Artificial intelligence in banking presents both risks and opportunities – Fintech Schweiz Digital Finance News

Of Fintechnews Switzerland
June 11, 2024

Despite the promised benefits in terms of better customer support and personalization, the use of artificial intelligence (AI) in banking also introduces numerous disadvantages and risks, including data privacy and security issues, as well as fraud risks, has a new Glassbox survey found.

The study, which surveyed 1,000 U.S. consumers aged 21 and older in May 2024, found that 60% of those interviewed believe that artificial intelligence in the banking sector presents equal parts benefits and risks. In particular, 47% of respondents identified security risks as the main concern regarding artificial intelligence in the banking sector.

Security is considered a top priority in digital banking by more than half of respondents, with 90% saying the security of personal information is important or extremely important. This highlights the urgent need for banks to prioritize the security and reliability of their digital services.

found that 51% of organizations surveyed lost between $5 million and $25 million due to AI-based or AI-driven threats in 2023. Nearly half of those surveyed expect an increase in financial crime and fraud in 2024.

A growing challenge in this context is deepfake technology, which allows the creation of fake videos, images and audio to impersonate individuals. This technology it has become increasingly sophisticated and accessibleleading to a significant increase in its use for fraudulent purposes.

According to Sumsub’s 2023 Identity Fraud Report, the number of deepfakes detected globally across all industries increased tenfold from 2022 to 2023, with the cryptocurrency and fintech sectors accounting for 96% of these cases. In the fintech sector alone, deepfake incidents increased 700% in 2023 compared to the previous year.

Deloitte expects deepfake incidents to proliferate in the years ahead as bad actors continue to leverage increasingly sophisticated and affordable generative artificial intelligence (gen AI) technologies to defraud banks and their customers.

The company estimates that gen AI, which refers to artificial intelligence systems designed to autonomously generate new and original content, could push fraud losses in the United States to $40 billion by 2027, up from $12.3 billion in 2023 , with a compound annual growth rate of 32%.

Actual and projected fraud losses, 2017 through 2027 ($ billion), Source: Deloitte Center for Financial Services, May 2024

Despite the risks and challenges, consumers recognize that AI provides valuable use in banking. According to the Glassbox survey, 59% of US consumers agree with using AI to identify potential fraud, and nearly half support its use to fix mobile app or website errors to improve usability.

AI also helps provide a seamless customer experience across all digital platforms, a feature deemed important by 66% of consumers. Additionally, 79% of users highlighted the importance of quality online customer support, and 63% consider personalization based on past activity and history significant.

Additionally, customers expect reliable and consistent experiences when accessing financial information and resources. In fact, 87% of those interviewed said that overall reliability and the absence of errors are essential when making transactions via app or website.

Globally, AI is being adopted by the banking industry at a rapid pace. A recent McKinsey survey found that AI adoption has reached a remarkable 72% this year, up from 55% in 2023. Additionally, responses show that companies are now using AI in more areas of business. Half of respondents reported that their organizations have adopted AI in two or more business functions, compared to less than a third of respondents in 2023.

Business functions at respondents’ organizations that have adopted AI, % of respondents, Source: McKinsey and Company, May 2024

Senior executives in the finance and banking industry are willing to take significant risks for the efficiency improvements brought by artificial intelligence. A study conducted by IBM, which interviewed more than 3,000 CEOs of banking and financial markets, found that 66% believe the potential productivity gains from automation and AI are so substantial that they accept significant risks to remain competitive. Additionally, 67% said they would take more risks than competitors to maintain their competitive advantage, underscoring the importance of adopting AI in this industry.

Featured image credit: Edited by freepik

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