In June 1967, the inaugural automated teller machine, commonly known as an "ATM," was introduced during an elaborate event at a Barclays Bank location in north London.
This original device appeared quite different from the modern ATMs we utilize today. Yet, nearly sixty years later, it is difficult to envision a society where individuals could only access cash during traditional banking hours.
Currently, in Australia and across the globe, financial institutions are making substantial investments in the belief that a new form of automation will revolutionize their operational models: artificial intelligence.
On Monday, Bendigo Bank revealed it had finalized a multi-year partnership with Google to utilize the tech giant's Gemini Enterprise AI platform for various functions, such as evaluating loan requests and identifying fraudulent activity.
This comes after a significant agreement between Commonwealth Bank and OpenAI, which was revealed in August, aimed at “providing sophisticated AI to users and staff. ”
What does the future of banking look like – and who will oversee the associated risks?
Significant transformations are already underway
Over the years, banks have subtly integrated AI technologies to assist with various functions. If you have interacted with a chatbot lately, it's quite possible that you have encountered AI.
Artificial intelligence is aiding financial institutions and their staff in making informed choices. It is examining potential fraud and scams, evaluating credit ratings, facilitating trading and investment operations, and managing regular, tedious tasks.
That alert from your banking app regarding a suspicious transaction? Chances are, it's powered by AI. The indication you received that the individual claiming to be from your bank could be a fraudster? That’s likely attributed to AI as well.
At Commonwealth Bank alone, it has been reported that AI tools have helped reduce customer losses from scams by 50 percent and cut down call center wait times by 40 percent.
The banks at the forefront of this initiative are not limited to Australia. For instance, the US-based investment bank JPMorgan has created its own unique AI system known as LLM Suite, which has been implemented across its various divisions to assist employees with numerous tasks.
What lies ahead
A new study on the use of AI by the research company Evident Insights revealed that nearly 85 percent of banks utilize generative AI for internal processes rather than for direct customer interaction.
However, the forthcoming phase of AI integration may look entirely different. Rather than merely assisting people in working more efficiently, this technology may be able to autonomously make decisions and execute actions.
This concept is referred to as "agentic AI." Although only a few banks, such as Bank of New York Mellon, have experimented with it, the initial outcomes appear to be encouraging.
A recent analysis conducted by consulting firm McKinsey featured a case study of a significant international bank that established 10 groups of AI agents to manage customer applications entirely.
These AI agents were responsible for checking government databases, confirming identities, screening for sanctions, and generating reports. Human involvement was necessary only for irregular situations.
What about the gains in productivity? McKinsey found that while basic AI automation could enhance a team’s speed by 15 to 20 percent, granting complete authority to AI has the potential to increase productivity by a staggering 200 to 2000 percent.
Difficult lessons
Australian financial institutions are making significant investments in this future. However, they are also facing harsh realities regarding the human impact.
In July, 45 employees at the Commonwealth Bank's call center were informed they would be unemployed after the introduction of an AI chatbot.
Later, in August, following concerns raised by the Finance Sector Union, the bank acknowledged that the situation could have been managed more effectively and reinstated the positions.
Even with the bank's reversal, Commonwealth Bank's CEO Matt Comyn stated at a technology event in October that it is essential to approach the utilization of AI with a sense of urgency.
He emphasized that leaders must take action, resisting the urge to simply observe and follow.
Prospects for banking?
The banking sector is actively testing various methods to integrate AI technologies effectively.
One possibility involves developing AI-driven financial advisors that reach out to users with tailored suggestions for saving.
Another avenue being investigated incorporates “self-managing finance” solutions that may oversee your finances with little user involvement, enhancing various aspects such as bill payments and investment distributions.
Consequently, it is conceivable that AI could eventually manage whole banking operations independently. Picture submitting a loan application at 2am and receiving approval just five minutes later, with AI managing each phase of the process.
What are the potential dangers?
Society anticipates that financial institutions will utilize unbiased, transparent, and safe AI technologies. However, the rapid advancement of this technology is causing regulators to struggle to keep pace.
There is a significant worry regarding bias in algorithms. If artificial intelligence draws from historical data that embodies previous prejudices, it may continue or even exacerbate unjust lending behaviors.
To illustrate, this could adversely impact the loan obtaining ability of individuals who have historically been labeled as a “poor investment. ”
Banks are fully accountable for any errors made by their AI systems. Responsibility cannot be shifted to algorithms. Nevertheless, it is likely that the consumers will bear the consequences of these errors.
The landscape of banking is poised for a radical change due to AI, regardless of our preparedness. This could result in banking that is more affordable, quicker, and tailored to individual needs.
However, it also poses risks to employment, raises issues regarding privacy, and concentrates significant power in algorithms that many of us do not fully comprehend.
As lawmakers increasingly challenge financial institutions, the true challenge lies not in whether AI can innovate banking. The true challenge will be whether this innovation is equitable and beneficial beyond just profit margins.
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