Introduction

It's no secret that the advent of digital technologies has altered traditional company models.
In today's technology-driven world, businesses across all sectors are evaluating their
alternatives and implementing new methods to generate revenue. There have been
revolutionary shifts in the banking industry, with a focus on customers taking centre stage. 1
Since much of the world's wealth is stored in databases and transacted via simple information
transfers across networks, the banking industry is quickly adopting technology. Accounting,
sales, contracts, and even cybersecurity may all get a boost from the advent of cutting-edge
tech, especially artificial intelligence (AI).
In an effort to cater to customers' unique preferences, businesses all over the globe are
increasingly turning to AI. Every year, more and more sectors begin using artificial
intelligence in their operations, as the technology improves and becomes more versatile. The
financial industry is quickly becoming an early user of AI. Financial institutions are also
investigating and utilising the technology in a variety of ways, much like other industries.2
As part of their digital transformation, banks are increasingly relying on AI to coordinate
with FinTech firms to provide superior banking solutions to its customers. Research indicates
that by 2023, financial institutions may anticipate saving $447 billion thanks to AI.3

Pros of Artificial Intelligence in Banking Sector

 Customer Experience
The development of a business is inextricably linked to the quality of service it provides and
the level of happiness its clientele receives. Customers' expectations and behaviours have
changed dramatically in recent years, and as a result, they increasingly value prompt replies
and tailored offerings. Now that banks have access to machine learning algorithms, they may
examine customer behaviour and credit ratings to provide really individualised service.
With the help of virtual assistants and chatbots financial institutions may now provide round-
the-clock assistance to their customers. Customers may use virtual assistants for routine tasks
including making purchases, paying bills, and seeing account balances.4
 Fraud Detection:
Scams and other forms of financial fraud totaling crores of Rupees are reported about often in
the media each year. In 2020, 47% of businesses will have experienced fraud. Scammers, too,
are adapting to keep up with the rapid development of new technologies. As a result, the
1
Why Banks Need Artificial Intelligence, WIPRO (Accessed on 23 Aug. 22). https://www.wipro.com/business-
process/why-banks-need-artificial-intelligence/#:~:text=Artificial%20Intelligence%20is%20the
%20future,otherwise%20take%20hours%20and%20days.
2
Kul Bhusan, Artificial Intelligence in Indian banking: Challenges and opportunities, LIVE MINT (Accessed on
23 Aug. 22). https://www.livemint.com/AI/v0Nd6Xkv0nINDG4wQ2JOvK/Artificial-Intelligence-in-Indian-
banking-Challenges-and-op.html
3
Akshara Srivastava, Future Of Artificial Intelligence In Banking & Financial Industries, HASH STUDIOS
TECHNOLOGIES (Accessed on 23 Aug. 22) https://hashstudioz.com/blog/future-of-artificial-intelligence-in-
banking-financial-industries/.
4
Benefits of Artificial Intelligence in the Banking Sector, Millennium Consultants (Accessed on 23 Aug. 22)
https://www.millenniumci.com/benefits-of-artificial-intelligence-in-the-banking-sector.
financial industry has begun implementing ML-Driven Fraud Analytics to assure a decrease
in the frequency of fraud. Machine learning is predicated on the idea that it can learn from
previous instances. Machine learning methods allow computers to be taught to distinguish
between valid and fraudulent financial dealings. Which will aid in the ultimate goal of
avoiding aberrant events.
 Digitization of the process:
As access to the internet becomes more widespread, traditional banking procedures will have
to be streamlined and moved online. Attempting to avoid the hassle of waiting in long lines to
get bank jobs completed by trying to turn the majority of procedures paperless is one of the
biggest problems that can be solved by digitising the banking process. The Know Your
Customer (KYC) application process is one of the most talked-about new features. 5
Internally, many financial institutions are utilising AI to automate tasks like document
processing, data storage, and risk evaluation.6
Cons of Artificial Intelligence in Banking Sector
There is a problem in the banking industry due to a reluctance to innovate or change. The
problem is exacerbated in several of the country's tier two and tier three cities, which have
become too standardised with fixed norms in traditional ways. These organisations aren't
making the investment necessary to train their staff and improve their human resources
practises.
In the banking industry, there is a gap between the need for change and the reaction from
consumers because of a lack of data to back up the implementation of that change. The
financial institutions modify their systems to accommodate a change that doesn't meet the
needs of the general public. As their usage of AI grows, financial institutions must stay up
with government regulations. With the rise of services like internet banking and e-commerce,
banks must ensure that their practises are in conformity with privacy regulations.
Before using AI, financial institutions must increase their own regulatory and compliance
scrutiny to the level set by the government. An increase in automated processes is a certain
way to raise the stakes. Therefore, strict privacy control regulations should include online
banking and purchases.7
Need and Significance
As a result, AI is now widely used in some of the world's fastest-moving and most
competitive markets. Amazing breakthroughs have been made thanks to the use of AI and
ML in manufacturing.8 In today's fast-paced digital environment, several sectors effectively
integrate AI to achieve corporate development, profitability, and sustainability. The financial
5
Know Your Customer in banking, THALES (Accessed on 23 Aug. 2022)
https://www.thalesgroup.com/en/markets/digital-identity-and-security/banking-payment/issuance/id-
verification/know-your-customer
6
Akshaya Ashokan, AI & ML are Key to Hypersonalisation in the Banking Sector, Analytics India AMAG
(Accessed on 23 Aug. 22) https://analyticsindiamag.com/ai-ml-are-key-to-hypersonalisation-in-the-banking-
sector/
7
Rayan North, The Debate Around Online Banking: The Pinnacle of Global Trade Today, Enterprise Edges
(Accessed on 23 Aug. 22) https://www.enterpriseedges.com/online-banking-changing-face-global-trade
8
Artificial Intelligence (AI) and Machine Learning (ML) in the manufacturing industry, Intone (Accessed on 23
Aug. 22) https://intone.com/artificial-intelligence-and-machine-learning-in-the-manufacturing-industry/
sector is one of the most visible examples of an industry that might benefit greatly from the
use of AI. The worldwide market for artificial intelligence financial technology is expected to
grow from its 2019 valuation of USD 6.67B to USD 22.6B by 2025, according to research by
Mordor Intelligence. Artificial intelligence's meteoric ascent and profound influence inside
the banking and finance industry are revolutionising banking operations, product
development, and the consumer experience. Some of the ways that AI is influencing finance
are listed below.9
Spending on artificial intelligence rose to $5.1 billion worldwide in 2017, according to
research by PwC's Fintech India practise. This figure is up from 2015's $4 billion. The Indian
banking industry is also receiving a lot of attention.10
Literature Review
The use of AI in the banking industry has been shown to boost customer satisfaction, staff
well-being, fraud detection, and service quality.11 Its practical uses include improving service
quality by eliminating unnecessary human intervention and expanding individualization
options.12 Artificial intelligence (AI) is widely used in the banking and financial sector,
particularly in the areas of credit assessment and customer care (the latter often being handled
by AI chat-bots). The primary goals of AI are mistake minimization, personalization of
services, and a wide range of evaluations including but not limited to credit score analysis,
product testing, and risk assessment.13 Chatbots allow us to improve customer service and cut
down on fraud.14 Errors are cut down on, fraud is uncovered, banks have access to data
mining resources, and the whole banking business gains a more good reputation thanks to
AI.15 The use of AI helps banks better serve their customers and saves them time and money.
Better protection for monetary dealings is provided by the banking sector thanks to Anti-
Money Laundering (AML) measures. A more secure and supervised financial system is
possible thanks to fraud detection system (FDS) implementation. Thus, AI protects against
bank fraud, enhances security, and guarantees privacy.16
In the banking and finance industry, data mining is a common use of artificial intelligence
technology.17 The influence of artificial intelligence on businesses and economies has grown
exponentially as it has been used to a wider range of tasks, from sales analysis and data
mining to consumer interaction and cloud computing.18 The use of artificial intelligence has
9
Impact of Artificial Intelligence in the Banking sector: How is AI transforming the banking industry? Intone
(Accessed on 23 Aug. 22) https://intone.com/impact-of-artificial-intelligence-in-banking-sector/
10
Fintech Trends Report India 2017, PWC (accessed on 23 Aug. 22)
https://www.pwc.in/assets/pdfs/publications/2017/fintech-india-report-2017.pdf
11
M Kumar, Satheesh & Samala Nagaraj, (2021), “Applications of Artificial Intelligence on Customer
Experience and Service Quality of the Banking Sector”.
12
A.A. Alzaidi (2018), “Impact of Artificial Intelligence on Performance of Banking Industry in Middle East”.
13
Munish Sabharwal, (2014) " The use of Artificial Intelligence (AI) based technological applications by Indian
Banks ", “International Journal of Artificial Intelligence and Agent Technology (2) 1-5.
14
Pedro Ferreira, (2020) “Understanding the Impact of Artificial Intelligence on Services”.
15
Mhariri Aitken, (2021) “In pursuit of socially-minded data-intensive innovation in banking: A focus group
study of public expectations of digital innovation in banking. Technology in Society”.
16
Dinesh Kumar, (2019) “ROLE OF ARTIFICIAL INTELLIGENCE IN COMBATING CYBER THREATS
IN BANKING” (4) 1-7.
17
Anupam Mehrotra, (2019) “Artificial Intelligence in Financial Services – Need to Blend Automation with
Human Touch”.
18
Cuneyt Dirican, (2015) “The Impacts of Robotics, Artificial Intelligence on Business and Economics.
Procedia - Social and Behavioral Sciences”.
been shown to boost sales in the service industry. The banking sector has been quick to
embrace AI, and now several banking-related products use the technology. Chat bots and
humanoid robots, Anti-Money Laundering pattern recognition, Algorithmic trading, fraud
detection and client suggestions are just six of the many applications of AI in the banking
business. However, there are also several obstacles that banks must overcome when using AI,
such as high maintenance costs and problems with hackers. It's clear that using AI has many
positive outcomes in the financial sector. It's useful for checking someone's creditworthiness
and preventing fraud.
Recommendations and Conclusions
The advent of new digital technologies is influencing how all existing businesses operate.
Banking is already on the frontiers much like other companies that are looking to capitalise
on the transformation to boost profitability. The benefits that may be expected from applying
AI to the banking industry are made abundantly evident by the examples and applications
provided.
The company's efforts to enhance its relationships with customers via digital means are
making headway. The banking industry is imagining tech-fronted services at the ground level
despite problems such as cyber dangers from cybercrime, traditional banking techniques, a
lack of training, etc.
Artificial intelligence (AI) is becoming more important in the banking industry, and experts
project that by 2030, worldwide investment on AI will reach $300 billion. Despite this, the
IBEF predicts that by 2023, digital financing in India would have reached $1 trillion, thanks
to a fivefold growth in digital reimbursements.
The financial industry may benefit greatly from the use of artificial intelligence. In light of
these results, it's safe to say that banks and other financial institutions using AI are
successfully catering to their customers' requirements. Customers in the banking and
financial services industries have a solid understanding of AI's potential uses. Financial
service and banking adoption Next came KYC/AML, then chatbots and security compliance,
and finally, the use of AI in apps, all of which contributed to meeting client needs more
quickly and easily. By providing representatives with cutting-edge training to enhance AI
processes in the workplace, banks and financial institutions may increase their employees'
dedication to satisfying customers. It is also used to check for fraud and determine an
individual's creditworthiness and to ensure regulatory compliance.