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Why AI will redefine the financial services industry in two years

Financial services institutions are relying on AI technology to trim costs and, increasingly, to drive revenue growth, EY-sponsored research shows.

Across the global financial services industry, artificial intelligence (AI) has achieved widespread adoption among incumbent organizations and new FinTech companies. Research shows within two years, use of the technology is poised to increase dramatically into broader use cases, not merely to reduce costs but to generate revenue.

The AI in Financial Services global study (pdf) — jointly conducted by the Cambridge Centre for Alternative Finance at the University of Cambridge Judge Business School and the World Economic Forum, and co-sponsored by Ernst & Young LLP — shows that 85% of all survey respondents currently use some form of AI, triggered by the need for increased speed and efficiency and the opportunity for deeper data-driven insights.

Furthermore, within two years 77% anticipate that AI will possess high or very high overall importance to their businesses. In that time frame, nearly two-thirds (64%) of respondents expect to be “mass adopters” of AI — using it for revenue generation, process automation, risk management, customer service and client acquisition — compared with just 16% currently.

As the technologies start to disrupt business models and transform business functions, it’s increasingly important for organizations to focus on the broader context of AI adoption: trust in AI, workforce transformation, and how customer and stakeholder value can be radically reimagined.

Both incumbents and FinTechs aim to leverage the technology to execute new business models, deliver new products and services, and improve and streamline existing processes. While the highest AI implementation rates are currently in risk management, 52% of respondents are generating new revenue potential through AI-enabled products and services and expect this area to become the leading use case within the next two years. AI is also increasingly used to analyze new or alternative datasets, such as social media and geo-location data, to provide insights.

FinTechs are more likely than incumbents to create AI-based products and services, rather than mostly using the technology to improve existing products. FinTechs are shaping AI-based “solutions as a service” into a distinctive business model, leveraging the economies of scale inherent in AI by harnessing larger and more diverse datasets through universal digital platforms. The survey showed that 45% of all FinTechs offered AI-based business-to-business solutions, compared with 21% of incumbents.

Essential business driver
of survey respondents expect to be “mass adopters” of AI within two years.

How EY can help

While AI presents a lot of promise for the financial services sector, survey respondents cited some potential concerns. Data quality and access to data and talent are seen as major obstacles for AI implementations (cited by over 80% of respondents). Traditional tech companies may be better equipped to leverage the technology to evolve into major competitors in financial services, a threat cited by nearly half of all survey respondents. And there are fears that AI-driven credit analytics using alternative datasets could lead to new biases or exacerbate existing ones.

 

Yet the transformative potential is undeniable. The full report (pdf) also provides a detailed look into AI’s role in digital transformations and the distance between leaders and laggards; its impact on the competitive landscape between incumbents, FinTechs and Big Tech; and the emerging risks and opportunities driven by regulation.

 

Through its ability to predict, adapt and learn, AI presents a compelling new solution to address today’s business challenges and enable tomorrow’s business models, empowering business decisions and uncovering opportunities. It also allows organizations to power their human enterprise by unlocking the core strengths of ingenuity, adaptability, empathy and trust using technology at speed and innovation at scale. This EY-supported research provides an important reference for leaders in all sectors to better understand current areas of focus, attitudes toward AI and future considerations that need to be addressed.

 

AI is transforming the financial services industry, and we can expect widespread adoption to continue. As the technologies start to disrupt business models and transform business functions, it’s increasingly important for organizations to focus on the broader context of AI adoption: trust in AI, workforce transformation, and how customer and stakeholder value can be radically reimagined.

Summary

New data from the AI in Financial Services global study (pdf) shows the widespread adoption of AI technology in the industry, and the strong near-term forecast for growth through managing risk and driving new business models.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.