AI has immensely disrupted many industries already and it’s on the way to many. Technology has taken the BFSI sector always on the top when it comes to digital transformation. So did AI this time. Banking has huge potential of incorporating AI in different verticals and departments. Here we go with some major AI-disruption impact on the Banking & Finance Services Industry.

Introduction

Consider the following questions:

1. With AI, can consumer banks effectively grow their revenue by attracting new customers and cross-selling additional products and services?
2. With AI, can consumer banks enhance the customer experience by improving digital banking capabilities and providing personalized financial advice
3. How can consumer banks adopt Innovative approaches to stay competitive and differentiate themselves in the market?
4. How AI can ensure risk and compliance issues in the Banking sector?

How can Artificial Intelligence Help?

1. Growth Revenue

In the digital age, banks have access to a treasure trove of customer data beyond traditional metrics. Banks can tap into this data through AI and machine learning to uncover hidden opportunities and drive revenue growth.

Take the case of a millennial customer who started with a college loan. As their digital comfort grew, their banking needs evolved. However, the bank only tracked credit behaviour, missing out on crucial behavioural data from the customer's digital interactions and payments outside the loan.

Banks can transform their predictive models by leveraging AI and proactively addressing customers' latent needs. AI enables faster analysis of digital footprints and payment behaviour, allowing banks to anticipate customer needs and offer tailored solutions.

For example, a customer's purchase of an engagement ring hints at an upcoming mortgage need. AI can detect these digital signals, empowering banks to be proactive rather than reactive.

Through AI-driven insights, banks can better understand customers, personalize offerings and unlock new revenue streams. By embracing AI, banks position themselves at the forefront of the industry, delivering enhanced customer experiences while driving business growth.

2. Customer Experience with personalized financial services

To deliver a superior banking experience, integrating personalization elements is crucial. The AI-powered engagement layer provides a deep understanding of customer context and enables intelligent, personalized offerings. Real-time data analysis ensures fast execution of transactions and queries for instant fulfilment. The engagement layer focuses on three pillars: intelligent propositions, seamless partner integration, and smart service/experiences.

a. Intelligent Propositions :

• To innovate effectively, banks need to shift from a product-centric view to a customer-centric view.
• Integrating AI and analytics capabilities with core systems and delivery platforms is necessary to gauge and anticipate customer needs in real time
• Customer propositions should be intelligent, tailored, and go beyond traditional banking products and services.
• Innovations in messaging and financial-management tools can simplify banking activities and improve customers' financial positions
• Fee reduction recommendations can be provided based on transaction history to help customers reduce unnecessary expenses.
• Budgeting tools can assist customers in improving financial discipline and provide alerts and reminders based on past transactions.

b. Seamless Partner Integration:

• Banks should make their intelligent propositions accessible in customer ecosystems, beyond their own platforms

• Indian banks have embraced ecosystem strategies to cater to customer needs. State Bank of India (SBI) has launched YONO, a comprehensive digital platform that serves as a one-stop solution for retail customers' banking and non-banking needs. YONO integrates over 100 merchants, allowing customers to perform tasks like shopping, booking tickets, and availing various services through a single app.

• ICICI Bank has partnered with various ecosystems to enhance customer access and convenience. It has collaborated with Swiggy, a food delivery platform, allowing customers to order food directly through the bank's mobile app. ICICI Bank has also integrated with online travel platforms like MakeMyTrip and Goibibo, enabling customers to book flights, hotels, and other travel services seamlessly.

  To succeed in the ecosystem-driven landscape, banks need a clear ecosystem strategy, end-to-end integration of internal capabilities, and compatibility with technology partners' methods. They should leverage their strengths, local context, and existing customer base to determine the right ecosystem strategy. Upgrading technology architecture, and analytics capabilities, and establishing robust data exchange with partner ecosystems are necessary for seamless integration.

c. Smart service and experiences:

• Smart servicing facilitated by AI and analytics enhances customer satisfaction and loyalty. A satisfied customer can generate 2.4 times more revenue, and companies with high customer satisfaction scores often yield higher shareholder returns. Prioritizing exceptional experiences leads to increased revenue and improved performance

3. Innovate to compete

AI presents an opportunity for consumer banks to democratize financial advice by leveraging the vast amount of data generated by everyday consumers. Currently, financial advice is predominantly accessible to high-net-worth individuals through expensive financial advisors, creating a disparity in access to valuable guidance. However, AI can bridge this gap and enable banks to offer personalized financial advice to a wider range of customers, regardless of their income level. Consumer banks can leverage machine learning models, such as collaborative filtering or decision trees, to provide personalized financial advice. These models analyse customer data, such as transaction history and spending patterns, to generate tailored recommendations for cost-saving measures, investment opportunities, or suitable financial products. By harnessing the power of AI models, banks can offer precise and customized advice to enhance their customers' financial well-being. y offering personalized financial advice, banks differentiate themselves, enhance customer satisfaction, and foster long-term relationships.

For example : ICICI Bank, one of the leading banks in India, has implemented AI-powered chatbots and virtual assistants to offer real-time assistance and personalized recommendations to their customers. These AI-driven systems analyse customer data and transaction history to provide tailored solutions, such as budgeting tips, investment suggestions, and loan options. This approach has significantly improved their overall customer experience

4. Manage Risk and compliance

AI has the potential to significantly improve risk and compliance management in the banking sector. By leveraging advanced analytics and machine learning algorithms, AI can enhance risk assessment accuracy, detect anomalies in real time, and automate compliance processes. AI models can analyze vast amounts of data, including transactional records, customer profiles, and external factors, to identify potential risks and forecast outcomes. This enables proactive risk management decisions and the ability to mitigate risks more effectively. AI-powered systems can continuously monitor transactions and customer data, automatically flagging suspicious activities or compliance breaches, and ensuring timely detection and intervention.

Additionally, AI can automate compliance checks, interpret regulatory requirements, and generate accurate reports, reducing manual effort and ensuring adherence to complex regulatory frameworks.

Overall, AI empowers banks to make data-driven risk and compliance decisions, enhancing operational efficiency, reducing costs, and instilling confidence in stakeholders regarding the bank's ability to effectively manage risks and maintain regulatory compliance.

By integrating AI into its compliance operations, HDFC Bank has improved the efficiency and effectiveness of its compliance monitoring, detection, and reporting. The use of AI-driven systems has allowed the bank to stay abreast of regulatory changes, proactively identify potential compliance issues, and ensure a robust compliance framework. This example showcases how an Indian bank has successfully harnessed AI to strengthen its compliance practices and maintain a strong commitment to regulatory compliance.

In conclusion, AI represents a paradigm shift for consumer banks, offering unparalleled opportunities to grow revenue, elevate the customer experience, drive innovation, and mitigate risk. By embracing AI, banks can position themselves at the forefront of the industry, creating a competitive edge and delivering exceptional financial services that meet and exceed the expectations of their customers in this rapidly evolving digital landscape.