Hong Kong banks started adopting the use of artificial intelligence (AI) in 2019 pushed by a combination of business factors including enhancing customer experience, improving cost effectiveness, and better risk management, according to a survey conducted by the Hong Kong Monetary Authority (HKMA).

The survey was in a report entitled “Reshaping Banking with Artificial Intelligence” issued by the HKMA on December 23. It covered banks, industry organizations and fintech firms and was conducted in the third quarter. One of the key findings show that almost 90% of the surveyed retail banks have adopted or plan to adopt AI applications.

“AI will bring profound changes to the way in which the banking industry operates. The appropriate adoption of the technology may have the potential to reshape banking in the future. Understanding the technology and its implications from the outset is crucial to fully unleashing the power of AI,” says Edmond Lau, senior executive director of the HKMA.

The survey identified three drivers of AI adoption as the need to improve customer experience, the need to stay cost-effective, and the need to better manage risk.

In Hong Kong, 82 percent of customers have experienced at least one problem or frustration with their banking experience. Banks can leverage AI to improve customer service by providing services like personalized recommendations and by delivering better customer support.

At the same time, AI can also help banks to reduce costs through functions such as task automation. Finally, AI can simplify the risk management process and develop more comprehensive insights into customer risk by taking data such as transaction history, market trends and customer credit history into consideration, according to the report.

Three major barriers to AI adoption were also identified. The first is lack of explainability, which means that results or recommendations generated by AI are not always easily understood by humans. A lack of resources, including AI talent and quality data, is another obstacle. Furthermore, as banking is a highly regulated industry, banks may face additional costs and risks in adopting AI due to the need to comply with AI-related regulations.

The survey finding also found that AI applications are on the increase across the Hong Kong banking sector – especially in retail banking. Eighty-nine percent of retail banks have adopted or plan to adopt AI applications; the total amount of capital investment by Hong Kong’s retail banking sector is expected to increase by 70 percent in the coming five years.

Since 94 percent of banks that have adopted AI say that they will use it to shape their corporate strategy, it is important to understand the reasons driving this increasing adoption, the report says.