The AI Handbook for Financial Services Leaders

Tools, tips, and tactics for mastering AI in banking and finance.

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AI: shaping the future of The 4 pillars of AI in AI can’t succeed on its own. Top AI use cases: risk,
banking and finance. financial services. compliance, and beyond.

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Public vs. private AI. Navigating AI risks. A checklist for implementing Final thoughts.
AI in your organization.
AI: shaping the future of banking and finance.

In the realm of banking and financial services,

AI isn’t merely a passing technological trend.
It represents a movement that will impact
everything from risk management to
operational efficiency and customer service.

Consider the potential impact of generative AI. By leveraging

generative AI, the world’s top 14 investment banks could potentially
boost their front-office productivity by 27% to 35%.1 For equities trading
companies specifically, generative AI can efficiently process company
and sector data, run valuation models, backtest trading tactics, and
curate trading advice tailored for both institutional and retail clients.

Peering into the future, the influence of AI seems limitless. Predictions

suggest AI could boost the value of the banking industry by an
additional $200 billion to $340 billion annually.2 That might explain why
banking is expected to be one of the two industries spending the most
on AI solutions in 2023. 3

1. Deloitte, “Unleashing a new era of productivity in investment banking through the power of generative AI,” 2023. www2.deloitte.com/us/en/insights/industry/financial-services/
financial-services-industry-predictions.html#new-era

2. McKinsey & Company, “The economic potential of generative AI: The next productivity frontier,” 2023. https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/the-economic-potential-of-generative-AI-the-
next-productivity-frontier#/

3. IDC, “Worldwide Spending on AI-Centric Systems Forecast to Reach $154 Billion in 2023, According to IDC,” March 7, 2023. https://www.idc.com/getdoc.jsp?containerId=prUS5045412

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In a recent AI outlook interview, AWS Cloud Technologist Piyush
Bothra noted that while we’ve been seeing algorithm-driven trading
for many years now, there’s still great potential for AI to be applied to
other areas, like fraud detection. “Think about the billions of requests
coming through financial systems from various sources and places
across the globe. It’s just not possible to analyze all the requests and
data flows and still get insights using traditional analytics. That’s
where AI can help,” said Bothra.

Over the last decade, the finance industry has experienced a

profound digital metamorphosis, spurred by the same catalysts
igniting the AI surge: the universal accessibility of technology and the
explosive proliferation of data. But when it comes to this new frontier
of technology, many are of two minds: On one hand, there’s the
compelling lure of growth and the promise of cost-cutting efficiencies.
On the other, there’s the ever-present shadow of risk.

While AI offers unprecedented opportunities—fast product

development, scalable solutions, and sophisticated risk assessment—
it also introduces novel challenges. Issues with data bias and
algorithmic fairness abound. For banks seeking to grow and thrive in
the upcoming decade, mastering AI and integrating it appropriately is
imperative. This handbook serves as a compass, offering actionable
tools, tips, and tactics to navigate the intricacies of implementing AI,
managing risk, and maximizing return on your AI investments.

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The 4 pillars of AI in financial services.

The array of applications for AI in the financial sector is vast and ever-expanding.
From customer-facing automation powered by generative AI to internal process optimization,
decision-making, and risk and compliance management—all these functions are being reimagined
through the lens of AI. John Trapani, Industry Leader for Financial Services at Appian, pinpoints
four dominant pillars of AI that are making an impact:

Predictive AI. Anomaly detection AI.

This form of AI harnesses historical data to anticipate
future outcomes. For example, it can analyze market
data to furnish investment recommendations or
autonomously manage investments based on
projected market trajectories.
Crucial for spotting irregularities, this AI is invaluable
when it comes to identifying suspicious transactions.
It can be used for anti-money laundering and fraud
detection activities, acting as an alert system and
signaling when human oversight is required.

Classification AI. Generative AI.

Given the deluge of unstructured enterprise data many
organizations are grappling with, the ability of AI to
categorize is indispensable. Classification AI can be
used to segment customers based on transaction history
and preferences, allowing teams to tailor their products,
services, and marketing strategies. This AI can also
classify loan applications into distinct risk categories,
drawing upon factors like credit history and income.
By leveraging large language models and historical
data sets, generative AI can respond to natural
language prompts to craft all sorts of content.
It can process raw data to instantly produce
personalized emails, financial summaries, reports,
and other documentation, enhancing the digital
customer journey.

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AI can’t succeed on its own.

It’s clear that AI has the potential to be transformative for financial services organizations.
But to realize its value, and to become a true AI enterprise, you need a foundation of two
crucial elements: data and process.

AI is nothing without data.

The value AI brings to your organization is directly proportional to the
quality of the data you feed it. And the best way to make sure you’re
feeding your AI quality data is by using a data fabric. A data fabric is an
architecture layer that connects data across the organization, creating a
managed data pipeline to feed your AI models.
And it works both ways—your data fabric can also incorporate the outputs
from your AI model directly into complex workflows and systems of record
via process automation. (Data fabric is also great for sharpening the
efficiency of monitoring compliance, cyber threats, and fraud.)

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AI is nothing without process. Where AI and humans work together, strong process orchestration
We’re living in the era of mixed autonomy: AI will do part of the work, becomes crucial for routing work efficiently between AI, other
but it’s not a solo act. It needs your help to assess nuances and make automation technologies, and humans. This lets both human and
important decisions. digital workers become more effective.

Mixed Autonomy Systems

Humans set the goals. AI proposes the decisions. Humans decide.

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Top AI use cases: risk,
compliance, and beyond.
AI’s transformative impact on banking, especially
in areas like risk and compliance, is undeniable.
However, at the heart of any successful AI
implementation lie two core components:
data and processes.

The use cases in this section offer a blueprint

for optimizing AI initiatives and understanding
the foundational role data and process
play in successfully integrating AI into your
business operations.
AI use case: Mitigating risk and managing compliance.
“Compliance burdens are increasing and will dramatically impact the
tier-one capital required to support institutions’ balance sheets,” says
Guy Mettrick, Industry Vice President, Financial Services, Appian. “Banks
will experience heightened scrutiny of the processes behind their risk
management and credit decisions. There’s also going to be a strong focus
on auditability across the enterprise, and that’s precisely where data
fabric and AI automation platforms can make a difference,” says Mettrick.

In a dynamic financial environment, bank executives recognize that

innovation is the key to unlocking resilience and meeting new challenges
in risk management. Advanced technologies, from cutting-edge analytics
to AI, empower institutions to leapfrog traditional risk assessment
methods. By harnessing AI-powered automation, for example, banks can
gain real-time visibility into emerging risks, make data-driven decisions,
and optimize risk management processes with precision.

“Credit assessment, KYC (Know Your Customer), anti-money laundering,

fraud, and collateral management are complex processes within the
lending lifecycle,” says Mettrick. “These processes are well-suited
for automation, not just for retail customers, but also for corporate
and institutional clients as well. Customizable process automation
platforms offer the most value when it comes to optimizing the efficiency,
effectiveness, and decision-making speed in lending operations, which
are crucial factors for customer satisfaction and financial institutions’
success,” says Mettrick.

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AI use case: Preventing fraud and financial crime.
Financial institutions have long relied on traditional, rule-based
transaction monitoring and name screening systems, which are
often prone to errors. But today, financial crimes have increased
and fraud patterns are continuously changing, adding new layers of
complexity to fraud prevention. A data-agnostic AI solution allows
financial institutions to enhance existing systems to better identify
previously missed transactional patterns, data anomalies, and
suspicious relationships between individuals and entities.

AI can look for these patterns of behavior at a large scale and

learn to detect new patterns over time, increasing the accuracy
and efficiency of the fraud detection process. AI can also help
organizations investigate genuine fraud events more easily, since it
can allow the information needed to investigate a screening hit
to be accessed faster.

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AI use case: Improving customer experiences.
AI, with its remarkable capacity for processing and analyzing vast
amounts of data, is transforming the dynamics of client interaction in
the financial sector. Gone are the days when the primary means of
communication was a phone call.

“It’s easy to envision a time when the traditional practice of picking up

the phone to converse with a broker or retirement advisor will undergo
a digital transformation,” says Trapani. “Clients will be able to engage in
rich, informative dialogues online with chatbots empowered by advanced
large language models and bespoke content generation capabilities.”

Consider the complexity of delivering unique insights to clients based

on their individual investment trajectories and risk appetites. Manually
crafting such reports is not only labor-intensive but also prone to
inconsistencies. AI-driven content tools address this challenge effectively.
These tools analyze a client’s transaction history in light of market trends
and craft tailored commentaries, insights, or forecasts in real time. Once
curated, this personalized content is automatically delivered to clients
with unmatched precision and regularity.

Yet, it’s essential to remember that seamless AI integration, while

invaluable, complements rather than replaces the human touch. As
AI takes on the tedious task of content aggregation, personalization,
and dissemination, human experts bring a nuanced understanding of
financial landscapes. They provide empathy, ensuring financial advice
remains authentic and trustworthy. Clients get the best of both worlds:
data-driven insights delivered with a human touch.

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AI use case: Document and query management.
Similar to the efficiencies AI creates throughout the customer experience,
it also has the ability to improve productivity internally with document and
query management. AI can be used to summarize documents to help craft
legal agreements, extract information from research to assist research
analysts, and gather details for RFPs, due diligence questionnaires,
and more.
AI can extract the most relevant data from a document, categorize
it, retrieve related information, and plug it all into another system for
analysis. Completing the same task without the assistance of AI would be
significantly more time consuming. On a smaller scale, employees can use
AI to query bank policies, draft emails, summarize meetings, and do other
small, low-value tasks in less time.
Here’s a real-life example: An AI-powered automation solution can be used
to process critical identity document applications. For many organizations,
it takes weeks to review documents like these because of data that has to
be matched manually. With a generative AI plug-in, a financial institution
can create an app to automate the matching process. The app can take the
text of the document and use AI to recommend the closest matches, cutting
down on processing time for reviewers.

Document Classification Email Classification Document Extraction

Automatically classify and route
important documents, reducing
workload of human employees.
Automatically route incoming
emails to the appropriate team,
or aid the initial triage of a case
by classifying emails based on
business-specific labels.
Automatically extract structured
data from documents like claims,
invoices, and tax forms.

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Public vs. private AI.
It’s crucial to recognize that AI models vary in their design, training,
and application. Organizations must understand the risks associated
with using models trained on public data sets versus those trained on
proprietary, private data. For instance, large language models like ChatGPT
are trained on a mixture of data sets, including those that are publicly
available. Consequently, user data employed to fine-tune popular models
like ChatGPT may not remain proprietary—and it could potentially benefit
competitors using the same AI tools.
On the other hand, private AI is exclusively trained on an organization’s
data, ensuring that the resulting intelligence remains confined to that
enterprise. In highly regulated sectors like financial services, the value of
private AI becomes even more evident: it ensures that your competitors
don’t gain from your data-driven insights.
Organizations can leverage private AI in two primary ways:
• In-house: By building and maintaining AI models using in-house
expertise, such as data scientists and engineers.
• Platform: By using a platform to develop machine learning models
without needing to have expert resources in house, choosing a platform
that offers private AI to ensure data exclusivity and protection.
Private AI stands out from large public cloud providers by keeping data
private to your organization, offering tailored solutions, and encouraging
innovation with a focus on transparency. For example, you can train a
private AI model to classify specific documents, like purchase orders, while
retaining control over the data used. When distinguishing private AI from
public models, consider the following points:
• Private AI is tailored to your data, resulting in more precise solutions.
• It ensures your data stays securely within your organization.
• The AI models are exclusive to your firm.
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Navigating AI risks.

AI—alongside low-code development, process automation platforms,

and cloud technologies—will be key to propelling the financial services
sector into the digital age. Yet, adopting AI is not without its challenges.

Banking and finance leaders need to implement stringent AI

governance and controls. These measures are essential not just for
addressing intellectual property concerns, but also for mitigating the
risk of AI hallucinations, wherein an AI model generates plausible yet
fabricated information. Regulatory bodies are additionally concerned
about potential biases in credit algorithms, transparency, chatbot
misinformation, and data privacy issues.

Addressing bias in AI models.

The tech world is fervently working to understand and rectify AI biases,
increasingly focusing on creating new AI that can both identify and
neutralize them. While AI can enhance risk mitigation and compliance
processes by upping speed and efficiency, human oversight is
indispensable. It’s essential to have experts interpret AI-generated
insights to ensure decisions are accurate and the corresponding
actions are appropriate.

“AI is going to enable financial institutions to operate more quickly

and much more effectively,” says Mettrick. “But we need people to do
sanity checks on the decisions coming out of AI systems.”

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Cybersecurity threats.
On the cybersecurity front, concerns are escalating around the possibilities
of sophisticated attacks where attackers manipulate the underlying data
in an AI system, leading to altered, unreliable outputs. Detecting such
nuanced attacks remains a formidable challenge, necessitating heightened
vigilance and robust cybersecurity protocols. As generative AI continues
its upward trajectory in the financial services market, addressing these
challenges is more urgent than ever.
Managing AI hallucination risk.
AI hallucinations happen when AI tools generate incorrect but plausible-
looking insights. Whether your organization uses AI for risk assessment,
customer profiling, market insights, or other tasks, hallucinations can
undermine consumer protection and damage your company’s reputation.
To address this threat at an organizational level, it’s crucial to put in
place governance and control systems to act as guardrails that mitigate
overreliance on AI-generated insights that could include hallucinations.
Working with the right vendors, who understand the importance of this
risk and proactively work to address it, is essential for companies in highly
regulated industries.
Protecting intellectual property.
Beyond the technical intricacies of deploying AI, there are pressing ethical
and legal challenges to consider. Central among them is the question of
intellectual property (IP) rights. Todd Lohr, Principal at KPMG, underscored
this concern in a recent AI outlook interview:
“The bigger issue is IP protection,” said Lohr. “If you create content, how do
you protect it? And how do you ensure you’re not using someone else’s IP?
In addition, there’s algorithmic bias. The technology is only as good as the
people that trained it, the methods used, and the underlying data set. So
how do you actually understand the biases, then develop AI that detects
and mitigates them?”
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A checklist for implementing AI in your organization.

As the AI boom unfolds on Wall Street, the most progressive banks are now tailoring about 40% of all job openings for AI-centric roles.5 This includes not
just data engineers and quantitative analysts but also roles focused on AI ethics and governance. However, hiring for a bunch of AI roles without having
a well-defined strategy can jeopardize outcomes. Here’s a checklist of everything to consider ahead of time for a smooth and effective AI integration.
Before you start your AI implementation, make sure you:

Define a clear vision. Address data privacy risks.

Begin with a clear vision and set well-defined goals. Don’t
chase AI to get on the bandwagon; instead, focus on specific
use cases that can deliver tangible value. Experimenting is
good, but grounded implementation is vital. Whether it’s
enhancing customer support or automating routine tasks,
starting with a goal is paramount. Showing what the direct
impact of AI will be paves the way for broader acceptance
and implementation support.
AI and data privacy risks are intertwined. Using a large
public cloud provider may mean you risk sharing data with
competitors. Partner with organizations committed to private
AI and stringent security standards to keep control of your
data. Look for a platform that offers extensive cloud security,
including industry certifications, such as SOC 1, SOC 2, and
SOC 3 and key reliability features, such as data redundancy,
high availability, and disaster recovery.

Establish an AI risk oversight committee. Connect your data.

Create a framework for considering the potential and unforeseen AI flourishes when it runs on structured, accessible data.
impacts of AI development and use. Assemble a team of experts Disconnected data scattered across multiple repositories
tailored to your specific use cases, including data scientists, hampers the operationalization of AI. Adopt a data fabric
engineers, UX designers, and other relevant stakeholders. approach to create a virtual data layer that allows seamless
This approach provides a structured way to evaluate AI data access and enhances AI’s predictive accuracy.
opportunities across the organization, encompassing the
front, middle, and back office. It also provides a framework for
managing both risks and opportunity costs, with the ultimate
goal of securing leadership buy-in and building public trust.

5. Bloomberg, “Wall Street Banks Are Using AI to Rewire the World of Finance,” 2023.
www.bloomberg.com/news/features/2023-05-31/jpmorgan-s-push-into-finance-ai-has-wall-street-rushing-to-catch-up

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Leverage workflow automation and
process orchestration.
AI is not the sole catalyst for business transformation.
Robotic process automation (RPA) has been an equally
transformative tool, particularly for automating manual
workflows. With the right approach to data management
and process automation, you can orchestrate everything
from a single workflow to a host of complex business
processes. However, look for a platform that goes beyond
mere task-level automation and offers comprehensive
process orchestration that integrates humans, systems,
and digital workers.

Keep AI in mind when working with vendors.

When choosing new platforms for your organization,
keep AI in mind. Seek out vendors who are proactive
about addressing data privacy, risks, and controls that
should be in place for financial institutions. Consider
whether these topics are on the vendor’s radar when
you’re in discussions with them, and opt for those who
are thinking ahead about how their platform will provide
high-quality AI while still keeping your data secure.

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Final thoughts.

We’re on the brink of a new era. One that will be shaped by data and
analytics and powered by AI. However, getting the most out of your AI
investment calls for a strategic and thoughtful implementation. You’ll do
well to establish a clear vision, secure leadership support, involve experts,
address data privacy, connect data, and take a platform approach to
adopting technologies like AI, data fabric, and process automation.
Transform your organization
with Appian.
In the near-future competitive landscape,
companies will either be good at AI or bad at
business. Appian provides the capabilities you
need to operationalize AI, secure your data, and
see a rapid return on your investment.

Learn more by visiting appian.com/ai.

It’s crucial to scrutinize and align your risk processes

and systems and identify the right combination of
AI and automation needed to fortify them across
risk management, compliance, and internal audit.
Bringing together systems that sit within the three
lines of defense for risk management and being
able to share data between those systems is a
critical part of the AI adoption process.

Guy Mettrick
Industry Vice President, Financial Services, Appian

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