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RESEARCH REPORT | AUGUST 2024
5 MINUTE READ
Summary
In less than 24 months, the banking sector has transitioned from questioning the viability of generative AI to actively scaling its applications and reaping tangible benefits.
Our research spanning across 12 top tier banks located in four difference continents highlights that, given the critical role of language across the value chain, the industry stands to gain significantly from this technology.
Our team outlines five key imperatives that banks must focus on to effectively reinvent themselves in the age of generative AI.
Global banks becoming early adopters
When ChatGPT was released to the public in late 2022, there was much speculation about whether generative AI was just a passing trend or a truly transformative force. Almost two years later, many of the top banks across the global banking industry have shifted thier focus from questioning if this technology will alter the landscape to contemplating where to begin its integration and what the overall implications will be.
While generative AI won't fundamentally reshape the core business of banking, it will significantly alter the processes and methods by which that business operates.
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These potential productivity gains for early adopters are estimated to be over the next three years, based on our latest financial forecasts.
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The growth in revenue during this period is estimated to be around 500% basis points (bps).
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It is estimated that during the forecast period, there is as high as 250% return on equity.
Banking operations are evolving
TEWAG’s joint study with an intergovernmental panel has estimated and conducted assessment of the technology's potential application across various banking roles and it indicates that we are merely at the starting point.
The research findings reveal that 64% of the time spent by bank employees in the European Union could significantly be influenced by generative AI—28% through automation and 36% via augmentation. This technology has the potential to affect nearly every aspect of a bank, from the executive level to customer service operations, and throughout the entire value chain. However, the effects will vary across different functions.
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Our research reveals that of most of the European banks, the occupations accounting for 41% of banking employees are involved in tasks with significant potential for automation. For example, roles like tellers, which mainly focus on collecting and processing data, stand to gain substantially from automation; approximately 60% of their routine tasks could be enhanced by generative AI.
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Employees whose roles require a considerable degree of judgment, such as credit analysts, or those who must comprehend customer needs and tailor their interactions, like relationship managers, could greatly benefit from generative AI tools. These tools can assist them in preparing for and conducting meetings. This category encompasses approximately 34% of banking employees.
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Our analysis found that 25% of all employees will be affected by both automation and augmentation. A prime example is customer service agents, who spend their time explaining products and services, responding to inquiries, preparing documentation, and maintaining sales and other records. Among these tasks, 37% could be automated, while 28% could benefit from augmentation.
Most generative AI applications in banking, whether for augmentation or automation, can be categorized into three main areas:
Enhanced Productivity:
Generative AI can be integrated into operations and existing tools to significantly boost employee productivity.Operational Transformation:
It has the potential to revolutionize mid- and back-office processes by automating repetitive tasks. This not only reduces operating costs but also allows employees to focus on more valuable work.Innovation and Differentiation:
In a landscape where digital banking experiences tend to be similar, generative AI provides opportunities for banks to personalize services, differentiate themselves in the market, and increase revenue.
Integrating innovation as a routine
The widespread influence of generative AI indicates that it will not solely function as a cost-saving tool; rather, its most significant impact in banking will be to drive growth.
The key challenge lies in balancing the reinvention of banking processes with the continuous operation of the institution, aiming to maximize opportunities while minimizing disruption. Achieving this balance necessitates not only excellence in execution but also fostering a culture of innovation, where curiosity is a fundamental value.
Ensuring massive transformation at scale
Few technologies have transitioned from theoretical promise to transformative impact as rapidly as generative AI. For instance, within just two months of its launch, ChatGPT reached 100 million active monthly users—a feat that took Facebook approximately 4.5 years to achieve. This technology is already reshaping daily operations for the majority of employees at most banks.
Unlike previous technological revolutions, such as the digital transformation or the rise of smartphones, banks cannot isolate generative AI's influence during its initial stages of implementation. Its effects permeate nearly every role within the banking sector, highlighting the urgency for organizations to leverage this powerful new tool to create new avenues for performance improvement.
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