We hosted an intimate round table dinner with a group of banking professionals in Amsterdam on June 4, to discuss thoughts arising after the first day of Money20/20 Europe. Over the course of the meal, we picked 3 topics to focus on and, as could be expected, Artificial Intelligence (AI) was first on the menu.

AI has rapidly become a transformative force in the banking sector, offering numerous opportunities while also presenting significant ethical, environmental, and regulatory challenges. As banks increasingly integrate AI into their operations, it is crucial to navigate these complexities thoughtfully and strategically.

Together with our esteemed guests, we delved into the multifaceted implications of AI in banking before the first course (make sure to subscribe to our newsletter to read the rest of the discussions!).

The Dual Nature of AI: Opportunity and Threat

AI's potential to revolutionise banking is immense, from enhancing customer service through chatbots to optimising risk management and detecting fraud. However, with these opportunities come significant threats. The rise of generative AI (GenAI) exemplifies this dual nature. GenAI's ability to generate human-like text and perform creative tasks is astonishing, democratising AI use to the extent that even those with minimal technical expertise can harness its power.

Yet, this ease of use also raises concerns. The proliferation of AI applications could lead to an explosion of use cases, some of which may be ethically questionable or even harmful. Experts warn against the “lawful but awful” use of AI—applications that, while legal, might be ethically dubious. Banks must develop a strong moral compass to navigate these ethical dilemmas, ensuring that the deployment of AI aligns with broader societal values.

It was shared that a panellist at The Banking Scene Conference Brussels recently remarked that the old equation of “risk vs. reward” now needs to factor in “the risk of not doing anything.” They highlighted the risk of being left behind by banks that embrace technology for competitive advantage. One diner pointed out that this competitive advantage may not last long as customer expectations force banks to adopt AI, thereby making it “business as usual” for everyone, while another made the point that the advantage may well be there for some time yet as many incumbent banks are extremely risk averse.

Ethical Considerations and the Need for Governance

As AI capabilities expand, so too do the ethical questions surrounding its use. The banking sector must grapple with the balance between innovation and ethical responsibility. For instance, the deployment of AI in decision-making processes, such as loan approvals or fraud detection, must be scrutinised to prevent biases and ensure fairness.

One of our guests suggested that in the past, human bias could have resulted in less ethical decisions than AI was capable of making today and arguably could have been less explainable and less consistent than an algorithm!

The discussion highlighted the necessity for robust governance frameworks to manage AI's ethical implications. Governance mechanisms should be designed to address current ethical concerns and anticipate future challenges as AI technology continues to evolve. This includes maintaining a "human in the loop" approach to oversee AI decisions, although the feasibility and necessity of this may diminish as AI becomes more advanced.

Environmental Impact: An Overlooked Aspect

One of the most pressing yet often overlooked issues related to AI is its environmental impact. The energy consumption of AI models, particularly large language models like ChatGPT, is substantial. Experts noted that the energy required to run these models can exceed that of blockchain technologies, yet this issue receives far less attention.

The environmental footprint of AI necessitates reevaluating how these technologies are developed and deployed. Banks and other financial institutions must prioritise sustainability, striving for efficiency in AI operations and considering the carbon impact of their digital infrastructures. Addressing these environmental concerns is not only an ethical imperative but also a strategic one, as regulatory bodies and consumers alike increasingly demand greener practices.

The Challenge of Regulation

Regulating AI presents a formidable challenge. Given the rapid pace of AI innovation, regulatory frameworks often struggle to keep up. This lag can result in regulations that are either overly restrictive, stifling innovation, or too lenient, failing to mitigate risks effectively. Participants expressed concerns that regulation, while necessary, will not be perfect on the first attempt and will require continuous refinement.

The intersection of multiple regulatory regimes, such as the Digital Operational Resilience Act (DORA), General Data Protection Regulation (GDPR), and the forthcoming EU AI Act, further complicates the regulatory landscape. Banks must navigate these overlapping regulations carefully, ensuring compliance while fostering an environment conducive to innovation.

Fraud and Security: An Ever-Present Threat

AI's capabilities are not lost on malicious actors. The emergence of tools like FraudGPT underscores the reality that AI can and will be used against financial institutions. As AI evolves, so too do the tactics of fraudsters and hackers, necessitating robust defensive measures. Banks must invest in advanced security protocols and stay ahead of potential threats by continuously monitoring the AI landscape and adapting their strategies accordingly.

The discussion highlighted the urgency of addressing these security concerns. Failure to do so exposes banks to financial losses and erodes customer trust, which is fundamental to the industry's stability.

Conclusion: Balancing Innovation with Responsibility

The integration of AI into banking is not a question of if but when and how. As the sector embraces these technologies, it must do so with a balanced approach that considers ethical, environmental, and regulatory dimensions. The key takeaway from the roundtable discussion is the need for a holistic strategy that addresses the opportunities and threats of AI, ensuring that innovation does not come at the expense of ethical responsibility or environmental sustainability.

Banks must lead by example, demonstrating how AI can be leveraged to enhance services and operations while maintaining a commitment to ethical practices and sustainability. By doing so, they can navigate the complex AI landscape and emerge as pioneers in responsible innovation.

(Subscribe to our newsletter to get notified of the rest of the dinner conversations and in the meanwhile, you can download our white paper "Generative AI in Benelux Banking: Opportunities, Challenges and Future Outlook" for a consolidated collection of insights shared by Benelux bankers from ING, KBC, Rabobank, Spuerkeess, De Volksbank and Euroclear, across 1:1 interviews, keynotes, panels and executive round tables that we hosted.)