AI-powered banking set to change financial landscape

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Finance is challenging yet essential in our daily lives. Its complex jargon and high barrier to entry often discourage the public from engaging deeply with the sector, despite its importance.

Now, imagine having a knowledgeable consultant who offers personalized advice and simplifies complex financial terms for you when you're considering a financial product. What if you could receive a preliminary assessment before making an investment? And the best part: they are available anytime, anywhere, and without the high cost typically associated with hiring a professional.

Does this seem like the distant future? It's actually more imminent than you might realize, thanks to the swift integration of artificial intelligence (AI) into the finance sector.

In the banking industry, the primary objective is the deployment of advanced AI bankers capable of supporting or even supplanting the human workforce. These AI bankers can offer around-the-clock assistance, significantly boosting the efficiency of banking operations.

For instance, KB Kookmin Bank took pioneering steps in 2022 by implementing AI assistants across several branches to aid customers with document handling and provide information on financial products. The bank is in the midst of internal beta testing to integrate the assistant, initially introduced in a kiosk form, to the mobile platform.

Woori Bank also announced on Nov. 8 that it began full-scale development of an AI banker system that is expected to be launched in the first quarter of 2024. Customers will be able to access the system via the bank's mobile app.

"The service, crafted to interpret the context of inquiries and produce fitting responses, aspires to offer a level of consultation comparable to in-person branch experiences, even through remote channels," an official at Woori Bank said.

A customer uses an AI banker service at a kiosk in the Yeouido branch of KB Kookmin Bank in Seoul in this January 2022 file photo. Courtesy of KB Kookmin Bank

AI is also streamlining the process of claiming insurance fees. Through a partnership with the local AI startup, Upstage, Samsung Life Insurance significantly automated the insurance claims process. Upstage's AI model processes the submitted documents, extracts relevant data, and assists in the provision of insurance funds. This proves particularly beneficial during times when claims are accumulating.

The investment sector, too, is experiencing an increased presence of AI. Shinhan AI, a subsidiary of Shinhan Financial Group, is set to launch a sophisticated chatbot service by the end of the year, which will provide advice on the stock market. This chatbot is expected to surpass previous models that offered only limited and simple responses. It will be capable of providing answers that consider historical and current financial data, such as predicting the impact of a pandemic on the KOSPI or the effects of a war on the Nasdaq.

"It can resolve the various curiosities of customers related to domestic stocks and economic issues, and address the information asymmetry among financial consumers," Park Dae-woo, head of Solution Chapter at Shinhan AI, said during a recent seminar hosted by the Bank of Korea.

According to Korea Credit Information Services (KCIS), the finance industry accounts for the largest share of the AI market, making up 19 percent as of 2021. The valuation of the domestic financial AI market experienced a drastic increase, soaring from 300 billion won ($229 million) in 2019 to 600 billion won in 2021. The market is expected to reach a valuation of 3.2 trillion won, with an annual growth rate of 38.2 percent projected through 2026.

"Generative AI is a key growth catalyst for the financial industry to advance to the next level. Its automation capabilities can greatly enhance the industry's efficiency," said Oh Soon-young, a managing director of KB's Financial AI Center.

According to KCIS, AI can be utilized in four main ways in the finance industry.

First, it enables the generation of new revenue streams by analyzing vast amounts of data. Financial firms can leverage this capability to improve credit evaluation models or refine their algorithmic trading strategies. Secondly, AI enhances the customer experience by offering more tailored services, such as robo-advisor services.

Moreover, AI boosts cost efficiency by automating routine business, exemplified by banking chatbots that manage everyday customer inquiries. Lastly, AI is integral in maintaining compliance with strict financial regulations, with AI-powered systems being deployed to monitor legal compliance.

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Despite its potential, market watchers believe that AI's integration in financial services is still in its early stage.

"We are at the earliest stage of utilizing generative AI," said Oh. "For the time being, AI has no choice but to assist people. To fully enter the banking sector, there are various issues that need to be addressed, such as compliance and securing customer data. It is expected to take some time before AI can independently manage such sensitive data."

This cautious approach is partly due to the unsolved issues associated with generative AI in finance. It is still difficult to ensure that AI consistently provides accurate and reliable responses, and there's a tendency for output to reflect existing biases. This is particularly concerning in finance, where credibility plays a crucial part.

A case in point occurred in 2019 involving the Apple Card.

The system was accused of gender bias when a U.S. tech entrepreneur reported that it offered lower credit limits to women, despite shared assets and accounts with their male spouses. Although the subsequent investigation did not find evidence of discrimination against women, it underscored various societal implications that must be considered when developing AI models.

Uncertainties surrounding the ethical and legal ramifications of AI present risks to both society and financial institutions as well.

In an interview with The Financial Times, Gary Gensler, chair of the U.S. Securities and Exchange Commission, cautioned that without prompt regulatory action, AI could precipitate a financial crisis within the next decade — a scenario he described as "nearly unavoidable." He advocated the reinforcement of AI regulations to safeguard investors from potential dangers if the current trend persists unchecked.

Gary Gensler, chair of the U.S. Securities and Exchange Commission, speaks during a meeting at the U.S. Treasury Department in Washington, Nov. 3. EPA-Yonhap

The OECD has also sounded alarms that the swift digitalization of finance could lead to increased cyber risks. This includes the risk of indiscriminate data collection and potential financial exclusion among older adults.

Echoing these concerns, Oh emphasized the necessity of prioritizing AI governance.

"That is why (financial firms and the government) must begin to focus on AI governance immediately. The application of AI technology should not be confined to profit enhancement, but must also encompass a broader vision of social responsibility by including the financially underserved in its scope."

To foster social trust in AI-enabled financial services, it is crucial not only to adopt appropriate regulations, but also to ensure the safety, transparency and fairness of these services.

One approach to achieve this is through the development and implementation of Explainable AI (XAI).

XAI is a type of technology designed to provide clarity on the logic behind AI's decision-making processes. By making the rationale behind decisions in credit scoring, insurance claims and similar areas transparent, XAI could enhance understanding and trust.

"For successful innovation in AI-based financial services, it is crucial not to rely solely on AI, but also to create synergy between financial experts and AI specialists. The importance of continuous collaboration and communication is key," Park said.