previously performed manually, such as data analysis, fraud detection, and more, financial institutions can optimize resource allocation and enhance their efficiency. This automation liberates professionals from routine duties, enabling them to focus on strategic initiatives that drive revenue growth and lower operational expenses.
Onboarding customers:
GenAI can transform customer onboarding by automating crucial tasks such as identity verification, documentation checks, and compliance. It can scrutinize data to create personalized customer profiles, tailoring services based on preferences.
GenAI’s transformative power extends far beyond the applications we’ve explored. Its sophisticated algorithms can empower a vast array of critical operations, such as debt collection, automated back-office processes, innovation and design of financial products, audits, internal controls, and more, to revolutionize operations within the banking and financial sector.
The road ahead
Embracing technology is the key for driving progress. While the banking sector has historically been seen as conservative and hesitant to adopt new technologies, this perception is rapidly changing with the rising adoption of artificial intelligence across the industry.
In this evolving landscape, GenAI stands at the forefront of revolutionizing banking and finance. Its transformative capabilities are reshaping operations, benefiting institutions to a great extent. As financial institutions increasingly integrate these technologies, they are set to gain competitive advantages through improved efficiency, personalized customer experiences, and advanced risk management capabilities. Looking ahead, ongoing advancements in Gen AI promise to redefine the financial landscape, enabling institutions to navigate complexities, innovate swiftly, and achieve sustainable growth in the digital era.
(Vipul Chandra is the CFO of LTIMindtree.)
(Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.)