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If you worry about your banking accounts more than any other online service, especially in the artificial intelligence era, you are not alone? — and making a wise move.
Users want to step lightly, with 6 out of 10 American users thinking AI in finance is a double-edged sword, but banks are keen to explore technology.
With fraud and financial scams hitting all-time highs — costing banks and finance billions of dollars globally every year — Techopedia sat with experts in the field to understand the misalignment between the industry and its customers as AI sweeps across the sector, transforming it forever.
Key Takeaways
- While banks are rapidly adopting AI, customers are understandably cautious.
- (60%) see it as a double-edged sword, fearing security risks and a lack of transparency.
- AI presents a challenge for smaller institutions, with regulations and resource limitations making it difficult to keep pace with the AI revolution.
- Will AI help democratize banking? Or hinder financial inclusion.
- To win customer confidence, banks need to communicate clearly about AI use, focus on security and responsible development, and be prepared to address AI-related incidents.
60% of Americans Say AI In Finance Is A Double-Edge Sword
On June 6, Glassbox, a provider of AI-driven customer intelligence solutions, released “The State of Digital Banking 2024” report. The report found that more than half of those surveyed say security is an extreme priority for digital banking.
The report says that 60% of U.S. consumers say AI in banking is equal parts benefit and risk. Despite these concerning findings, the industry is not slowing down in its AI revolution.
In Early 2023, Sam Altman, CEO of OpenAI, said that 92% of Fortune 500 companies already used OpenAI products. Industry executives at the 2024 MIT FinTech conference, all agreed that there is a rapid pace of adoption of AI in the financial sector.
The industry sees generative AI as an inevitable asset that provides value. Jose Lopez, vice president of global AI and data innovation at Visa, spoke at the event about the issue.
“AI is basically top of mind for everybody. It’s been a few months of transition and very rapid acceleration.”
While implementation has been fast, with AI deployed by finance in a wide range of areas, from anti-fraud to financial service customer-centered personalization and more, customers are not entirely convinced about the modernization plan.
Consumers recognize AI’s security potential but 47% still say security risks are the main risk with AI in banking.
While 67% appreciate personalization based on their banking history, they are not comfortable with AI being used to auto-populate personal information based on past engagements.
AI, Financial Inclusion, and Regulations
Ravi Nemalikanti, Chief Product and Technology Officer at Abrigo, a banking software and consulting company, told Techopedia that caution and a measured approach are essential when adopting new technology, especially in the highly regulated banking and finance industry.
“While megabanks like Chase Bank lead in adopting new technology, regulatory challenges remain significant.”
Finance and banking are among the most regulated sectors in the world, with all businesses, large or small, required to meet the same standards and compliance levels. While some argue that AI will further democratize access and drive financial inclusion, Nemalikanti from Abrigo explained that this is not always the case.
“There are over 9000 banks and credit unions representing small businesses and commercial customers who are cautious and lack the resources to navigate regulatory complexities while meeting customer expectations.”
For these institutions, innovation often depends on their slower-evolving partner landscape.
Customers’ Trust In Online Finance Has Eroded
AI is inevitable for the financial sector, but the question is: Why do customers’ trust and opinions not align with the advancement? Roman Eloshvili, Founder of XData Group, a B2B software development company, suggested to Techopedia that the apprehension among customers is only temporary.
“Before long, AI will be perceived as just another way of automatization. Just recall the fact that a year ago, we lived without ChatGPT, yet by now its usage has become widespread and outright necessary in many industries,” Eloshvili said.
“To facilitate a similar transition, all the banks and fintech companies need to do is enhance transparency and put focus towards customer education regarding AI usage in banking.”
Eloshvili explained that AI-related fraud technology is going to be necessary. “The classic approach won’t beat complex fraud schemes that employ AI,” Eloshvili said.
“If I were in the position of a bank leader, I would consider the creation of an AI department to be a priority. Going from personal experience, you must start growing your own in-house AI team to keep up with the fast-moving market.”
Customers ‘Would Leave Their Banks Following an AI Incident’
The Glassbox survey revealed that more than half of consumers would leave their banks if they were victims of AI-related fraud. Additionally, 85% of consumers expect proactive communications from their banks about how they’re using AI.
Arun Kumar, EVP of AI and Data at Hero Digital, an independent customer experience company, told Techopedia that the pace of AI integration should not outpace the development of robust frameworks for security, compliance, and employee readiness.
“This is especially important in the finance industry as a data breach can be catastrophic to an organization’s image and to brand trust. A cautious, well-planned approach is essential to harness the benefits of AI in delivering impactful business value while mitigating its risks.”
Kumar said that it is key for bank leaders to help build consumer trust when rolling out AI capabilities.
“Banks should clearly communicate how AI is being used in their services and provide regular updates on AI initiatives, specifically how the technology meets ethical guidelines and the systems in place to protect valuable consumer data,” Kumar said.
Other suggestions include banks and financial organizations instituting robust fraud detection measures with feedback mechanisms to proactively stop data breaches and having a clear incident response plan to communicate any AI-related fraud events to consumers and the steps being taken to minimize the effects.
Nemalikanti from Abrigo agreed, explaining that it is vital to prioritize transparent and proactive communication regarding AI usage to meet consumer expectations.
This should include regular updates about AI initiatives, clear explanations of how AI enhances security and services, and swift, transparent responses to incidents.
“Fraudsters are quick to exploit new technologies, using tactics like deepfake videos or synthetic identity fraud,” Nemalikanti said.
“By fostering transparency and emphasizing security, banks can build and maintain consumer confidence, thereby reducing the risk of customer attrition due to AI-related concerns.”
The Bottom Line
The race to implement AI in finance is on, with institutions seeing it as a key driver of efficiency, security, and personalization. However, a significant trust gap exists between financial institutions and their customers. Here are some lingering open questions that still evidently demand public debate.
Can the financial industry move faster than regulation? And should it? Balancing innovation with regulatory compliance is a constant challenge in finance. How can regulations adapt to keep pace with the rapid evolution of AI while still protecting consumers?
Will AI democratize finance or leave some people behind? While AI has the potential to expand access to financial services, smaller institutions may struggle to adopt the technology due to resource limitations and regulatory complexity. How can the industry ensure inclusive growth in the AI era?
Can trust be built in the age of AI-powered banking? Transparency and education are crucial for building customer trust in AI. How can financial institutions effectively communicate their use of AI and build confidence in its responsible application?
The success of AI in finance hinges on addressing these concerns. By fostering open communication, prioritizing security, and ensuring responsible development, the financial industry can bridge the trust gap and unlock the full potential of AI for both institutions and their customers.
