Banks are increasingly turning to artificial intelligence (AI) to stay competitive, with strategic tech investments set to reach billions by 2030. As AI’s role in banking expands, industry leaders are debating whether it’s a necessary advancement or merely a trend-driven reaction.
Roman Eloshvili, founder and CEO of XData Group, a B2B software development company, shares insights into the AI-driven changes reshaping banking and explains the critical role of technology partnerships in helping banks fully realise AI’s potential.
The banking industry stands on the brink of a massive transformation, and AI adoption is the reason behind it. The development of this technology has crossed beyond the experimental phase, and AI is no longer just an option for banks; it’s quickly becoming a necessity.
More and more banks are looking at artificial intelligence as a strategic investment choice. Some projections show that by 2030, the spending on gen AI in this sector will reach $85 billion.
Financial services are a market where having a technological edge can easily determine who wins and who loses. And so, a question needs to be answered: Is it simply the fear of missing out that’s pushing banks towards adopting AI, or is there more to it? Can banks continue as they are and thrive without this tech to help them?
Well, let’s take a look, shall we?
The FOMO effect versus real value
Like in many other sectors, banks are driven by the success stories of their competitors. When one bank shares news about their progress in AI implementation, others are motivated to follow in their steps, fearing they’ll fall behind their more innovative rivals. This pressure isn’t just about keeping up appearances; it’s about staying relevant and appealing in the face of steep competition from neobanks and fintech startups.
Of course, this is only true when we speak of genuine AI adoption and not ‘AI washing’, as it’s called. Many banks originally jumped on the AI train as a marketing tactic, boasting about their use of AI without actually achieving any substantial benefits. But I believe that the industry has matured quite a bit by now, and it’s become clear that proper AI adoption can deliver real, tangible benefits. And this gives banks more reasons to consider it seriously.
AI will be a permanent fixture in modern banking: here’s why
Although artificial intelligence is still merely beginning of its journey, the technology has already proven its worth by providing various competitive advantages. And the way I see it, AI can be used to improve the work of pretty much every bank department. Over the next five to 10 years, there are several main vectors of AI adoption that will shape the banking landscape.
First of all, there will be an unprecedented level of personalisation. AI-driven solutions will allow banks to offer highly customised services and communication strategies, catering to the individual needs of customers and providing 24/7 support. This will help deepen client relationships, as more people will feel that banks can better understand their preferences and goals. We are already seeing movements in this direction with AI-powered virtual assistants like Bank of America’s Erica or Capital One’s Eno.
AI will also be able to streamline client onboarding and compliance processes, which can be lengthy when done manually. AI will change this by automating KYC procedures and document verification, allowing for faster results without losing in accuracy. This will improve customer satisfaction by eliminating delays and also cut down a lot of the costs that come with manual compliance checks. HSBC previously reported that this approach has already helped them boost acquisition of new customers by 20 per cent.
Predictive analytics
Then we also have advancement in predictive analytics that AI will make use of to offer investment recommendations and assist in financial decision-making. For example, by analysing historical data and identifying market patterns and customer behaviour trends, AI can help banks provide financial advice to customers looking to optimise their investments.
Finally, as threats from cybercriminals become more elaborate, the role of AI in enhancing security measures will also grow. Beyond just helping banks respond quickly to threats, AI-powered security solutions would also be able to adapt to new techniques used by fraudsters. This will make them a game-changer in fighting financial crime. I would even go as far as to say that without AI, it will become impossible to maintain a reliable level of security.
As AI continues to evolve, it will become entrenched in every facet of banking operations. To the point that, before long, we will no longer be able to imagine banks functioning efficiently without this tech.
The role of fintech partnerships in AI adoption
As AI adoption gains pace, collaboration between banks and fintech companies will become increasingly crucial for successful integration of this technology. Not all banks truly understand the importance of AI at present time, and when they finally come around to it, developing and implementing their own solutions will be costly in terms of resources and time. This would be an excellent opportunity for collaboration with fintechs.
Fintech firms are generally built to be more flexible and capable of implementing innovative solutions faster. By partnering with them, banks can avoid the need to overhaul their entire IT systems and instead adopt ready-made AI solutions that those fintechs provide.
These kinds of collaborations would be very beneficial for small and mid-sized banks, as they often lack the capabilities to develop AI solutions on their own. So partnering with fintechs will allow them to get access to AI without major investments in R&D.
This will speed up the adoption of AI tech and democratise access to it, enabling smaller banks to compete with their larger counterparts on more equal footing.
