POST-GRADUATE DEPARTMENT OF BUSINESS

MANAGEMENT

USE OF ARTIFICIAL INTELLEGENCE IN BANKING SECTOR

Guided by: -DR VILAS KULKARNI

Submitted by: - MITHIL JOSHI (21032)
JULY 2022
 CHAPTER 1: INTRODUCTION

1.1 Artificial Intelligence:

Artificial intelligence (AI) refers to the simulation of human intelligence in

machines that are programmed to think like humans and mimic their
actions. The term may also be applied to any machine that exhibits traits
associated with a human mind such as learning and problem-solving.

The ideal characteristic of artificial intelligence is its ability to rationalize

and take actions that have the best chance of achieving a specific goal.
A subset of artificial intelligence is machine learning (ML), which refers to
the concept that computer programs can automatically learn from and
adapt to new data without being assisted by humans. Deep
learning techniques enable this automatic learning through the
absorption of huge amounts of unstructured data such as text, images,
or video.

1.1.1 Understanding Artificial Intelligence (AI) :

When most people hear the term artificial intelligence, the first thing they
usually think of is robots. That's because big-budget films and novels
weave stories about human-like machines that wreak havoc on Earth.
But nothing could be further from the truth.

Artificial intelligence is based on the principle that human intelligence

can be defined in a way that a machine can easily mimic it and execute
tasks, from the simplest to those that are even more complex. The goals
of artificial intelligence include mimicking human cognitive activity.
Researchers and developers in the field are making surprisingly rapid
strides in mimicking activities such as learning, reasoning, and
perception, to the extent that these can be concretely defined. Some
believe that innovators may soon be able to develop systems that
exceed the capacity of humans to learn or reason out any subject. But
others remain sceptical because all cognitive activity is laced with value
judgments that are subject to human experience.

As technology advances, previous benchmarks that defined artificial

intelligence become outdated. For example, machines that calculate
basic functions or recognize text through optical character recognition
are no longer considered to embody artificial intelligence, since this
function is now taken for granted as an inherent computer function.

AI is continuously evolving to benefit many different industries. Machines

are wired using a cross-disciplinary approach based on mathematics,
computer science, linguistics, psychology, and more.

1.2 Applications of Artificial Intelligence

The applications for artificial intelligence are endless. The technology

can be applied to many different sectors and industries. AI is being
tested and used in the healthcare industry for dosing drugs and doling
out different treatments tailored to specific patients, and for aiding in
surgical procedures in the operating room.
Other examples of machines with artificial intelligence include computers
that play chess and self-driving cars. Each of these machines must
weigh the consequences of any action they take, as each action will
impact the end result. In chess, the end result is winning the game. For
self-driving cars, the computer system must account for all external data
and compute it to act in a way that prevents a collision.

Artificial intelligence also has applications in the financial industry, where

it is used to detect and flag activity in banking and finance such as
unusual debit card usage and large account deposits—all of which help
a bank's fraud department. Applications for AI are also being used to
help streamline and make trading easier. This is done by making supply,
demand, and pricing of securities easier to estimate.

1.3 Categorization of Artificial Intelligence

Artificial intelligence can be divided into two different categories: weak

and strong. Weak artificial intelligence embodies a system designed to
carry out one particular job. Weak AI systems include video games such
as the chess example from above and personal assistants such as
Amazon's Alexa and Apple's Siri. You ask the assistant a question, and
it answers it for you.

Strong artificial intelligence systems are systems that carry on the tasks
considered to be human-like. These tend to be more complex and
complicated systems. They are programmed to handle situations in
which they may be required to problem solve without having a person
intervene. These kinds of systems can be found in applications like self-
driving cars or in hospital operating rooms.

1.4 Special Considerations

Since its beginning, artificial intelligence has come under scrutiny from
scientists and the public alike. One common theme is the idea that
machines will become so highly developed that human will not be able to
keep up and they will take off on their own, redesigning themselves at an
exponential rate.

Another is that machines can hack into people's privacy and even be
weaponized. Other arguments debate the ethics of artificial intelligence
and whether intelligent systems such as robots should be treated with
the same rights as humans.

Self-driving cars have been fairly controversial as their machines tend to

be designed for the lowest possible risk and the least casualties. If
presented with a scenario of colliding with one person or another at the
same time, these cars would calculate the option that would cause the
least amount of damage.

Another contentious issue many people have with artificial intelligence is

how it may affect human employment. With many industries looking to
automate certain jobs through the use of intelligent machinery, there is a
concern that people would be pushed out of the workforce. Self-driving
cars may remove the need for taxis and car-share programs, while
manufacturers may easily replace human labor with machines, making
people's skills obsolete.

The first artificial intelligence is thought to be a checkers-playing

computer built by Oxford University (UK) computer scientists in 1951.1

1.5 What Are the 4 Types of AI?

Artificial intelligence can be categorized into one of four types.

Reactive AI uses algorithms to optimize outputs based on a set of

inputs. Chess-playing AIs, for example, are reactive systems that
optimize the best strategy to win the game. Reactive AI tends to be fairly
static, unable to learn or adapt to novel situations. Thus, it will produce
the same output given identical inputs.

Limited memory AI can adapt to past experience or update itself based

on new observations or data. Often, the amount of updating is limited
(hence the name), and the length of memory is relatively short.
Autonomous vehicles, for example, can "read the road" and adapt to
novel situations, even "learning" from past experience.

Theory-of-mind AI are fully-adaptive and have an extensive ability to

learn and retain past experiences. These types of AI include advanced
chat-bots that could pass the Turing Test, fooling a person into believing
the AI was a human being. While advanced and impressive, these AI are
not self-aware.

Self-aware AI, as the name suggests, become sentient and aware of

their own existence. Still in the realm of science fiction, some experts
believe that an AI will never become conscious or "alive".

1.6 How Is AI Used Today?

AI is used extensively across a range of applications today, with varying

levels of sophistication. Recommendation algorithms that suggest what
you might like next are popular AI implementations, as are chatbots that
appear on websites or in the form of smart speakers (e.g., Alexa or Siri).
AI is used to make predictions in terms of weather and financial
forecasting, to streamline production processes, and to cut down on
various forms of redundant cognitive labour (e.g., tax accounting or
editing). AI is also used to play games, operate autonomous vehicles,
process language, and much, much, more.

CHAPTER 2: APPLICATIONS OF AI IN BANKING SECTOR

Artificial Intelligence in Banking accelerates digitization in end-to-end

banking and finance processes. By implementing the power of data
analytics, intelligent ML algorithms, and secure in-app integrations, AI
applications optimize service quality and help companies identify and
combat false transactions.

Nearly 40% to 50% of financial and banking service providers are using
AI in their processes to harness the power of next-generation AI
capabilities. The companies believe that AI is the future of banking
sector which can perform a range of banking operations in faster, easier,
and more secure ways.

Machine Learning, predictive analytics, and voice recognition tools are

all increasing the value of digital banking services. AI Chatbots, facial
recognition banking apps, and fraud detection systems and applications
are all a few best examples of AI in banking and finance industry.

2.1 Applications Of AI In Banking Sector

AI in banking and finance is boosting the performance and

competitiveness of banks and financial companies. The uses of AI in
banking industry are incredible. The banks are implementing AI for
detecting frauds, enhancing customer experience, tracking customer
behavior for recommending more personalized services, analyzing
customer credit histories to predict risks associated with allotting loans,
and many more.

Below are a few significant applications of AI in banking and finance

industries.

AI In Banking Use Cases That Plays A Vital Role In 2022

1. AI Chatbots 

It is one of the best advantages of using Artificial Intelligence in the

banking sector. AI banking Chatbots help customers in many ways. AI-
based chatbot service for financial industry is one of the significant use
cases of AI in banking sector. AI chatbots in banking are modernizing
the way how businesses provide services to their customers.

AI chatbots in banking industry can assist customers 24*7 and give

accurate responses to their queries. These chatbots provide a
personalized experience to users.

Hence, AI chatbots for banking and finance operations let banks attract
customer attention, optimize service quality, and expand the brand mark
in the market.

2. AI Enhances Customer experience

AI banking apps can do wonders. AI mobile banking apps

for Android/iOS are aimed to improve customer experiences and service
quality. Implementation of AI and Machine Learning in banking help
companies in tracking user behavior and delivering highly personalized
services to customers.

Intelligent mobile apps using ML algorithms can monitor user behavior

and derive valuable insights based on user search patterns. These
insights would help service providers in providing personalized
recommendations to end-users.

Hence, 70% of the banks are looking ahead to integrating AI in mobile

banking apps and stepping forward to embrace the golden opportunities
of AI in banking industry.

3. Brings Automation & Makes The Process Seamless

The use of Artificial Intelligence in Banking will accelerate automation

and make your process seamless.

Automation is one of the best AI use cases in finance and banking

sector. AI has great potential in the banking industry. AI software helps
banks in streamlining and automating every task which is done by
humans and making the entire process simple and virtual.

Therefore, AI applications can reduce the workload of bankers and

optimize the quality of work. Through customized AI banking apps and
AI Chatbot services, users can request service at any time and get
accurate responses from AI virtual banking assistants all the time.

4. Data Collection & Analysis

There are many fold benefits of AI in Banking and Finance and

automated data collection and analysis is one of them.

Artificial intelligence in the banking sector can efficiently perform data

collection and analysis processes. AI machines process massive data
sets and extract valuable insights into data. This analysis will help banks
to predict the future of their business and market trends with ease.

Further, customer data analysis through AI-powered mobile banking

apps will also play a vital role in delivering personalized services and
enhancing the overall user experience. Moreover, banks can also make
effective business decisions with the insights derived from the customer
data and offer them more personalized service recommendations.

5. AI for Portfolio Management 

It is one of the best benefits of AI in Banking and Finance sector. Wealth

and portfolio management can be done more powerfully with artificial
intelligence. It’s a fact that advanced technologies bring everything to
our fingertips. AI helps those users who cannot visit the banks
frequently. This innovative AI technology can manage banking services
and strengthen mobile banking operations.

On remitting money through digital banking apps, AI apps will track and
send immediate transaction alerts to the users, if they trigger any
suspicious transactions. AI machines immediately alert the user. Hence,
AI ensures safe transactions.

On the other hand, AI also plays a crucial role in the debit/credit card
management system. It can automate the credit and debit card
management system and makes the process safer. Artificial intelligence
technology in banking eases the card authentication process and makes
transactions safe and secure. Hence, AI systems advance mobile
banking services.

6. AI For Risk Management 

AI for risk management is one of the best applications of AI in banking. It

is one of the significant advantages of AI-enabled smart banking
services. For instance, checking financial status, document verification,
and releasing loans are risk-related activities for bankers. The use of AI
and machine learning in banking can tackle this intelligently.
AI and machine learning in banking can do this task with more accuracy
and privacy. AI-based mobile banking applications easily financial
activities and analyze the banking data of the borrower. It could help
bankers to identify the risks in giving loans to them. In addition, using the
AI-driven risk assessment process, bankers can analyze the borrower’s
behavior and thus can reduce the possibility of fraudulent acts.

Don’t give loans to the one who never pays you back. USM AI experts
deliver AI-powered banking apps to reduce the risk level in disbursing
loans.

7. AI for Analyzing Sentiments

The use of Artificial Intelligence in Banking and finance is going to the

next level. AI in banking use cases is infinite. Artificial intelligence
models in banking are used to analyze the mood of countless financial
markets.

Using machine learning techniques, AI models can predict the market

conditions and provide insights into the market trends. Because of this
reason, artificial intelligence models are increasingly using in hedge fund
management functions.

8. Next-gen Security Is Guaranteed

Usage of AI in banking and finance ensures high-level security across

banking functionalities. Top mobile app development companies are
integrating AI and developing the most advanced banking apps that
monitor every transaction and protect the entire process like a firewall.

USM Business System is providing the best artificial intelligence

services for banking and finance companies on demand.

9. AI Mobile Apps Detects Fraud

AI smart banking services are mesmerizing service providers and
customers in many ways. Artificial intelligence banking apps detect risks
and minimize fraudulent acts. AI technology can scan transactional data
and detect irregular user behavior patterns. Hence, using smart AI tools
and apps, banking companies can protect their business from breaches.

10.  AI for Compliance In Banking

The use of Artificial Intelligence in banking is spreading at a rapid pace.

The biggest organizations look at banks that follow regulatory
compliance rules.

The banking sector needs to continuously update its work processes

under the existing compliance rules and regulations.

Generally, most banks maintain an internal compliance team for this

purpose. The compliance teams clean web pages and other internal
documents to stay updated with the new rules. But this process takes a
lot of time and needs more capital to do manually.

Artificial intelligence-based software products can actively find the rules

that apply to the banks and make them compliant with those rules. AI
software boosts the skills of compliance officers and allows them to
scale their operations.

These are a few benefits of AI in Banking and Finance. Implementations

of all these applications of AI in banking would give profitable results for
banking and finance companies and drive automation across customer
interaction and service delivery.
 CHAPTER 3 : IMPACT OF AI ON BANKING SECTOR

AI technology is occupying space in the banking industry at a rapid

pace. Every business operation in the banking industry can be
automated with AI. Thus, the role of AI in banking industry is enormous.
Here, we have listed a few aspects of how can AI improve the banking
industry.

3.1 Cuts Operational Costs

Most of the banks were already using AI, machine learning, and NLP
technologies to bring automation into their workflows.  Moreover, AI-
powered systems and applications can perform repetitive tasks more
accurately than humans. This intelligent process will ensure minimum
operational costs and avoid errors in the process.

Besides, the emergence of AI chatbots in banking industry is a

revolution. With the deployment of AI chatbots in banking, banks can
reliably provide 24*7 customer support and increase credibility. So, the
development of AI chatbots for banking will cut the costs associated with
human client support executives. It is a great impact of AI in banking.
The banks can get rid of repetitive manual tasks and improve the quality
of service.
USM delivers user-friendly AI banking mobile apps that improve
customer experience and let banks provide 24*7 services to clients.

 3.2 Improves Customer Support

It is one of the significant aspects of AI in banking. Customer is a

revenue-generating source for every business. A business that provides
improved customer support will add value to its brand. It bolds your
brand name in the market. Moreover, improved customer support
without frustration also offers maximum customer retention rates.

AI apps provide banking services even on public holidays as well. Can

you expect this kind of support from a banker?  No, this might not be
possible with a banker to clarify customer issues, especially during the
holidays.

Thus, AI in banking helps banks provide the right services at the right
time.

The best real-time example of AI in banking is Bank Of America’s Erica

virtual assistant. This AI virtual assistant for banking clients gives
personalized recommendations to users

It automatically sends updates on credit reports. Besides, it also sends

bill payment alerts to customers. Thus, Erica offers great personalized
support to accounts.

3.3 Picks creditworthy clients to disburse loans

Generally, most of us experience frustration when we apply for a
personal loan in banks. The manual verification of transaction history
and credit score might take long hours. And, the bankers make us feel
tense even after we are creditworthy customers.

AI use cases in finance will take this burden out from these complex
credit functions. AI-based credit decision systems analyze customer
transaction data and determine whether the customer is eligible for the
loan or not in a matter of minutes.

USM also has proven AI apps for the banking sector. We develop AI-
based banking mobile applications that help customers easily apply for
loans, credit cards, and cheque-book.  Get your free quote now!

   3.4 AI helps banks run under regulatory compliance

The healthcare and the banking industries are prone to frequently

changing compliance rules. Every bank should provide banking services
and support customers under existing regulatory compliance.

A bank should not disclose its customer financial data and is highly
prone to hacking. AI-based fraud analytics tools detect suspicious acts of
hackers. In this way, AI helps banks to offer high-level protection of
customer data. Further, AI systems also make processes compliant with
the changing regulatory compliance.
 CHAPTER 4: Artificial Intelligence Banking In India

According to PwC FinTech Trends Report (India) 2017, global

investment in AI applications touched USD 5.1 billion (Euro 4.3 billion) in
2016. Not only PNB but banks like SBI, HDFC, ICICI, HSBC and Axis
banks in India have turned towards AI.

4.1 Use of AI By Indian Banks:

State Bank of India (SBI): SBI launched a national hackathon called

‗Code For Bank‘ for developers, startups and students to come up with
innovative ideas and solutions for banking sector that focuses on
technologies such as predictive analytics, fintech/blockchain, digital
payments, IoT, AI, machine learning, BOTS and robotic process
automation. The bank is currently using an AI- based solution developed
by Chapdex (the winning team from its first hackathon), that captures the
facial expressions of the customers and helps them in understanding the
behavior of its customers.

HDFC Bank: HDFC bank has developed an AI- based chatbot called
‗Eva‘ (Electronic Virtual Assistance), built by Bengaluru based
Senseforth that has addressed over 2.7 million customer queries,
interacted with over 530,000 unique users, and held 1.2 million
conversations. The device can provide answers in less than 0.4 seconds
and has in the first few days of its launch answered more than 100,000
queries from thousands of customers from 17 countries. The bank is
also experimenting with in-store robotic applications called IRA
(Intelligent Robotic Assistant).
ICICI Bank: ICICI bank has deployed software robotics in over 200
business processes across various functions of the company. Calling it
the robotic software the bank claims it to be the first in the country and
among very few in the world to deploy this technology, that emulates
human actions to automate and perform repetitive, high volume and time
consuming business tasks.

Axis Bank: Axis Bank recently launched an AI and NLP (Natural

Language Processing) enabled app for conversational banking, to help
consumers with financial and non-financial transactions, answer FAQs
and get in touch with the bank for loans.8

The Challenges Facing India’s Ai Development

1. AI-based applications to date have been driven largely by the private

sector and have been focused primarily in consumer goods. The
emergent scale and implications of the technology make it imperative for
policymakers in government to take notice.

2. Early lessons of AI success in the United States, China, South Korea,

and elsewhere offer public and private funding models for AI research
that India should consider.

3. The sequential system of education and work is outdated in today‘s

economic environment as the nature of jobs shifts rapidly and skills
become valuable and obsolete in a matter of years.
 REFERENCES
1. https://usmsystems.com/use-cases-of-ai-in-the-banking-sector/
2. https://www.wipro.com/business-process/why-banks-need-
artificial-intelligence/
3. https://www.researchgate.net/publication/
333055870_ARTIFICIAL_INTELLIGENCE_IN_INDIAN_BANKING
_SECTOR_CHALLENGES_AND_OPPORTUNITIES/link/
5cd9722692851c4eab9b943a/download
4. https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp
5. https://ibsintelligence.com/ibsi-news/5-applications-of-artificial-
intelligence-in-banking/