01 Jun Thinking digitally is a must: The Role of AI in the Financial Industry
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Thinking digitally is a must: The Role of AI in the Financial Industry
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.
The Finance Industry
We offer a global perspective on the Financial sector, with a focus on the German market, covering banking, insurance, and various sectors.
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.
Data driven Insights
Extensive historical data boosts AI effectiveness
Enhanced Customer Service
AI-powered chatbots and virtual assistants
Increased Profitability
Potential 9-15% annual profit increase
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.
ILI Success Story: gecco2
This innovative solution, developed in collaboration with Volksbank Pur, highlights the potential of AI in addressing sustainability issues and creating value beyond traditional banking services.
ILI Success Story: gecco2
Generative AI offers vast potential for the banking sector, driving efficiency, profitability, and innovation. However, its successful adoption hinges on overcoming knowledge gaps, regulatory challenges, and integrating AI within a strategic framework aligned with overarching business objectives. By leveraging AI, traditional financial institutions can enhance customer relationships, compete with fintechs, and explore new business opportunities.
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