Artificial intelligence (AI) is taking center stage in banks’ digital transformation plans as financial institutions seek to improve customer experiences and operational efficiencies. According to a new study conducted by Publicis Sapient, a leading American digital consulting company, banks are spending 29% of their investments in customer experience digital transformation on machine learning (ML), AI and generative AI (genAI). Banks are also placing AI as their biggest focus for digital transformation over the next three years.

These findings come from the Global Banking Benchmark Study 2024, which surveyed more than 1,000 senior retail and commercial banking leaders in early 2024. The study, which sought to explore the maturity of banks’ digital transformation initiatives, reveals that banks are actively exploring AI’s potential, with executives highlighting data and AI as the most critical areas for digital transformation, followed by genAI for internal use.

Interestingly, developing existing talent is executives’ third most common functional focus for digital transformation, suggesting that executives are equally focused on the human side of the human-machine equation and recognize the need to prepare their employees to work with AI.

The study also found strong interest from banks in deploying genAI across both internal and customer-facing use cases. 61% of respondents want to use genAI to streamline transaction-related functions such as credit analysis, underwriting, and contract management. Additionally, 55% are focused on deploying genAI for employee and internal functions such as developer tools, search capabilities, and virtual assistants. Meanwhile, 49% are targeting customer-facing roles, such as marketing and customer service.

The study, which categorized banks into four groups based on their digital transformation maturity, found that the top performers, labelled “Transformation Leaders”, are at the forefront of AI adoption. These banks allocate 34% of their digital transformation budget to AI, ML, and genAI, a proportion that’s 6% more than the least mature banks, or “Laggards”, and which stands above the industry average.

Transformation Leaders aren’t just spending more on AI, ML and genAI, they are spending differently. 44%  prioritize AI tools for internal use, while just 25% of Laggards do. Moreover, 84% of Transformation Leaders agree that it’s better to take time to develop custom-made AI tools rather than save time by using third-party solutions, compared to just 70% of Laggards.

Transformation Leaders are also laying the groundwork to support AI integration. These players are heavily investing in key areas such as cloud infrastructure and migration, data and analytics, and organizational culture changes.

Despite the clear commitment to AI and digital transformation, banks are facing growing challenges. The study found that the process of digital transformation has become more difficult over the past years, with respondents citing regulatory challenges, the lack of operational agility, and outdated legacy technology as their top barriers in the past 12 months.

Budget constraints are another significant obstacle. In 2024, 32% of banking executives cited budget limitations as a key hurdle to digital transformation, up from 19% in 2022.

But despite these challenges, the outlook for AI adoption in the banking sector remains strong. Gartner predicts that by 2026, more than 80% of banks will have adopted genAI, driven by the technology’s potential to improve efficiencies, customer service and risk management. McKinsey and Company estimates that across the global banking sector, genAI could add between US$200 billion and US$340 billion in value annually, or 2.8 to 4.7% of total industry revenues, largely through increased productivity.

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