The Ultimate Guide to Using Generative AI for Banking

What is the most innovative technology to reshape banking over the past 12 months?

For many banks, the answer to that question is generative AI.

S&P Global reports that generative AI (or GenAI for short) can annually add between $200 billion to $340 billion in value for banks, accounting for roughly 9% to 15% of banks’ operating profits.

By 2027, global spending on AI as a whole will reach an estimated $450 billion.

Adopting and implementing GenAI is paramount for the future success of financial institutions — but it does not come without its trials and tribulations.

Today we are embarking on a comprehensive exploration of Generative AI for banking to discover its key use cases, benefits, and challenges for institutions to consider.

What is Generative AI and How Does It Relate to Banking?

Generative AI is a subset of AI trained to generate highly accurate outputs based on specific prompts.

While content generation is easily the most well-known use case for GenAI thanks to the rise of ChatGPT, GenAI can produce all types of outputs, including coding sequences, data analyses, and more.

McKinsey research estimates that generative AI will add between $2.6 trillion to $4.4 trillion annually to the economy across 63 different business use cases.

Additionally, McKinsey found that roughly 75% of the value generated by generative AI falls within four categories — customer operations, marketing and sales, software engineering, and R&D.

Let’s quickly take a look at the application of GenAI within each of these four use cases:

The State of Generative AI Adoption Across the Globe

While adoption and implementation of artificial intelligence have been ongoing in the financial industry for some time, generative AI for banking is still a relatively new concept and tool within the industry.

The popularity of GenAI spiked after the launch of ChatGPT, a free-to-use content generation tool capable of producing text-based content and snippets of code in various programming languages. In less than one year from its release in November 2022, ChatGPT has amassed an impressive user base that surpassed 100 million active users in just two months.

According to McKinsey’s recent report The State of AI in 2023, 40% of organizations plan on increasing investments in AI specifically because of advancements in generative AI. Moreover, McKinsey found that organizations already embracing AI in their business models are the early adopters of GenAI.

As McKinsey states:

Generative AI for banking poses both tremendous benefits and potential risks that banks and financial service providers must address to leverage the technology effectively.

One of the most pressing risks for banks to consider is the potential for inaccuracies in GenAI outputs. Reducing inaccuracies requires careful training and monitoring of GenAI tools and programs, ensuring that a GenAI model is trained using reliable and unbiased information.

What are the Top Use Cases for Generative AI for Banking?

As discussed, generative AI for banking has exceptional potential to improve various business operations — but what banking use cases can GenAI impact the most?

Let’s take a look at the top three use cases for generative AI for your bank or financial institution:

1. Enhanced Customer Due Diligence

Customer due diligence (CDD) automation solutions stand the most to gain from generative AI.

Generative AI for banking can analyze vast amounts of data to create comprehensive customer profiles. These profiles can then help to better identify potential risks and fraud patterns. Additionally, GenAI for banking enables your institution to analyze not only more data but a broader range of data sources as well. The increase in data sources improves your CDD process’s likelihood of identifying high-risk applicants quickly.

Aside from improving internal CDD efficiency, GenAI can also significantly improve the customer experience throughout the CDD process.

CDD and KYC (Know Your Customer) processes can be tedious and inconvenient for customers. If these processes become too time-consuming, customers may even opt for a different bank or financial services provider. Generative AI and banking solutions allow your organization to build more user-friendly onboarding and monitoring processes that enable several key enhancements for the customer experience, such as:

• 24/7 availability
• Real-time updates
• Error reduction
• Self-service options
• Faster verification
• Increased personalization
• Improved regulatory compliance

Additionally, GenAI and banking can cross-reference information across different data sources at exceptional speed, further streamlining CDD and KYC processes while expediting onboarding.

2. Improved Data Quality & Management

Verifying data accuracy is a true challenge for banks and financial institutions — especially when relying on manual processes to cross-reference and validate information.

Generative AI for banking can improve data quality and accuracy by cross-referencing different data sources and databases at far faster speeds than manual teams. Rather than having human effort govern the entire process, GenAI enables your bank to process large volumes of financial data and extract insights almost instantly.

Additionally, GenAI is backed by training and algorithms that reduce the risk of errors. Comparatively, manual processes are at a much higher risk of human error which contributes to their time-consuming nature.

3. Automation

Achieving true efficiency in the digital era of banking requires automation. Generative AI poses powerful advantages to process automation for your institution.

Generative AI poses powerful advantages to streamline specific tasks and entire workflows, including through CDD automation. In turn, your team members who would typically handle these tasks, can refocus on high-value business goals and innovation objectives.

Though onboarding may never be entirely free of manual effort, GenAI can decrease overall decision turnaround time by generating comprehensive, cited case files with tremendous speed and accuracy.

Increased automation via generative AI also assists your bank in keeping up with ever-evolving banking regulations. Generative AI can assist in automating compliance checks by continuously monitoring transactions and flagging any anomalies or suspicious activities for investigation, thereby helping to meet today’s digitally-oriented regulatory requirements.

What Risks Does Generative AI Pose to Banking Organizations?

While the potential advantages of generative AI for banking are undeniable, the technology also comes with its fair share of risks. Due to the largely unregulated nature of GenAI, there is still much ground to cover in terms of ensuring the safety and security of the technology in the financial space.

Consider what a recent 2023 Thomas Reuters report has to say on the matter:

For most financial institutions, accuracy and security are the two most significant risk factors to keep in mind when implementing GenAI solutions. As generative AI in banking continues to advance, fraudsters will also evolve, learning how to better manipulate the technology and — thereby — manipulate banks.

This makes it very important for banks to consider not only how to implement GenAI, but also how to monitor and manage the technology securely. Banks need the talent and capabilities to detect information altered by GenAI, particularly within identity verification and customer due diligence processes.

Data privacy is another major consideration when working with generative AI in banking.

Banks must use adequately trained GenAI models to safeguard customer information when generating insights, analyses, and other reports. To achieve this, banking organizations need talented experts with the knowledge and skills necessary to protect relevant data stored in AI systems from breaches, hacks, and other instances of unauthorized access.

What is the Best First Step for Implementing Generative AI at Your Bank?

Implementing generative AI into your bank’s business processes involves a thoughtful and strategic approach to ensure compliance, efficiency, and accuracy.

Specifically, the integration of GenAI can revolutionize how banks conduct customer due diligence tasks, enhancing risk assessment and fraud detection while streamlining operations.

Let’s take a look at X steps that are essential for implementing GenAI for CDD:

Ultimately, the successful integration of generative AI into customer due diligence processes requires a strategic roadmap, investment in technology and talent, alignment with regulatory standards, and a commitment to ongoing improvement and adaptation.

How Exadel Can Empower Your Bank to Embrace Generative AI

At Exadel, our team is at the forefront of AI development for financial services. We strive to create the best possible solutions for our clients that utilize the latest technologies — including Generative AI for banking.

Exadel’s Generative AI solution in banking is specifically tailored to enhance CDD processes by:

• Quickly validating data quality via AI-enhanced cross-referencing
• Maintaining compliance in time with the rapid rate of regulatory change
• Improving risk assessments by more accurately identifying high-risk customers while simultaneously reducing false positives

Our team’s deep expertise in the financial services industry makes Exadel a leading provider of innovative and profitable banking technologies.

With the help of Exadel’s Gen AI consulting and development services, your bank can take CDD, KYC, and other essential onboarding and monitoring processes to the next level. Our Generative AI solution for banking works by replacing your existing Natural Language Processing (NLP) model with Gen AI, all while maintaining compliance with the relevant data privacy and security regulations in your jurisdiction.

After implementing Exadel’s Gen AI solution for CDD, your organization can drastically decrease the amount of manual effort needed for these processes. In turn, more of your team’s vital time during business hours can be focused on addressing customer needs and furthering business innovation.

Get in touch with our team today to discover the power of Exadel’s Generative AI solutions for banking.