How Banks and Lenders are Falling Short of Capitalizing on the AI Revolution

AI adoption in financial services: Progress and challenges: Banks and lenders are making strides in implementing artificial intelligence technologies, but many are still struggling to fully capitalize on the AI revolution sweeping across industries.

• A recent survey by EXL of 98 senior executives at leading US financial services firms reveals that 80% have implemented AI to some degree, with 55% using it in a narrow range of functions.
• Generative AI, a cutting-edge subset of AI technology, is already being utilized by 47% of surveyed firms, primarily for product development (58%) and customer service (46%).
• Despite this progress, the adoption of AI in critical areas such as financial crime tracking (29%), fraud detection (28%), and credit/mortgage lending (26%) remains relatively low.

Generative AI: The next frontier: The financial services industry is showing increasing interest in generative AI, with many firms planning to expand their use of this technology in the near future.

• 38% of surveyed firms plan to incorporate generative AI within the next 24 months, indicating a growing recognition of its potential value.
• The high level of board involvement in generative AI decisions (85%) suggests that these technologies are being viewed as strategically important at the highest levels of organizations.
• However, the limited current use of generative AI in core banking functions highlights the cautious approach many firms are taking in implementing these advanced technologies.

Barriers to AI adoption: Several challenges are hindering the widespread adoption and full utilization of AI in the financial services sector.

• AI explainability issues remain a significant concern, particularly in an industry where transparency and regulatory compliance are paramount.
• Lack of leadership buy-in continues to be an obstacle in some organizations, potentially slowing the pace of AI adoption.
• Cost and budget concerns, as well as a lack of resources, are practical barriers that many firms face when considering AI implementation.
• Legacy systems, which are prevalent in the banking industry, can pose significant technical challenges to integrating new AI technologies.

Recommendations for successful AI implementation: To fully leverage the potential of AI, financial services firms should consider the following strategies:

• Develop a holistic, organization-wide AI strategy that aligns with overall business objectives and addresses potential challenges.
• Use data-driven decision-making to guide AI implementation, ensuring that investments are targeted at areas with the greatest potential impact.
• Partner with technology providers and consultants who understand the unique needs and regulatory environment of the financial services industry.
• Prioritize customer buy-in for AI-powered services by emphasizing the benefits and addressing potential concerns around privacy and security.

The road ahead: Balancing innovation and caution: As the financial services industry navigates the AI revolution, firms must strike a delicate balance between embracing innovation and maintaining the trust and security that are fundamental to their operations.

• The cautious approach to AI adoption in core banking functions reflects the industry’s need to ensure reliability, security, and regulatory compliance.
• However, the growing interest in generative AI suggests that many firms recognize the potential for these technologies to drive significant improvements in efficiency, customer experience, and risk management.
• As AI technologies continue to evolve and mature, financial services firms that successfully integrate these tools into their operations may gain a significant competitive advantage in an increasingly digital-first industry.