Banks Profit to Grow 9% to 15% Annually on Generative AI Adoption
Generative artificial intelligence can increase operating profits in the banking sector by between 9% and 15% annually. That is the sentiment echoed by McKinsey Global Institute in a report. The report indicates that the revolutionary technology could boost earnings in the banking sector to over $340 billion annually, thanks to increased productivity.
Generative AI in Banking
Generative AI is becoming increasingly popular in various industries, popularized with the launch of OpenAI’s ChatGPT and Bard by Alphabet early this year. The technology, which is trained on vast troves of data, has proved to be effective in identifying trends and generating appropriate responses and answers to challenging tasks.
The technology has the potential to collect and interpret vast chunks of financial data on a large scale, therefore empowering bank managers to make informed decisions. In addition, generative AI is key to offering tailored services, enhancing the evaluation of risks, and undertaking tasks. A key advantage of technology is that it has the potential to automate most of the laborious tasks in the banking sector.
In addition, it has the potential to reshape customer services through AI-powered chatbots like ChatGPT, which are already sending shockwaves. Banks are also increasingly adopting AI tools to enhance fraud detection and predict financial trends, allowing them to detect and take advantage of high-risk reward opportunities.
Generative AI has the potential to eventually take over repetitive tasks in the banking sector. In its research, McKinsey points out 63 use cases of the technology across various industries. In the financial sector, the technology would be of great help in the customer service sector and interpreting of critical financial data and reports
Sales and marketing divisions will be the most affected by the technology in the financial sector. McKinsey, in its report, also indicates that Generative AI has the potential to take over most call center roles owing to the effectiveness of most AI-powered chatbots.
Jobs Loss on AI Adoption
Amid the positive attributes of the revolutionary technology, there are growing concerns over the number of people who will be rendered jobless. The fact that 70% of business activities will have automated parts thanks to generative AI is already sounding warning bells over the potential loss of thousands of jobs.
Banks and other financial institutions face an uphill task of balancing adopting AI tools while retaining staff. The prospect of cutting labor costs and enjoying enhanced productivity and efficiency is one that could see most of them opt for AI tools at the expense of workers.
Wall Street is already seeing AI as one of the ways of overhauling working practices and cutting costs in the push to bolster margins. For instance, Goldman Sachs Group has begun using AI-based tools to automate labor-intensive coding elements. On the other hand, Citigroup is leveraging generative AI to analyze vast troves of data on new capital rules.
The use of generative AI to enhance derivatives trading is also gaining momentum as banks look to strengthen their competitive advantage. While most banks have large fraud detection departments, generative AI can help track transactions and flag any anomalies or behavior that does not fit expected patterns.
