Embracing Disruption
In the digital age

Is AI a risk to financial systems?

By Carlos Espinsoa

Embracing disruption in the digital age

Houston, we have an AI issue! Before you start picturing a robot tearing through downtown main streets all over the state, let’s delve into the realm of Artificial Intelligence (AI) and its intriguing intersection with Texas banking.

Amidst whispers on the wind, academic papers, banking journals — even your grandma’s knitting circle — have pondered the potential for AI to wreak havoc on our treasured financial systems. But rest easy — AI isn’t solely about cataclysmic takeovers like something out of a science fiction story. It’s a fancy term covering everything from simple automation to complex data-driven marvels — and anything in between. For the sake of this article, we’ll run with that expansive perspective. So, let’s dig a bit deeper.

Customer demand

In what has been a difficult regulatory environment, banks are adopting and searching for AI tools to compete for new business and even retain existing ones. The post-pandemic world has reshaped customer expectations, demanding both personal interactions and convenient digital banking options. This expectation will only increase as state and federal efforts to expand internet availability to rural communities go online in the coming years.

Security risks

While AI offers speed and accuracy, it is not without its reservations or concerns. It will likely reshape traditional banking roles as we know them today, potentially leading to workforce changes. The insatiable hunger for data, while fueling AI’s capabilities, raises concerns about privacy and security. Mistakes and biases are inherent risks — AI might struggle to interpret certain contexts accurately, and biased data could result in unjust decisions. Additionally, the growing prominence of AI introduces new cybersecurity vulnerabilities.

One recent risky example of AI’s impact is its involvement in social media algorithms, which inadvertently led to significant disruptions in the banking sector, leading to the effect Twitter (or whatever the platform might be called now) had over bank runs at Silicon Valley Bank and First Republic.

A helping hand

Yet AI isn’t only a challenge — it’s also a boon to the banking sector. AI can accelerate tasks such as document verification or transaction processing, which in turn would minimize wait times. Moreover, AI’s accuracy in math and data sorting helps minimize errors in your banking information. AI can also serve as a responsive 24/7 assistant for common inquiries, swiftly addressing queries about account balances, policies and fees.

Its ability to detect anomalies in account activities can enhance security. Certain AI applications can delve into customers’ financial behaviors, offering personalized financial management recommendations. For loan and credit assessments, AI’s quick evaluations expedite decision-making. Overall, AI can contribute to faster, safer and more efficient banking operations.

Government oversight

With a thoughtful approach, banks can steer AI in the right direction to ensure it’s a trustworthy tool for both customers and investors. Banks and regulators should call for responsible AI implementation by avoiding biases and unjust decisions based on factors such as gender or race. Protecting data privacy is paramount, with rigorous safeguards needed against potential breaches.

Garnering trust

Transparency in AI usage fosters trust, enhancing confidence in financial systems. Thorough training and testing ensure AI comprehends tasks accurately. While AI’s capabilities expand, human oversight remains essential to intervene in unexpected situations.

Continuous learning and updates keep AI relevant and effective. Incorporating customer feedback enhances AI’s performance, ultimately improving customer experiences. Educating both customers and investors about AI’s role fosters familiarity and comfort with the technology.

Embrace the opportunity

In the midst of some major societal shifts stemming from pandemic-induced changes in expectations, unforeseen technological advancements and initiatives aimed at extending robust internet access to every corner of the nation, banks stand poised to reap benefits from this transformational landscape by embracing this digital disruption. It’s a journey laden with opportunity, offering banks a chance to thrive amidst evolving circumstances.

Carlos EspinosaCarlos Espinosa leads the communications and marketing division for the Texas Bankers Association. He is an experienced strategic communications, government affairs and policy advisor with a demonstrated history of working on complex issues.

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