The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

Factors such as climate change, geopolitical tensions, supply chain disruptions, and slow economic growth are pushing banks to modernise to maintain customer trust and ensure business sustainability.

Generative AI (GenAI) and conversational AI offer unprecedented potential in this transformation. While AI traditionally excelled at making objective inferences from numerical data, GenAI represents a paradigm shift by venturing into the realm of creation. It brings sophisticated linguistic and visual capabilities, bridging gaps between customer needs and technological possibilities. Conversational AI, on the other hand, replicates human conversation's naturalness, reshaping how banks operate and engage with customers.

Rapid adoption of AI in banking

AI adoption in banking is accelerating. According to Gartner, nearly 60 per cent of banking CIOs are deploying or planning to deploy AI tools and machine learning models within the next year. Its 2024 CIO and Technology Executive Survey indicates that AI/ML usage in banking is set to more than double, with 35 per cent already implementing it and 23 per cent planning to do so in 2024.

How GenAI and conversational AI are changing banking

GenAI's customisation and predictive capabilities: GenAI creates new content, from text to images, based on vast datasets. In banking, this allows for deeper customisation of financial products. By analysing a customer's financial history, behaviour, and life events, GenAI could tailor products like loans, investment portfolios, and insurance plans to individual needs.

A leading bank in China exemplified this by launching a three-dimensional digital banking outlet that provided financial product information using text, numbers, and visual elements like video clips. This intuitive approach increased the transaction volume of products by more than 20 per cent.

GenAI can also enhance wealth management by combining with Portfolio Analytics to better understand client needs and optimise portfolio construction. Moreover, it can aid in reading regulations and assessing compliance, predicting disruptions caused by natural disasters, geopolitical events, or regulatory changes.

Conversational AI's Impact on customer engagement: Conversational AI, commonly seen in chatbots, is transforming customer interactions. As it becomes more sophisticated, it will streamline operations and enhance customer experiences. For instance, it can mitigate UI fatigue by offering a seamless transaction experience without pushy cross-selling.

Conversational AI provides real-time, continuous engagement, operating 24/7 across multiple platforms and languages. This capability offers the convenience of a banking assistant familiar with a customer’s financial history, available at any time.

Streamlining processes with conversational AI: Conversational AI can accelerate customer onboarding and improve interactions with loan agents, freeing up human staff for higher-value functions. A Sweden-based bank implemented a virtual agent that answered over two million inquiries in one year, providing tailored responses across multiple business units to maximise productivity.

Ethical and regulatory considerations

While GenAI and conversational AI offer significant benefits, they also pose ethical and regulatory challenges. As these technologies handle sensitive data and make decisions impacting customers' lives, concerns about accountability, fairness, and algorithmic bias arise.

Regulatory requirements are becoming more stringent and customer-focused. Banks must stay updated on global and local AI usage rules, working closely with regulators to establish ethical AI standards and investing in technologies that ensure responsible AI decision-making.

In summary, GenAI and conversational AI are poised to disrupt the future of banking, offering innovative ways to customise products, improve customer engagement, and streamline operations. However, navigating the ethical and regulatory landscape will be crucial to realising their full potential.