Kathmandu – Artificial Intelligence (AI) is making significant inroads into the banking sector, mirroring its impact across other industries. As global markets focus on AI and drive innovation, the banking sector is also beginning to evolve, with traditional banking transactions taking on new forms.

AI is helping banks to speed up financial transactions and enhance data-driven decision-making, resulting in greater agility in customer service. The implementation of AI has advanced customer service, data collection, and operational efficiency to unprecedented levels. In 2023, the banking sector saw an investment of 67 billion US dollars in AI technologies.

Various international studies have shown that ‘Generative AI’ is expected to boost productivity in the banking sector by at least 5 percent. According to the ‘McKinsey Banking Report’ published in 2023, the global banking sector could see a reduction of up to 300 billion US dollars in operational costs. However, the report also noted that this savings represents less than half of the potential cost reductions AI could bring to the industry.

AI Revolution in the Banking Sector

Initially, AI was used by banks to enhance work capacity and data processing. However, its scope has since expanded to include risk management and fraud prevention. On an international level, banks adopting AI have found it easier to process and analyze large-scale data, which has, in turn, supported changes in operational strategies.

In response to these global trends, Nepal Rastra Bank announced the development of an AI policy in this year’s monetary policy. For centuries, banks and financial institutions have operated with traditional management, risk management, and customer service models. However, Forbes notes that human involvement in these areas can lead to inefficiencies and delays in customer satisfaction that AI can help overcome.

Increasing Customer Satisfaction

Banks and financial institutions are inherently customer-focused businesses, operating across both ‘business to business’ and ‘business to customer’ models. They generate profit by managing and investing customer funds, so customer satisfaction is paramount.

AI-powered chatbots have long been deployed to improve customer service. Banks have also developed advanced analytical capabilities through AI, elevating customer interactions to new levels. Following global trends, banks in Nepal have also begun implementing chatbots on their websites and social media pages.

The introduction of AI-driven services that were previously unimaginable not only reduces operational costs but also boosts customer satisfaction. AI-powered chatbots offer 24/7 service, exemplified by Bank of America, which has reduced customer wait times and increased satisfaction. Consequently, the AI market in the banking sector is projected to exceed 64 billion by 2030.

Leveraging Customer Data with AI

AI is also enabling banks to collect and utilize customer data more effectively. Banks can now facilitate the analysis of customers’ financial transactions, both past and future. For example, AI can identify customers who faced difficulties in paying off loans during the COVID-19 pandemic and predict future behaviors.

AI can also automate the review of a customer’s loan history, interest payment status, and interactions with other banks. An excellent example is the ‘fraud detection’ system implemented by British multinational bank Barclays, which successfully identified fraudulent activity and protected the bank from potential losses.

Similarly, Bank of America’s AI-driven research and analysis platform has studied industry trends and customer preferences, helping to improve the bank’s investment strategies. However, AI usage in Nepal’s banking sector has not yet reached the levels seen in global markets. The regulatory body has also announced that it is preparing to establish an AI policy to support this technological advancement.