Banking on AI: the potential and pitfalls of Artificial Intelligence in Finance (11/2024)

As artificial intelligence revolutionizes the banking sector, industry leaders from UBS and McKinsey highlighted the potential and challenges facing financial institutions. Concerns range from return on tech investments to the future role of human bankers in an AI-driven landscape.

McKinsey: AI Promises Banking Revolution, but ROI Challenges Persist

AI is poised to transform the banking sector, yet new commentary from McKinsey highlighted challenges financial institutions face in realizing AIs potential.

The banking industrys track record with technology investments has been mixed, according to the firm. McKinseys research indicated that only 30% of digital transformation initiatives have succeeded. This statistic underscores banks’ difficulty demonstrating a return on investment for their tech spending, particularly in AI.

Several factors compound these challenges, McKinsey said. Banks must show ROI on past technology investments, differentiate themselves from competitors, and achieve success in ongoing transformation efforts. McKinsey’s data showed that higher revenue in banking “remains very strongly correlated with more manual work,” suggesting that technology still needs to deliver the expected automation benefits.

As banks navigate the AI landscape, McKinsey outlined three questions for leaders. First, they must identify areas where AI can generate the most business value. Second, banks need to reallocate spending toward these high-potential areas. Finally, institutions should implement change management strategies that extend beyond the IT department.

UBS Exec: AI Revolutionizing Banking

UBS is seeing a shift in the way clients interact with their bankers, powered by AI, according to Sabine Keller-Busse, the head of the Swiss banks domestic business, Reuters reported.

“In our industry, this will happen as well because with ChatGPT, there is more data available,” Keller-Busse said, per the report. “We have to be aware that our clients are using it.”

UBS has been integrating AI into its client services and products. Last year, the bank launched a pilot program for instant credit aimed at small- to medium-sized businesses (SMBs), which often need quick access to liquidity. The service allows for bypassing credit officers, speeding up the process for this relatively standard product, the report said.

Keller-Busse emphasized that these developments are the start of a broader trend, saying in the report, “Its just the beginning of what we will see.”

The integration of AI in banking also raises questions about the future role of human bankers. While AI can streamline processes and provide quick data analysis, human judgment remains crucial, especially in complex financial decisions. Banks like UBS will likely face the challenge of balancing AI capabilities and maintaining the personal touch that many clients still value in their banking relationships.

In a June report, Citigroup warned that the banking industry faces the most significant impact from AI deployment, with 54% of roles at risk of AI-driven job displacement. Furthermore, an additional 12% of banking jobs could be enhanced by AI integration.

Summary

While AIs transformative potential in banking is clear, success will depend on technological advancements and banks ability to reshape their organizations to use AI effectively and fundamentally. As financial institutions grapple with these challenges, turning AI’s promise into measurable results looms large on the horizon.

The shift reflects a broader trend in the financial services industry, where AI and machine learning transform traditional banking practices. As clients become more tech-savvy and access sophisticated AI tools, banks must adapt their services and client engagement strategies. The change affects how banks interact with their customers and how they develop and offer products and services.

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At ECEBiS you are going to understand what will change the trajectory of the financial industry. You will develop a transversal view on the forces that are shaping the future financial industry.

From payments and lending to investment and money management, tech providers are actively shaping the future of the financial landscape - even pushing the boundaries of currency itself. You might evaluate the impact of robo-advising on health management and examine portfolio recommendations from a diversified set of RAs and attempt to identify the factors behind proposed splits between asset classes.

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Doctorate of Business Administration (DBA) in Finance (online, 3 years part-time)
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