Banks expand AI adoption amidst governance challenges

AI adoption in banking is increasing, but leaders emphasise careful deployment.

Generative AI (Gen AI) is emerging as a major focus in banking, with banks accelerating its adoption cautiously due to the highly regulated nature of the industry.

Priyanka Shukla, Senior Principal for Research in Gartner’s Financial Services, cited Gartner’s research that only 5% of global banks had deployed Gen AI last year, but by 2025, 75% of banking CIOs plan to implement the technology. 

"Most banking leaders are investing in internal-facing use cases like operations, code generation, frontline, or branch assistance," she said.

Nitin Sharma, Partner & Banking Leader for ASEAN at IBM Consulting, highlighted the scale of experimentation and adoption. "Our study found that 80% of banks are doing something in Gen AI, either experimenting or scaling out," he explained. 

However, only 8% of these banks are actively scaling their Gen AI implementations. Key areas of investment include customer engagement, software development, and back-office operations. 

Despite the growing investment, challenges remain. Janet Tang, Partner & Managing Director for TMT Practice at AlixPartners, pointed out the risks associated with over-investing in AI, especially if goals are misaligned. 

"More than 80% of AI projects did fail, and the top three reasons were misaligned goals, poor execution, and cultural barriers," Tang said. She urged banks to align AI investments with their broader strategy and maintain clear visibility into project progress. 

AI governance is another critical factor for success. "Front-loading AI governance before moving into production is essential," Tang advised. This includes involving representatives from business lines and internal functions to ensure that AI implementations are robust and meet regulatory requirements.

Looking ahead, Shukla noted that AI investment is set to rise significantly. "Global banking leaders plan to allocate about 6.5% of their functional budgets to Gen AI, with CIOs expecting spending to increase by 39% in 2025," she stated. 

Ultimately, banks are navigating a fine line between innovation and risk. As Sharma concluded, "Banks must think innovatively while delivering value to shareholders, balancing investment with careful oversight."