How Bank CIOs Can Build a Solid Foundation for Generative AI Bain & Company

On Oct. 30, 2023, President Joe Biden signed an executive order on artificial intelligence. The executive order aims to protect consumer privacy, create educational resources, create new AI government jobs, advance equity and civil rights in AI in the justice system and support workers in response to AI’s effects on the workforce. On June 21, Senate Majority Leader Chuck Schumer formally unveiled an open-ended plan for AI regulation, explaining that it could take months to reach a consensus on a comprehensive proposal.

By integrating AI technologies, banks are setting new benchmarks for operational efficiency, client engagement and sustainable growth. This comprehensive approach to innovation sees AI advancements integrated thoughtfully across all banking operations, thereby forging a sector that is more resilient, agile and centered around the needs and expectations of its clients. Regulators require financial institutions to implement robust governance frameworks that ensure the ethical use of AI. This includes documenting decision-making processes, conducting regular audits, and maintaining transparency in AI-driven outcomes. Compliance with these regulations involves providing clear explanations of AI model decisions, ensuring data privacy, and implementing safeguards against biases and discriminatory practices.

Rather than rushing deployments, most organizations are drawing calculated plans to avoid pitfalls. “It is improving the process of creating more transparency … for small business owners to quickly access financial help through the bank via the assistant,” Sindhu said. After introducing the assistant, the quality of sales leads were four to five times higher than those from organic modeling, according to Sindhu.

In investment banking, generative AI can compile and analyze financial data to create detailed pitchbooks in a fraction of the time it would take a human, thus accelerating deal-making and providing a competitive edge. As a first step, banks should establish guidelines and controls around employee usage of existing, publicly available GenAI tools and models. Those guidelines can be designed to monitor and prevent employees from loading proprietary company information into these models. Additionally, top-of-the-house governance and control frameworks must be established for GenAI development, usage, monitoring and risk management agnostic of individual use cases. When it comes to GenAI specifically, banks should not limit their vision to automation, process improvement and cost control, though these make sense as priorities for initial deployments. GenAI can impact customer-facing and revenue operations in ways current AI implementations often do not.

We are confident of growing the economic impact of our AI initiatives in the coming years, affording us greater flexibility to navigate through business and economic cycles. The industry in general is still cautious around scaling up GenAI functions in core products, before conducting rigorous security checks and launch of designated modules, he added. Luc Hovhannessian, chief revenue officer, treasury and capital markets, at financial software provider Finastra, echoed this view in a separate conversation with FA.

The application of AI raises concerns about the security and potential misuse of this data. Banks are responding by implementing robust data security measures, anonymizing data where feasible, and securing explicit customer consent to AI use. Adherence to stringent data privacy regulations such as GDPR is a cornerstone of these efforts, ensuring responsible stewardship of customer information.

Financial advisors and their clients could use AI-powered simulations to deepen their grasp of complex investment strategies. Gen AI could promise bots capable of responding to customer inquiries in contextually appropriate ways. The image of the bank client trying to bypass a chat system to reach a human operator could become obsolete. Bankers equipped with Gen AI may find that information searches that once consumed hours could now take minutes. When they need to check up on complex regulations, bankers could, via Gen AI, receive cogent summaries — rather than just citations of, or links to, statutes and other raw material. Of course, with any new technology comes challenges, so Mastercard outlines how banks can mitigate these new obstacles.

Adaptable risk frameworks and policies

Stay ahead in the GenAI race with the latest edition of ‘AIdea of India.’ See how enterprises in India are tapping Generative AI’s potential across various sectors. More darkly, the MIT/Stanford study also found that training models on the work of experienced agents and feeding the outcomes to novices takes advantage of the skilled workers. But among the highest-skilled workers, the researchers saw no difference in call handle time and small but statistically significant decreases in resolution rates and customer satisfaction. On average, access to the tool increased productivity, as measured by the number of chats a worker can resolve per hour, by 14%.

Poor or incomplete datasets can lead to incorrect outputs, negatively impacting financial decision-making and customer trust. Generative AI can handle vast amounts of financial data but must be used cautiously to ensure compliance with regulations such as GDPR and CCPA. A centralized operating model is often used for generative AI in banking due to its strategic advantages. Centralization allows financial institutions to allocate scarce top-tier AI talent effectively, creating a cohesive AI team that stays current with AI technology advancements.

As we forge ahead, let us leverage the full spectrum of possibilities predictive analytics offers, ensuring a resilient and robust financial framework for businesses around the globe. The machine will never replace man (fortunately), but man’s job will change along with the machine. It’s also building capability within our organization to be agile and interact in an ecosystem way, rather than wait for the product and try to integrate it.

By 2021, Cora had responded to over 10.5 million customer enquiries since its launch four years earlier. Cora currently engages in approximately 1.4 million conversations each month, providing customers with timely support and saving the bank significant time. It’s more about how we lean into and help the organization change the culture that we have embedded today. We are really focused on trying to make sure that the Now Assist capabilities are not just seen as a swap of technology capability, transitioning from one to another – but it being a truly transformative capability that will change the way we work. And that I think is going to be a slightly bigger, longer term challenge that we are going to have to acknowledge and think about.

We are also aware of the need for strong governance and responsible management of this powerful technology. The chatbot is continually being improved to provide more personalised and transactional experiences for customers at different stages of their relationship with the bank. The automation of routine tasks, such as updating addresses, modifying business details, and cancelling cheques, is helping the bank to consistently meet customer expectations. Generative AI in retailGenerative AI is transforming the retail industry in ways we never thought possible. Generative AI can help analyze current market trends, consumer preferences, and historic sales data to create new product designs.

The consulting firm estimated that 72% of jobs within investment banks, asset managers, and wealth advisories have “higher potential” to be automated or augmented by AI. “There’s definitely a first-mover advantage,” Keri Smith, Accenture’s global banking data and AI lead, told BI. Finance firms that have already been investing in technology modernization, like migrating to the cloud and making sure enterprise data is well organized and tagged, are poised to step out in front of the pack. Financial advisors and analysts in JPMorgan’s wealth and asset management business are saving a couple of hours a day, BI previously reported.

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As the Global Head of Banking & Financial Services at Infosys, Dennis leads the largest business unit within Infosys along with his Global Financial Services Executive Leadership team. He is a Board Member of EdgeVerve Systems Limited, a Products and Platform subsidiary of Infosys and Infosys Compaz Pte. In his current role, Dennis is responsible for strategic direction, growth, operational excellence, and all commercial and fiscal management of the Global Banking & Financial Services business.

The assistant answers borrowers’ questions about often complex lending products and provides additional information or documents small business owners need to be able to apply for a loan. They can upload an application, and the assistant also regularly reaches out if the small business owner abandons the application midway. While artificial intelligence has gained momentum in the banking and finance sector, generative AI is taking it by storm. Just as the steam engine powered the industrial revolution, and the internet ushered in the age of information, AI may commoditize human intelligence. Finance, a data rich industry with clients adopting AI at pace, will be at the forefront of change. BBVA has started distributing licenses at its central services in Spain, with plans to expand this rollout to other main regions.

By prioritizing data privacy, financial institutions can build trust with customers and regulators, demonstrating their commitment to ethical data practices. Global financial institutions must navigate a complex landscape of data privacy regulations, ensuring that their AI systems comply with varying requirements across jurisdictions. This involves implementing robust data governance frameworks, ensuring data anonymization and encryption, and maintaining transparency in data processing practices. RAG implementations involve combining LLMs with external data sources to enhance their knowledge and decision-making capabilities.

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The adoption of LLMs in financial services is driven by their ability to process and generate human-like text, enhancing operational efficiency and customer experience. Use cases include automating regulatory reporting, analyzing transaction data for fraud detection, generating personalized customer communications, and providing real-time financial advice. LLMs enable financial institutions generative ai use cases in banking to streamline processes, reduce operational costs, and deliver enhanced value to customers through advanced analytical capabilities. This transformation is apparent in the broad spectrum of available AI applications, from automated knowledge management to investment research and bespoke banking services, each underscoring the remarkable advancements and potential of GenAI.

• The use of AI isn’t new to Lloyds Banking Group, with Martin explaining that it has been adopted across multiple systems for quite a bit of time.
• To seize the GenAI opportunity, banks should reimagine their future business models based on the new capabilities GenAI enables and then work backward to prioritize near-term use cases.
• However, it is worth taking a step back from the hype to really understand what genAI is, what it can do, and the risks and opportunities involved.
• He does however see a near-term future where gen AI is even more widespread and prominent in financial services.
• Other places where gen AI can achieve productivity improvements, in Abbott’s view, are in creating credit memos, in marketing production processes, in risk and controls, and in data mapping.

Organizations must consider when and how employees can leverage GenAI and evaluate the distinct risks of internal and external use cases. For example, the application of GenAI to lending decisions could lead to biased outcomes based on protected characteristics (e.g., gender or race). The burden of proof rests with banks, meaning they will need to collect evidence to show regulators why applications are denied and that applicants are considered fairly. Even where there are no legal or regulatory boundaries at present, governance models must be designed to promote responsible and ethical use of GenAI. AIways-on AI web crawlers – These web crawlers continuously gather and analyze data from various web sources and public records. They can track real time financial news and market movements while detecting subtle changes in consumer sentiment on social media platforms, alerting banks to the potential risks and opportunities while enabling proactive management.

Other places where gen AI can achieve productivity improvements, in Abbott’s view, are in creating credit memos, in marketing production processes, in risk and controls, and in data mapping. This information empowers financial institutions and investors to make more informed decisions, adjust their strategies, and manage their portfolios effectively in response to anticipated market trends and volatility. If generative AI is used in a credit decisioning model, banks run the risk of implementing a model that may contain an underlying bias and thereby negatively affect consumers. Such bias can be difficult to detect in a generative model because the model itself is more complex than traditional rules-driven algorithms. As a result, a bank may face steeper challenges in terms of demonstrating that its decisioning model is valid and doesn’t exhibit inherent bias. However, these AI applications are not (yet) deeply integrated into treasury processes or may be adopted primarily because they are fashionable, rather than because they provide significant value.

Banks are seeing 30% to 50% productivity improvements in this area, according to Alenka Grealish, principal analyst at Celent, who spoke in an American Banker podcast. In wealth management, some banks are seeing real returns now, she said in an interview. “It depends very much on, is the bank making the effort to do the training? Because you can create the tools and give them to the analysts, but actually they’re a pain to operate. People just tend to not use them.” This enables financial institutions to proactively detect and prevent fraud, protecting themselves and their customers from financial losses and maintaining trust in their operations.

Coders who produce a quality product might have nothing to fear, however, and use AI to improve their workflow instead. Generative AI tools such as ChatGPT and Gemini can generate text that aims to convince readers that a human wrote it. This has implications for content writers, especially in fields that require less nuance, originality or factual accuracy.

Such partnerships acknowledge the symbiotic relationship between cloud transformation and data architecture. Early adoption of cloud-based systems and state-of-the-art application programming interfaces (APIs) provides a distinct advantage. You can foun additiona information about ai customer service and artificial intelligence and NLP. Access to cloud-stored data offers an edge in deployment of generative AI solutions, in terms of both practical and regulatory aspects. Banks seeking to use GenAI in their products should follow a range of principles—including ensuring that clients can opt out of using the technology and that AI models do not disadvantage or lead to an unfair bias toward certain client groups. Speaking to Euromoney, leaders responsible for deploying AI in European banks agree that US banks have gained a head start.

Given the potential of this technology, it is easy to imagine a future in which financial advisers spend up to 65% less time on mundane tasks and more time on enhancing customer relationships and driving revenue growth. By tapping more sources of unstructured data, the technology creates an opportunity to raise the quality of financial advice tailored to each individual customer. Generative AI-driven tools can also evaluate historical data, market trends and financial indicators in real time.

The lag shows in the latest Evident AI Index of AI adoption across 50 of the largest banks globally, published on Thursday. Only two European banks – HSBC and UBS – were in the top 10, and none was in the top five. Gen AI could streamline know-your-customer compliance and documentation management. Rapidly synthesising client data, it could flag risks and automate paperwork, expediting time-to-ROI. With its ability to process unstructured data, Gen AI solutions could find and put in front of HR managers candidates who may lack traditional banking employment backgrounds — but have much to offer.

Recommendations to mitigate risks

LLMs play a crucial role in risk management by analyzing transaction patterns, identifying suspicious activities, and generating alerts for potential compliance violations. This enhances the institution’s ability to detect and respond to financial crimes swiftly. Financial institutions must develop strategies to manage input sensitivity, ensuring that LLMs produce reliable and consistent outputs in compliance scenarios. By enhancing the robustness and reliability of LLMs, financial institutions can mitigate risks and ensure the effectiveness of their compliance programs. Anti-Money Laundering (AML) and Global Financial Compliance (GFC) frameworks are foundational to maintaining the integrity of the financial system. AML policies are designed to prevent criminals from disguising illegally obtained funds as legitimate income.

To mitigate these risks, banks need to implement additional security measures, particularly in securing data, ensuring its accuracy and completeness, and maintaining service availability. Indeed, the survey of bank technology leaders indicates that the biggest benefit most banks see from their use of AI and automation is raised employee satisfaction levels. KPMG professionals have talked with employees who are delighted about the increased level of customer service they can provide thanks to automation and AI.

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This enterprise version ensures high-level security and privacy while offering capabilities such as content generation and complex business query resolution. The initiative is expected to boost productivity and innovation throughout the bank. Hyper-personalization ChatGPT App – Banks and others are leveraging AI and non-financial data to better create and target highly personalized offerings. This is shifting the paradigm in FS from a reactive service to one that is truly intuitive and responsive.

Market insights and forward-looking perspectives for financial services leaders and professionals. This is about helping the business address big problems — speed to market with new products, for example, or risk processes. Understand the business outcome you want to achieve and then consider how you can use genAI to help solve those problems. Bank CEOs are also concerned that genAI might be a double-edged sword when it comes to cyber security. On the one hand, most seem to believe that the technology could dramatically increase their ability to detect and predict attacks.

At the same time, the swelling wave of rollouts demands a sharper focus on managing the bank’s cost, resources, and risk profile, without crimping innovation that creates value for customers and the bank. Currently, some innovative marketing teams in banking and other industries generate personalized content at high speed, producing over a hundred ads in minutes. Coding assistants promise to raise productivity for certain tasks in IT, such as code documentation, by up to 50%. In corporate lending, initial estimates at frontrunner banks indicate process efficiencies of up to 40%. However, as with any new or evolved technology, success is not a given, and generative AI will be most effective within the larger context of business strategy and broader technology capabilities.

Original or specialized writing might become increasingly valuable as generic, AI-generated writing proliferates on the internet, obscuring genuine human perspectives. For example, Microsoft 365 Copilot — a collection of AI-powered tools integrated into Microsoft’s productivity suite — could radically increase office workers’ productivity. But the argument could be made that job augmentation for some means job replacement for others. For example, if a worker’s job is made 10 times easier, the positions created to support that job might become unnecessary. Learn how Brazilian bank Bradesco is giving personal attention to each of its 65 million customers with IBM Watson. Taking advantage of the transformational power of GenAI requires a combination of new thinking about a longstanding challenge for banks — how to innovate while keeping the lights on.

One example is banks that use RPA to validate customer data needed to meet know your customer (KYC), anti-money laundering (AML) and customer due diligence (CDD) restrictions. The Rhode Island–based bank says it has taken a thoughtful approach to generative AI, including the creation of a ChatGPT steering committee to ensure employees aren’t going rogue and developing their own projects. Some financial institutions are pressing ahead and applying Gen AI tools to assessing and adapting both risk control frameworks and processes, as well as client onboarding and service journeys.

Gen AI’s pattern recognition capabilities could improve the surveillance capabilities of older forms of AI. Latest market insights and forward-looking perspectives for financial services leaders and professionals. Karim Haji, Global Head of Financial Services, outlines why it’s such an exciting time for the financial services industry.