AI and tech in banking: Half the industry lags behind, says DBS CEO

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AI and tech in banking: Half the industry lags behind, says DBS CEO

Only half of the global banking industry has truly embraced AI and digitalisation, warns DBS CEO Piyush Gupta. As the financial world accelerates towards an AI-driven future, the rest risk being left behind. Will they catch up, or fall victim to fintech disruptors?

The global banking industry is undergoing a digital revolution, driven by artificial intelligence (AI) and advanced technologies. But despite the urgency of adapting to a rapidly changing financial landscape, only about half of the sector has made sufficient progress in fully embracing these innovations, according to Piyush Gupta, CEO of DBS Group Holdings Ltd, Singapore’s largest bank.

“If I have to look around the landscape, I’d say maybe 50% of companies have made enough progress on that,” Gupta said in a Bloomberg interview, adding that many banks are merely digitising the surface without addressing the core operational changes needed to succeed. His warning comes as banks face increasing pressure from fintech firms and the demand for more efficient, personalised services.

The promise and potential of AI in banking

AI is transforming the way banks operate, offering vast opportunities for improving efficiency, reducing costs, and enhancing customer experiences. According to a report by McKinsey & Company, AI could deliver up to $1 trillion in additional value for the global banking sector each year. This value is primarily generated through improved customer service, enhanced fraud detection, and automated processes.

In the UK, Barclays has invested heavily in AI technology, using it to detect unusual activity and prevent fraud across its millions of customer accounts. Meanwhile, NatWest’s Cora, an AI-powered chatbot, handles over 58,000 customer conversations per day, resolving many queries without the need for human intervention.

Research from Accenture shows that banks using AI for risk management report a 20% improvement in operational efficiency, while those focused on AI-driven customer service have seen a 15% boost in customer satisfaction.

Why some banks lag behind

Despite these advancements, many traditional banks are still slow to adopt AI and other digital tools. A 2023 report from Boston Consulting Group (BCG) found that fewer than 35% of banks have a clear AI strategy. This is partly due to the challenges posed by legacy IT systems, which are often costly and difficult to upgrade. Many banks are still running on outdated infrastructure, making it hard to implement cutting-edge technologies like AI.

Gupta emphasised that a superficial approach to digitalisation—what he called “putting lipstick on a pig”—is common in many institutions. These banks often adopt digital tools without rethinking the processes behind them, resulting in inefficiencies and missed opportunities for transformation.

In addition, the culture of risk aversion in many financial institutions makes them slow to experiment with new technologies. According to a Deloitte survey, 62% of banking executives cited corporate culture as the biggest barrier to successful digital transformation. A fear of regulatory hurdles and data privacy issues also compounds this reluctance to fully embrace AI.

Fintechs vs. traditional banks: the competitive pressure

The rise of fintech companies is also reshaping the financial landscape. Digital-first challengers like Revolut and Monzo are making waves by offering streamlined, customer-centric services that appeal to tech-savvy users. These companies, unencumbered by legacy systems, have been able to rapidly adopt AI, providing highly personalised products and services through their digital platforms.

The UK fintech sector alone saw record investment in 2021, with $11.6 billion pouring into the industry, according to Innovate Finance. This influx of capital has enabled fintech firms to invest in AI technologies, providing stiff competition to traditional banks that are slower to adapt.

To compete, many larger banks are either partnering with or acquiring fintech firms. Goldman Sachs, for example, acquired fintech lender GreenSky for $2.2 billion, and JPMorgan Chase has invested in AI-powered personalisation start-up Kasisto.

The costs of falling behind

For banks that fail to keep pace with digital transformation, the consequences are significant. The BCG report highlighted that institutions lagging in AI adoption could see their cost-to-income ratios rise by up to 10% by 2025. In contrast, those leading the charge in AI could cut costs by as much as 30%.

Moreover, customer expectations are rapidly shifting. A PwC survey revealed that 82% of consumers expect their bank to offer a seamless, digital experience. With younger, tech-savvy customers expecting the same level of personalisation and convenience from banks as they get from other industries, institutions that fail to innovate risk losing market share.

In addition, regulatory changes are pushing banks to adopt more sophisticated technology. In the UK, the Financial Conduct Authority (FCA) is increasingly focusing on the role of AI in financial services, particularly in areas like fraud detection and anti-money laundering. Banks that cannot meet these regulatory requirements through AI-driven solutions will face additional compliance challenges and penalties.

What’s next for AI in banking?

Looking ahead, AI’s role in banking is only set to expand. According to IDC, by 2026, 85% of banks globally will use AI to offer tailored financial products and services. Many are already exploring the use of AI to anticipate customer needs, improve fraud detection, and optimise trading strategies.

AI’s future applications in banking will likely expand into areas like:

  • Predictive analytics: Leveraging AI to forecast customer behaviour and market trends, enabling banks to proactively meet customer needs and identify new revenue opportunities.
  • Personalised financial products: Using AI to analyse individual financial data and preferences, allowing banks to offer highly customised products and services.
  • Advanced cybersecurity: AI will continue to play a critical role in protecting banks from increasingly sophisticated cyber threats by detecting vulnerabilities and responding to attacks in real-time.

The stakes have never been higher

The comments of DBS CEO Piyush Gupta serve as a reminder that, while AI and digital transformation are critical to the future of banking, the industry as a whole is still in the early stages of fully realising this potential. With only about half of banks making significant progress, there is still much work to be done.

For the other half of the industry, the clock is ticking.


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