A few years ago, the idea that machines could predict financial fraud faster than professional analysts seemed like a distant dream.
This function has now become a core function of the banking sector. Artificial intelligence (AI), as we all know it today, is no longer just a buzzword or a futuristic concept. It has established itself as a key tool to drive efficiency, innovation and competitiveness across the financial ecosystem.
of KPMG Global AI in Finance Report It highlights the profound changes that AI is bringing to the banking sector. This shows how AI is not just streamlining existing processes, but completely re-engineering them.
Financial institutions are now leveraging AI to solve challenges that once seemed insurmountable, from improving decision-making to building better regulatory compliance systems.
While the benefits are clear, this journey is not without its obstacles. Issues such as data security, integration challenges, and ethical concerns remain critical. Still, the momentum is undeniable.
Why AI has become essential to banking
Integrating AI into the banking sector is no longer an option. According to KPMG71% of organizations are using AI in their financial processes, and 41% report their use is moderate or significant.
AI adoption is not limited to large companies in North America or Europe. Asia-Pacific (APAC) countries such as India and China are also quickly catching up, showing that AI is becoming a truly global phenomenon.
This widespread adoption is driven by AI’s ability to deliver tangible results. AI models can process vast amounts of data at speeds that humans cannot match.
Identify patterns, detect anomalies, and generate real-time insights. These capabilities are transforming areas such as financial reporting, where faster and more accurate results are becoming the norm.
Agencies using AI also report reduced operational costs, increased regulatory compliance, and improved strategic decision-making.
Applications are more than just reports.
For example, financial management is undergoing a significant transformation. Forecasting cash flow, once a painstaking task involving complex spreadsheets and endless discussions, can now be completed in seconds using AI-powered tools.
These tools help simulate multiple scenarios and provide insights beyond traditional methods.
Generative AI as a new wave of transformation
While traditional AI has proven invaluable in automating repetitive tasks and improving analytical accuracy, generative AI represents a new wave of transformation.
Unlike previous forms of AI, generative AI goes further by creating entirely new outputs. These include modeling potential outcomes, generating dynamic narratives, and drafting financial scenarios.
A KPMG report found that more than 40% of organizations are already piloting or actively using generative AI in their finance operations.
The application of this technology is both practical and innovative. In financial reporting, generative AI can generate comprehensive narratives and evaluate complex datasets. It can also provide scenario-based forecasts to inform strategic decisions.
One example cited in the report involves an Irish manufacturing company.
The company uses generative AI to analyze the potential financial impact of geopolitical changes, enabling faster and more informed decision-making. Other organizations are implementing it to streamline tax preparation, improve compliance systems, and optimize procurement processes.
The use of generative AI in the banking industry is expected to continue gaining momentum. Within three years, nearly all organizations surveyed plan to implement generative AI solutions, especially for high-risk areas such as financial reporting.
It appears that generative AI will not only improve existing workflows, but also open up entirely new opportunities by enhancing the depth, precision, and scope of financial analysis.
Tangible benefits from AI investments
Introducing AI is more than just an innovation. It offers significant economic benefits to organizations that adopt it. According to KPMG research, 57% of “AI leaders” report that their return on investment is higher than expected.
These organizations are differentiating themselves by incorporating AI into various aspects of their financial operations, including accounting, risk management, treasury functions, and even human resources development.
AI leaders demonstrate advanced uses of the technology. It is used for tasks such as predictive analytics, fraud detection, and performance evaluation.
Generative AI is being deployed to automate content creation, streamline scenario prediction, and simplify document analysis. These organizations are also demonstrating an incredible ability to scale AI across departments to improve efficiency, reduce costs, and improve accuracy.
A key factor in their success is their level of investment in AI.
On average, these leaders allocate 12.5% of their IT budget to AI projects, and this number is expected to rise to 16.5% within the next three years. By prioritizing the financing and implementation of AI, these organizations gain a competitive edge and position themselves as pioneers of digital transformation in the banking sector.
Challenges to AI implementation
Despite its promise, AI adoption is not without its challenges. Financial institutions face several barriers, and data security is one of their most pressing concerns.
According to the report, 57% of organizations cite data security vulnerabilities as a key issue. Financial systems are particularly sensitive, and the introduction of AI creates additional risks that need to be managed.
Another challenge lies in integrating AI with existing systems. Many organizations rely on legacy infrastructure that lacks flexibility to support advanced AI tools. Upgrading these systems is often expensive and time consuming.
The lack of skilled personnel is also a major hurdle. More than half of executives surveyed reported that a lack of AI expertise is limiting their organization’s ability to get the most out of the technology. This shortage is further exacerbated by the increasing demand for experts who can manage, train, and optimize AI systems.
But AI leadership provides a blueprint for overcoming these challenges. Often, you start small pilot AI projects to test their effectiveness before scaling them across your organization.
They are investing in upskilling programs to help their teams handle AI tools effectively. A governance framework is also a priority and helps address concerns around transparency, accountability, and compliance.
How AI will change audit practices
The impact of AI extends beyond internal finance functions. It is also revolutionizing the field of auditing. Companies now expect auditors to incorporate AI tools into their processes to improve the quality, speed, and accuracy of financial audits.
AI-powered audit tools are being used to perform advanced data analysis, detect anomalies, and identify potential risks in real-time. The report highlights that organizations are particularly interested in using AI for predictive analytics, compliance monitoring, and fraud detection.
However, implementing AI in auditing comes with complexities. In particular, generative AI presents challenges related to transparency and accuracy.
Auditors need to carefully address these issues and ensure that the output produced by AI systems is reliable and unbiased. To effectively address these challenges, collaboration between auditors and finance teams is becoming increasingly important.
The future of finance brought about by AI
The future of the banking sector is being shaped by a willingness to embrace change, and AI is at the heart of this transformation.
However, moving forward will require more than just technological upgrades. A shift in thinking is required. Financial institutions must balance innovation and responsibility so that AI acts not only as a tool for efficiency, but also as a means to increase trust, transparency, and fairness.
This is a pivotal moment for the financial industry.
As AI continues to evolve, organizations have an opportunity to rethink their role and redefine the value they provide to their stakeholders. Companies that proactively take on challenges such as investing in skills, building strong governance structures, and fostering a culture of continuous improvement will not only grow, they will set new standards for their industry.
The potential of AI is immense, but it is the human choices behind its development and implementation that will determine whether it becomes a force for positive change.
As we move into an era where AI capabilities are limited only by our imaginations, the question is no longer about what AI can do.
Rather, it is about how the banking sector uses it to create a more dynamic, inclusive and resilient future.
Featured image credit: Edited from freepic