5 Ways AI is Transforming the Banking Sector

Artificial Intelligence (AI) is transforming the banking industry in India, introducing speed, security, and convenience to financial services. From real-time fraud detection to instant loans, AI is revolutionising the way banks function and engage with customers. Whether you use mobile banking, take out a loan, or receive investment advice, AI is working behind the scenes to make the process faster and more efficient. Let us see the five ways in which AI is revolutionising the banking sector.

1. Smarter and quicker loan processing

Taking a loan used to be a time-consuming affair, requiring paperwork, physical verification, and weeks of processing. According to a study, 52% of customers had said that lengthy processing times were one of the biggest turn-offs when it came to selecting a lender. AI changed all that. Today, banks and financial technology companies use AI-driven algorithms to approve loans 10 times faster than before. Loans that took weeks to materialise now get processed within days. Instead of taking into account credit scores only, AI considers several determinants, such as spending patterns, digital transaction history and bill payment records to determine creditworthiness.

For example, fintech companies apply AI to pre-sanction and release loans in a matter of hours. This feature is especially useful for small business owners and self-employed individuals who lack documentation which would have allowed them to get funding in earlier times. AI-powered lending solutions make it easy to borrow and offer more people access to funds, building financial inclusivity.

2. Improved fraud detection

As digital banking gains momentum, financial fraud has turned into a major issue. The average cost of a data-breach as per IBMs 2024 Cost of a Data Breach Report was $4.88 million (equivalent to Rs. 43 crore). Sophisticated strategies are being adopted by cybercriminals to target security loopholes, but AI helps banks in staying one step ahead of them.

AI-based fraud detection systems constantly scan transactions for abnormal trends or suspicious behaviour. If an account suddenly makes a high-value transaction in a foreign country, AI identifies it and sends out an alert. Leading private banks in the country use AI-powered tools to identify fraud, reducing unauthorised transactions. AI also strengthens cybersecurity by identifying vulnerabilities in banking networks before they can be exploited by cyber-criminals. AI-driven predictive models help banks proactively address security risks, ensuring that customer data remains safe.

3. Personalised customer experiences

A McKinsey study revealed that 76-78% of customers are likely to purchase from, refer and stay loyal to brands that personalise customer experiences, leading to a potential 10-15% increase in revenues. Financial services are no exception to this, and banks now have caught on to this trend, and use AI to analyse customer behaviour and provide personalised recommendations.

For example, if you are a frequent international traveller, your bank may recommend a forex card with additional benefits. If you make frequent investments, AI can provide recommendations on stocks or mutual funds depending on your risk tolerance. AI-driven recommendation engines in banking apps ensure customers receive appropriate financial products, resulting in a hassle-free and customised banking experience.

4. 24/7 customer support

Continuously visiting bank branches to resolve doubts or being put on hold for minutes by a customer service agent are a thing of the past. AI virtual assistants (VAs) and chatbots have transformed how routine banking queries are handled, answering rapidly and accurately.

Chatbots are already used by top banks to assist customers with issues such as checking account balance, bill payments and fund transfers. The round-the-clock availability enables customers to receive assistance whenever they need it, keeping customers happy and decreasing the burden on agents, enabling them to address complex customer issues instead of mundane questions.

5. Smarter decision-making

AI is helping banks make better decisions via predictive analytics. By analysing data, AI can predict trends and gauge risks, providing insights that help make better decisions. For instance, AI tools enable financial businesses to know which products are going to do well, so they can better plan their investments. Another example is how they are able to forecast when a customer will default on a loan by analysing their payment history and transaction patterns, to then take preventive steps, e.g., provide restructuring options prior to default. In fact, the use of predictive analytics by leading banks has resulted in up to 20% lower loan default rates, showing just how powerful AI-powered predictive analytics can be.

Final thoughts

AI is revolutionising the banking industry by rendering services quicker, more secure, and more customer friendly. From real-time loan approvals to quick fraud detection, AI is redefining the future of banks in India. With financial institutions further leveraging AI in their processes, the impact will be even larger. Whether it is an NBFC providing easy business loans or an online marketplace suggesting investments, the possibilities are endless. AI solutions will form the foundation of new-age banking, and businesses that embrace AI will be the ones that thrive in times to come.