Banks are not often something that consumers think about. Perhaps it’s somewhere to store our hard-earned cash, to stash a little for a rainy day, or perhaps even invest in the future of themselves and the people they love.
Often, when presented with the scope and size of the financial services sector in Australia, ordinary people respond with shock. It’s hard to believe that this critical, yet under-discussed sector, employs more than a quarter of a million people, helping to create jobs and opportunities from bank tellers in regional towns, to technical specialists in major cities.
In recent times, there has been a great deal of change in the financial services sector, with the rise of new technology, bringing opportunities for startups and new players to enter the market. With competing challenges, such as the emergence of artificial intelligence (AI), it’s interesting to ponder how AI is changing the financial services sector.
It doesn’t take a Master of Applied Finance online to appreciate that the world has changed. From chatbots to AI agents, let’s explore how artificial intelligence is changing the financial services sector as we know it, and what it may look like in the years to come.
The Rise of AI
Let’s face it. If someone had mentioned the words ‘artificial intelligence’ merely a decade ago, characters from science fiction would’ve come to mind. HAL-9000 from “2001: A Space Odyssey” and Skynet from the “Terminator” franchise are just two examples from decades of Hollywood storytelling, where screenwriters and directors have tried their hand at just about every variation of the genre that they could think of.
Hollywood wasn’t able to predict how AI would emerge. Rather than a single, sentient intelligence, the early 2020s were characterised by the rapid proliferation of large language models (LLMs), models trained on massive sets of unstructured data, designed to provide structured answers using probability models.
Advancements in machine learning models have been partly driven by this increased focus on LLMs. As LLMs have developed methods to process ever-increasing volumes and varieties of data, other AI ideas have also benefited.
We’re now at a point where AI is challenging the norms of the corporate world. With sufficient advancement in learning models, the role of AI as a worker, rather than an augmentative tool, is now being proposed.
Think of it like the beginning of a contemporary industrial revolution. With AI capable of replacing humans in simple tasks, it positions itself as a new type of worker, one that can complete simple tasks, allowing workers to focus on more complex activities.
The AI Opportunity
What opportunities can artificial intelligence bring to the financial services sector? In an industry as vast as financial services, there are numerous areas where AI can be leveraged to support tasks that are currently complex, tedious, and time-consuming.
There are already examples within the financial services industry of AI being leveraged to support customers, making their experience as seamless as possible, while also supporting business operations.
For example, the use of generative AI systems to support traditional operating models is becoming commonplace across major banks. For the Commonwealth Bank of Australia, an early adopter of these systems, generative AI has offered substantial benefits in a relatively short period of time.
These benefits have been seen across many areas of the business, but offer significant advantages. From efficiency improvements in scam prevention and fraud detection to the use of AI-powered app messaging to support customer call queries, CBA has found ways to enhance its responses to key operational challenges, but also provide meaningful and useful ways for customers to connect to their products and services.
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The Great Disruptor
We’ve seen how AI can benefit customers in the fields of scam prevention, fraud detection, and customer service. While these are all fields of great importance, none of these challenges causes substantial operational delays. There are, of course, other areas of financial services and banking that could leverage AI; however, how exactly can they benefit?
One of the more complex areas of financial services operations is the role of loan approvals. In many cases, customers have to submit a litany of documents in different forms, which loan officers and specialists need to assess, in great detail, to approve a loan or other borrowings for a potential customer. This can often take a great deal of time and present itself as an obstacle, particularly for time-sensitive purchases, such as buying a home.
In recent years, innovators and startups have sought to disrupt the traditional lending industry, using machine learning and other AI algorithms to assist lenders in validating, verifying, and assessing loan-based documentation. In some instances, it has reduced the time it takes to issue a loan from several weeks to several days — empowering lenders to issue loans with greater confidence, and providing a competitive edge in a market dominated by slow-moving paperwork trails.
AI: A New Hero
The opportunities for AI exist far beyond fraud detection and customer service. In fact, the potential exists for AI to be applied in ways that serve and protect customers in ways that wouldn’t otherwise be available.
Consider the role that bots have in video games. Typically seen in first-person shooters, as well as strategy games, bots are used as computer-powered opponents — someone to play against when you don’t have someone to play with. In a world where bad actors are beginning to use advanced AI tools to scam bank employees and customers alike, finding ways to compete with AI at scale is not only helpful but essential in addressing a rapidly evolving threat.
One potential solution that has emerged in recent times is the creation of bot armies for high-risk financial institutions, such as banks. By having a network of fake accounts that are convincing enough to fool scammers but pose no risk to genuine bank customers or employees, fraud detection teams can gather intelligence on contemporary scams and tackle them head-on. For once, banks can fight back against the daily threats that challenge their customers.
We live in a rapidly evolving time — not since the earliest days of the internet has the financial services sector been so enthralled by innovation and change. As financial institutions look to harness the power of AI to enhance business operations, it’s an exciting time to imagine what’s possible for consumers.
While AI poses many challenges, it presents a unique opportunity for both legacy financial institutions as well as new startups to embrace change, and just maybe, build something that has benefits far beyond the communities they serve.
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — Cover Photo Credit: Wikimedia Commons.
