As in other industries, the explosion of generative AI (GenAI) has forced the financial services sector to quickly adapt while riding a wave of regulatory and ethical questions. How will banks, insurers and other financial firms balance the risks and rewards
of GenAI and other transformative technologies in 2024?

Polling my team of financial services experts across risk, fraud and compliance, it’s clear the industry is still feeling the reverberations of 2023’s bank failures. But advancing technology also stokes a lot of optimism, so let’s dive in. I’ll start with
my own forecast.

The GenAI-fueled ‘Dark Age of Fraud’ will propel anti-fraud advances.

SAS’ Faces of Fraud study, based on a survey of 13,500 consumers in 16 countries, revealed that 89% believe organizations must do more to safeguard them from fraud. Moreover, two-thirds said they would switch providers due to a fraud experience or
for better protections.

But even as consumers signal increased fraud vigilance, generative AI and deepfake technology are helping fraudsters hone their multitrillion-dollar craft. Phishing messages are more polished. Imitation websites look stunningly legitimate. A crook can clone
a voice with $5 and a few seconds of audio using simple online tools. We are entering the Dark Age of Fraud, where banks and credit unions will scramble to make up for lost time in AI adoption – incentivized, no doubt, by regulatory shifts forcing financial
firms to assume greater liability for soaring authorized push payments (APP) scams and other frauds.

Bank failures will spark a risk management reckoning.

The banking industry saw the
collapse of five banks in 2023 – and according to Donald van Deventer, Managing Director of Risk Research and Quantitative Solutions at SAS, we aren’t out of the woods yet.

“2024 will bring more bank
failures, forcing banks to recognize the most important question in risk management: ‘What is our own probability of default?’” he opines. “And they will deploy tools and technologies to answer that existential question. A recent survey
of risk professionals revealed that 80% of firms are eyeing significant improvements to their ALM [asset liability management] functions. Yet less than a third said their firms have fully automated data sharing between ALM and other risk or business functions.
It’s time to change that.”

Risk model recalibration will test firms’ capabilities.

Of course, banks will do everything they can to avoid peril. To that end, SAS’
Naeem Siddiqi, Senior Advisor for Risk Research and Quantitative Solutions, anticipates that many may find their current technology and processes stretched to the brink.

“Remember how the COVID-19 pandemic prompted better banks to quickly rebuild and deploy their risk decisioning models, while others spent months just gathering data?” asks Siddiqi. “In 2024, looming recession risks and higher default rates will require banks
to adapt with more relevant models, lending policies and forecasts, putting the speed and agility of their IT infrastructures and broader capabilities to the test.”

Deliberate AI deployment will make or break insurers.

Banks aren’t the only financial services firms at risk. As steep risks in flood- and wildfire-prone places like Florida and California prompt some insurance companies to
leave
certain markets, Franklin Manchester, Global Insurance Strategic Advisor at SAS, foresees that the insurance industry’s existential crisis will spell the demise of at least one large property and casualty insurer.

“In 2024, one of the top 100 global insurers will go out of business as a consequence of deploying generative AI too quickly,” says Manchester. “Right now, insurers are rolling out autonomous systems at breakneck speed, with no tailoring to their business
models. They’re hoping that using AI to crunch through claims quickly will offset the last few years of poor business results. But after 2023’s layoffs, remaining staff will be spread too thin to enact the necessary oversight to deploy AI ethically and at
scale. The myth of AI as a cure-all will trigger tens of thousands of faulty business decisions that will lead to a corporate collapse, which may irreparably damage consumer and regulator trust.”

Insurers will confront climate risk, aided by artificial intelligence.

On the flipside of the coin, AI will also help bolster the insurance industry as it faces ever greater risks amid a changing climate, predicts
Troy Haines, Senior Vice President of Risk Research and Quantitative Solutions at SAS:

“After decades of anticipation, climate change has transformed from speculative menace to genuine threat. Global insured losses from natural disasters surpassed $130 billion in 2022, and insurers worldwide are feeling the squeeze. US insurers, for example,
are under scrutiny for raising premiums and withdrawing from hard-hit states like California and Florida, leaving tens of millions of consumers in the lurch. To survive this crisis, insurers will increasingly adopt AI to tap the potential of their immense
data stores to shore up liquidity and be competitive. Beyond the gains they realize in dynamic premium pricing and risk assessment, AI will help them automate and enhance claims processing, fraud detection, customer service and more.”

The lesson? AI technology can help insurers survive and thrive, but it must be deployed responsibly, with adequate rigor and oversight to avoid bias – and it’s imperative to always keep the human in the loop. 

AI will help prevent recession – at least for now.

What will AI advances mean for the worldwide economy more broadly? SAS’ Head of Risk Portfolio

Stas Melnikov predicts believes it will keep us from sliding into global recession, at least temporarily.

“Advances in artificial intelligence and automation will drive productivity gains,” says Melnikov. “The capital-to-labor ratio will rise, further contributing to increased productivity. This impact will be sufficient for most economies to avoid recession,
despite rapidly rising defaults and structural unemployment. The picture will be quite different at a sector level, however, where some segments will experience recession-like conditions.”

AI will transform financial crimes compliance.

The financial crimes landscape is more complex than ever. At the same time, advances in AI and machine learning have the power to significantly enhance financial firms’ AML programs, as
Joan McGowan, Global Banking Industry Advisor at SAS, explains.

“AI will be a game changer for anti-money laundering [AML] programs, as the global cost of compliance reaches $274 billion, 60% of which is labor,” says McGowan. “As much as $2 trillion is laundered worldwide annually, according to the United Nations. Only
1% of the criminal proceeds are confiscated, and 95% of alerts are false positives. These are alarming figures! Augmenting current AML systems with machine learning and network analytics would improve transaction monitoring dramatically by reducing false-negative
and false-positive rates and sending higher-quality alerts downstream to AML investigators and compliance groups.”

Central bank digital currencies will bring benefits and risks.

To date, four countries have established central bank digital currencies (CBDCs), and many more are in various phases of CBDC exploration.
Ian Holmes, Global Lead for Enterprise Fraud Solutions at SAS, foresees that the accelerating adoption of CBDCs in 2024 will bring about many advantages – but governments must also be prepared combat the potential adverse effects.

“CBDCs, like Nigeria’s eNAIRA, are currently being explored by governments in more than 100 countries. In 2024, they’ll become commonplace, offering citizens secure, government-backed digital payments options with the potential to foster greater financial
inclusion,” says Holmes. “But CBDCs will come with unique fraud and financial crime risks, increasing exposure through financial losses and data compromise, account takeover, and exfiltration through mule accounts.”

Generative AI will come of age.

Generative AI
was among 2023’s hottest tech trends and remains of great interest. For example, the newly released
2024 Anti-Fraud Technology Benchmarking Report by the Association of Certified Fraud Examiners (ACFE) and SAS revealed that 83% of anti-fraud professionals anticipate adding GenAI to their anti-fraud armaments by 2025.

Will the momentum continue? Anthony Mancuso, Head of Risk Modeling and Decisioning at SAS, predicts, “The hype around large language models [LLMs] as a panacea will subside, driven by privacy concerns, the potential for legal action and the sheer
cost of building and maintaining these architectures. The focus will shift to monetizing LLMs for certain use cases. A select few vendors will provide foundational ‘conversation models,’ while a larger group will help individual firms tune those for their
own purposes.”

Conversational AI will bring customer experience to new heights.

The maturation of GenAI technology will be a boon for digital customer experience, envisions
Oana Avramescu, Global Insurance Lead for Risk Research and Quantitative Solutions at SAS:

“Chatbots are nothing new in financial services – but what if you had a chatbot that better mimicked human-to-human interaction? In 2024, the advance of generative AI technology will bring insurers, banks and businesses in other industries closer to that
reality. Such advances in conversational AI will play an important role in streamlining client communication. This will help organizations prioritize human assistance for more complex tasks and scenarios, thereby boosting operational efficiency and cost savings.”

‘Banklessness’ amid the digital banking revolution will fuel AI innovation.

There’s a price to pay for the digital banking revolution. A late 2023 study by SAS found that as many as one million citizens across the United Kingdom were at risk of having no major bank branch in their local area. As consumers adapt to this new reality
in the UK and elsewhere in the face of rampant
branch closures, banks will double-down on technology to win and keep customers, projects
Alex Kwiatkowski, Director of Global Financial Services at SAS.

“In 2024, savvy banks will endeavor to create a more inclusive customer experience [CX] by examining who the digital banking revolution has best served – and who it has left behind,” says Kwiatkowski. “The sharp decline in the number of branches on main
streets and in malls has left swathes of accountholders ‘bankless.’ Those who lack digital confidence are challenged to interact with their financial providers online. On the other hand, a quarter of UK customers said they’ll never set foot in a bank branch
again, according to a late 2021 survey. Forward-thinking financial institutions will weave AI-powered digital engagement into an enriched ecosystem of branches to enhance connection and seamless CX as a competitive differentiator.”

AI ‘explainability’ will propel fairness and transparency in insurance decisioning.

Banking isn’t the only arena where AI will engender greater customer loyalty.
SAS EMEA Insurance Practice Leader Alena Tsishchanka imagines how responsible innovation might forge a fairer, more transparent insurance industry.

“Could AI ignite an ethical recalibration of the insurance sector? In 2024, we’ll find out. Actuarially justified risk decisions can unintentionally further inequities in historically marginalized groups. Insurers’ AI and machine learning adoption, however,
will require them to understand how their models and algorithms render decisions (in premium pricing or claims, for example). This AI explainability has the potential to establish new standards of transparency and fairness throughout the industry.”

***

What is your favorite prediction? Leave a comment below, or connect
with me on LinkedIn to share your thoughts.

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