The impact of COVID-19 on artificial intelligence in banking
Article published by Bruegel, analyzing the relationship between the banking sector and Artificial Intelligence (AI). Although the use of this technology has helped the sector to successfully overcome the challenge of increased digital activity during the pandemic, it is foreseeable that investment in AI will be reduced in the short term, both due to the effect of the crisis on banking profitability, such as the difficulty of risk models based on AI to predict the future behavior of customers in a context where "the present looks nothing like the past”.
According to the article, before the pandemic the banking sector was the biggest investor in AI, just behind the technology sector, which would have allowed it to be ready to successfully deal with the increase in digital activity from its clients during the lockdowns, in which "the use of online banking and mobile banking would have risen in Europe between 10-20% in the first wave of Covid-19".
The article points out how, according to a survey by the Bank of England (BoE), entities will continue to be interested in investing in AI in the medium and long term. Specifically in areas of customer satisfaction and engagement (automation and simplification of commercial processes and data management) and fraud prevention and control, something that will also be driven by the digitization of the economy, the change in customer habits and the needs of the sector to be more efficient.
However, in the short term, current crisis will imply a reduction in investment by the banking sector in AI due to the following reasons:
- Banks’ models based on historical data would be of less use “when the present looks nothing like the past”. In this regard, at least one third of the banks surveyed would have their predictive models negatively affected by the Covid-19 crisis. For example, from the point of view of risk, “2019 data is little help in predicting whether Spanish hotels will survive 2021”.
- Low profitability of the sector will imply fewer budgetary resources to invest in AI. Less than 25% of the entities surveyed plan to increase their budget for AI and 12% of them will reduce their current investments.
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