Artificial Intelligence (AI) is gaining traction among financial institutions due to the abundant availability of data. The rise of generative AI presents significant potential for revenue growth in the banking sector.
High AI Adoption
According to a PwC study from March 2024, around 70% of German financial institutions utilize AI in some form. Insurance companies are at the forefront, with a 91% adoption rate.
These high approval rates starkly contrast with the general state of digitalization and AI adoption among German companies, where only 15% use AI, and a mere 3% employ generative AI technologies like ChatGPT.
Why AI Thrives in Finance
The high presence of AI in the financial industry can be attributed to the substantial availability of data. Algorithms require data to function effectively, and financial institutions have access to decades of customer and market data.
Machine Learning (ML) algorithms and Predictive Artificial Intelligence can analyze this data swiftly, producing probability analyses and forecasts. Customer data, including payment transactions, risk profiles, and app usage behavior, can be leveraged by AI to create personalized product offerings.
Generative AI applications
Generative AI, capable of performing creative tasks such as text, image, or video creation at a high level, represents a milestone in AI development. As ML algorithms improve with increased data usage, the output continuously optimizes. A study conducted from McKinsey draws parallels between the current AI development and the smartphone revolution, noting that advancements in generative AI are happening much faster.
Generative AI offers vast potential especially for the financial sector, and in particular for Chief Financial Officers (CFOs), driving efficiency, profitability, and innovation.
Challenges and Solutions
The fast-paced development of AI can overwhelm financial sector leaders. Other challenges include shortages of skilled personnel and knowledge to develop and operate AI systems, and compliance with new regulations such as the EU AI Act. This regulation requires firms to disclose training data and comply with EU copyright laws, necessitating the development of expertise.
To successfully implement generative AI, it must be part of a comprehensive digital strategy aligned with business goals. Success metrics should be defined, and the long-term impact on the business model should be evaluated.
A dedicated team from various departments should focus on digitalization, emphasizing generative AI. Businesses must also consider how AI will affect their business model in the medium and long term, and explore new revenue streams through beyond-banking offers.
At ILI Digital, we offer the opportunity of having an entire Digital Business Factory with highly skilled professionals who seamlessly integrate into existing teams on a short- or long-term support collaboration.
