High-Stakes Innovation: Is AI In Banking Worth The Gamble?

It's no secret that today, banks are implementing AI more eagerly than ever. Just last year, we saw examples of JPMorgan, Goldman Sachs, Citigroup excelling in the AI race — and these are not the only examples. 

Yes, its potential to streamline operations and reduce costs makes artificial intelligence the most desired technology for many financial businesses. But there’s bad news: AI, the same technology promising a brighter future for banking, is also being weaponized by cybercriminals. A recent Deloitte report predicts that by 2027, banks in the US alone could stand to lose up to $40 billion in fraud schemes powered by AI. Fraudsters use sophisticated AI-powered attacks to target both banks and their customers. 

So, this raises a critical question: is AI, in its current form, a force for good in banking or a ticking time bomb? The answer is far from simple. Let’s try to find out.

What Key Benefits Does Banking Get From AI?

Let’s begin by stating  that the use of AI does come with a lot of crucial benefits for banks — many among them are working towards using artificial intelligence to provide better services and reduce operational load across the company. 

Chatbots and virtual assistants are used to provide 24/7 customer support, answer queries and resolve issues in real-time. For example, in January ING, the famous global bank, implemented generative AI (GenAI) to launch a customer-facing chatbot designed to make customer support more personalized. 

AI-driven credit scoring systems analyze vast amounts of data to assess the creditworthiness of applicants with far more accuracy than traditional methods ever could. Fraud detection systems make use of machine learning to identify and mitigate fraudulent activities, often before they can cause significant harm. Payment giant Mastercard quickly realized it and developed a new GenAI model to help banks improve their fraud rates by up to 300%. 

At the same time, automation powered by AI also streamlines a wide array of mundane tasks, helping banks to free up human resources for responsibilities that require greater personal involvement. And analyzing customer data to tailor offerings and recommendations means that banks can bring client satisfaction to a whole new level.

This might make AI sound like a flawless technology that modern banks should adopt and integrate. However, like every innovation, AI poses certain risks. Let's discuss them.

What Should Banks Be Cautious of in AI Integration? 

AI unstoppably grows by leaps and bounds, and the efforts to regulate it become more complicated as well. The need for banks to comply with the constantly evolving AI regulations demands extra efforts and resources which some banks may not be able to afford. The most recent case was the Consumer Financial Protection Bureau (CFPB) highlighting organization's approach to regulating AI and expressing the desire to set rules for how banks use it. And this is just one example. 

Another major problem here is the shortage of AI talent, causing companies to struggle for every experienced professional. And yes, it’s not a cheap option to host AI, but for banks, sharing the data with the contractors or other third parties could be really unsafe. 

Also, we should bear in mind the human side. Many people are afraid of losing their jobs and will never say ‘thanks’ to banks if it happens. Moreover, it can ruin a company’s HR brand and lead to a loss of a positive reputation.

And last but not least, one of the most important threats for banks — criminals. As technology becomes more accessible, hackers and scammers will be the first to use AI to attack banks and steal clients' money and data. As the Treasury Department warned us in March, "AI is making financial fraud easier and more sophisticated". And Deloitte's data at the beginning of this article proves it. 

Proceed With Caution: What Can Banks Do To Overcome AI Threats?

The siren song of AI beckons banks, promising a future of hyper-efficiency and personalized customer experiences. However, rushing headlong into this digital revolution without a careful strategy could be disastrous.  

So, banks need to take a deep breath and wait for solid regulations to emerge before making significant investments. This isn’t about fear-mongering but about ensuring that AI’s implementation aligns with ethical and security standards.

My main thought is that the key to success lies in a hybrid approach focusing on both people and technology. Empowering employees to understand AI, recognize potential fraud, and identify opportunities to use it in their daily work is essential. This investment not only bolsters security but also unlocks AI’s full potential within the organization.

While AI surpasses humans in efficiency and accuracy for certain tasks, it still clearly  requires human oversight and judgment. This means harnessing AI’s power while maintaining a human-centric approach.

My last point: AI is a powerful tool, but it’s not a magic bullet. It’s time for banks to move beyond the hype and embrace a balanced strategy that prioritizes safety, security, and responsible implementation. By investing in education, promoting transparency, and fostering a human-centric approach, banks can unlock AI’s true potential and usher in a new era of innovation and customer service.