Impact of GenAI on banking

The emergence of Generative AI (GenAI) in the past two years has been a landmark development that is impacting businesses globally. GenAI’s ability to perform human-like tasks -- such as writing summaries, analysing data and even employing a degree of creativity -- has evolved faster than had been expected and is likely to continue to develop. Many banks in Hong Kong are now exploring ways to leverage GenAI while also balancing the risks involved.        

The first question that banks must consider is where and how to start using GenAI. A common use case is in employee service, where chatbots using GenAI can now interact with humans in a more sophisticated way than previous generations of technology.

GenAI can also be used to automate existing processes and controls, which is expected to not just improve efficiency for banks but also help to significantly reduce costs. Banks can leverage GenAI to analyse large volumes of data to deliver insights and make predictions in a much faster way than humans. In addition, GenAI can be used to strengthen internal controls, especially in areas like transaction monitoring, fraud prevention and surveillance.

Banks are naturally conservative about adopting very new and fast-changing technology due to regulatory considerations. While GenAI in theory could be used across a bank’s entire operations, banks in Hong Kong are generally not using the technology in areas where it could touch their customers’ data. If customer data privacy were to be compromised due to the use of GenAI, there would be a severe impact on the banks’ reputation and with a regulatory impact as well.

While banks in Hong Kong are cautious about the possible risks, they are in general enthusiastic about the technology, and are keen to explore the use cases with appropriate safeguards in place.

GenAI is already being adopted by businesses across sectors around the world. According to analysis by Gartner in 2023, 80% of enterprises will have used GenAI solutions by 2026, and a significant minority were using it already¹. The rapid adoption by businesses and individuals means that the social acceptance of GenAI is quite widespread.

At the same time, there are challenges in adopting GenAI in areas including privacy and governance, as well as concern about biases and other ethical issues.

A key concern is a lack of clarity about the information that has gone into the knowledge base, which may include potential infringement of intellectual property or private information.

Another issue for banks is how they can explain or justify decisions that have been made based on information from GenAI. Making decisions, such as product recommendations or approving loan applications, without fully understanding the rationale, could create a sizeable risk. In addition, over-reliance on GenAI could potentially leave the bank’s operations vulnerable to any impact on the integrity of the model.

Banks need to ensure that their risk management frameworks and compliance frameworks are fit for purpose, and that they can address the new risks arising from this type of technology. To this end, there has already been some guidance from regulators. The HKMA has issued circulars in relation to AI, and has listed research into GenAI as one of its work priorities for 2024.

In turn, banks will need to take steps to ensure the responsible use of GenAI and to prepare for the introduction of governance models. As well as implementing GenAI in a safe way, banks should also take into account the regulator’s expectations around the use of this type of technology.

For banks that are planning to use GenAI, it is worth starting with a feasibility study across the business exploring different real-life use cases. Such an exercise should also include the impact on the workforce, as some of the more routine job functions in banks could be done by GenAI in the future. In a different talent-related issue, banks should plan ahead ensure that they are hiring the skilled staff needed to roll out and utilise GenAI within their organisation, given the shortage of technology talent generally.

This is a time of great change for banks as they grapple with the rapid evolution of technologies like GenAI. While there are certainly challenges involved, it is expected that GenAI technology will ultimately have a positive impact by removing some of the more mundane tasks while also streamlining and enhancing banks’ operations.