Parijat Banerjee is Global Business Head for the Banking, Financial Services, and Insurance (BFSI) sector at LatentView Analytics.
According to Harvard Business School, up to 40% of all open job roles at various banking, financial services and insurance (BFSI) firms are for artificial intelligence (AI)-related hires. There are a couple of ways of looking at this data:
1. Financial services organizations are succumbing to AI FOMO (fear of missing out) and scrambling to acquire skilled workers before their competitors.
2. There is a longer-term bet being made, and these roles are not just in demand now but fundamental to a firm’s future ability to serve customers.
Both can be true, but amid the rush to grab all the latest AI/generative artificial intelligence (GenAI) functionality, a broader conversation is happening about just how to benefit from these capabilities over time, especially among BFSI leaders who have a unique mandate to balance short-term gains with long-term returns.
Given the sensitive information within BFSI companies, the stakes are high. Several lawsuits were filed late last year against major health insurers for using an AI model that wrongfully denied coverage based on faulty data. Even with the best of intentions, it’s clear that innovation in such a complex sector requires careful consideration of long-term return on investment (ROI).
Focusing On The Customer
There are clear reasons to adopt AI/GenAI capabilities across a wide variety of BFSI functions. As EY points out, “AI has emerged as a crucial enabler of innovation and transformation, empowering financial institutions to surpass today’s sophisticated client expectations of faster, more convenient and seamlessly integrated services.” Using AI, JPMorgan Chase reported a 20% reduction in account validation rejection rates and significant cost savings, while Bank of America uses AI to recommend personalized investment strategies to increase customer engagement and product adoption.
As the sector continues to sort out all this potential, the lasting viability of any BFSI firm depends on its ability to protect and serve its customers. To that end, three key areas of AI/GenAI transformation can offer BFSI companies short-term rewards while also satisfying long-term business objectives: data governance, customer experience (CX) and risk management.
Here are key considerations and actions for BFSI leaders to ensure their AI/GenAI investments are impactful and sustainable:
1. Data Governance
Data governance is vital for BFSI companies due to their data-intensive operations, strict regulatory demands and increasing reliance on data for business functions. According to Deloitte, while most BFSI companies have already established data governance capabilities, those models need to evolve to govern the far larger datasets utilized by AI/GenAI. Given that AI models change over time, any governance needs to be that much more dynamic and flexible to be effective, including proper data lineage and increasing data accuracy/consistency to determine which processes can be fully automated.
Here are a few ways BFSI leaders can act now to improve data governance over the long term:
• Lay the foundation for accountability by creating well-defined roles/responsibilities for evaluating data integrity, with oversight assigned to specific team members/committees.
• Provide ongoing training and continuing education on specific regulatory updates like Basel III endgame, which is poised to significantly change how banks meet any new reporting demands and will require more robust data governance.
2. Customer Experience
BFSI companies understand that loyalty in their sector is built over time by consistently proving that the institution is acting in the best interests of the customer. According to The Financial Brand, the vast amounts of data generated and collected through digital customer engagement channels can be analyzed by AI to uncover valuable insights and identify emerging trends, allowing for rapid product innovations and responses to consumers’ evolving preferences. These sorts of digital insights empower financial institutions to adapt quickly to changing market conditions, while also getting a better understanding of customer needs.
Here are ways BFSI leaders can act now to improve CX over the long term:
• Use AI/GenAI to gather, sort and summarize key insights from thought leadership materials, providing customers with a quicker and easier way to navigate complex financial decisions.
• Deploy AI to analyze past customer interactions to determine how their users want to receive marketing messages. Not only will this improve customer experiences, but it will also give the financial institution more insight into relevant product offers/promotions.
3. Risk Management
According to McKinsey, AI/GenAI has the potential to revolutionize the way banks manage risks, allowing functions to partner with business lines on strategic risk prevention and gain control of new customer journeys, often referred to as a shift left approach. AI can also help financial institutions de-risk portfolios, strengthen resilience and proactively improve control processes.
But the biggest role of AI/GenAI in BFSI risk/compliance might just be staying ahead of change over the long term. Rising cybersecurity threats and an endless stream of new financial/environmental regulations can make it tough for companies to keep pace. Coupled with an ongoing talent shortage of experienced compliance professionals, more BFSI companies will likely be turning to AI/GenAI to help fill immediate gaps.
Here are ways BFSI leaders can act now to improve risk/compliance over the long term:
• Convene key compliance stakeholders from various functions (operations, audit, sales, etc.) and establish one central risk governance committee that acts as a single source of truth. Risk managers will get a more holistic view of where any AI/GenAI technology can be deployed to optimize operations.
• Draft executive briefings for senior management by using GenAI to synthesize lengthy/complicated data into easier-to-digest summaries that can explain key risk positions and potential challenges.
Long-Term Starts Now
There is little doubt that AI/GenAI features will one day be ubiquitous within financial services organizations—the question is, how many of the current incumbents will remain by that point? The smart money is on those with a long-term vision, capable of acting in the best interest of the future, instead of the compulsions of the moment, which will eventually delineate the posers and the professionals.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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