Artificial Intelligence (AI) has emerged as a transformative force, switching up the operations and services of financial institutions worldwide, tremendously. Recently, the visit of the OpenAI CEO – Sam Altman to Nigeria further buttresses the impact of AI in driving innovation and its adoption, particularly in our climes. This impact is also felt in Nigeria’s financial sector as AI is playing a great role in promoting efficiency, expanding access to financial services, and driving innovation.
With the increased use and high adoption of ChatGPT, and other AI-powered chatbots that interact in a conversational way, it sets the premise of industry-wise use across many fields as we have seen adopted in design, architecture, software development, and investment management, amongst several others.
In this piece, we explore the different areas AI has exacted transformative influence on finance with a major view on Nigeria’s financial institutions. Artificial Intelligence has contributed greatly to the Nigerian financial sector in the following ways:
- Expanding Access to Financial Services
With the evolution of digital finance in Nigeria, championed majorly by fintech startups, the rural population have more access to financial services which were formerly unavailable or sparsely available to them. A key innovation in Nigeria’s digital finance is the adoption of AI technologies which have played a significant role in expanding financial inclusion and improving access to services for the underserved population.
Mobile payment platforms like Paga, utilize AI algorithms to analyse transaction data and assess creditworthiness, enabling them to offer micro-loans to individuals without traditional credit histories. This is a critical technological boost that aids access to credit and the growth of micro-businesses, especially to those in the underserved areas of the country.
- Fraud Detection and Risk Management
The adoption of AI-powered solutions has strengthened fraud detection and risk management capabilities in Nigerian financial institutions, safeguarding customer interests and preserving financial stability. As mandated by the Central Bank of Nigeria all financial institutions are required to put in place effective risk management systems to identify and mitigate potential risks, in order to contribute to the stability of their institutions and the financial sector at large. In the light of this, the use of AI in credit risk management and fraud detection is gaining more popularity, especially in the fintech and the digital banking market.
AI is leveraged to assess the creditworthiness of borrowers by utilizing data to forecast the likelihood of default, thereby enhancing the precision of credit evaluations. Consequently, the industry is shifting towards lending guided by data-driven insights instead of relying solely on expert judgment. This approach optimizes the identification and rejection of high-risk customers, while minimizing the rejection of creditworthy customers, leading to a reduction in credit losses experienced by financial institutions.
- Personalized Customer Experiences
AI enables Nigerian financial institutions to deliver personalized services tailored to individual customer needs, enhancing customer experiences and satisfaction. According to McKinsey, companies who excel at demonstrating customer intimacy generate faster rates of revenue growth than their peers. And the closer organizations get to the consumer, the bigger the gains.
Customer relationship management is an important factor for banks. Banks are now providing more personalized 24/7 services to individual customers such as providing facial recognition and voice command features to log in to financial apps.
Banks are also leveraging AI to analyze customer behavioral patterns and automatically perform customer segmentation which allows for targeted marketing and improved customer experience and interaction.
- Efficiency, Process Automation, and Customer Experience
AI-powered automation has improved operational efficiency and reduced manual effort within Nigerian financial institutions. The adoption of AI in document processing and data entry is contributing to reducing processing time in Nigerian financial institutions. The effect of this is that it enables employees to focus on higher-value tasks. An example of this can be gleaned from the use of AI-based chatbots to automate customer support and enhance response times. This results in increased efficiency and improved customer service.
As far back as early 2018, commercial banks in Nigeria have leveraged AI to enable customers to make use of their social media accounts to carry out key banking transactions and reach them for complaints and inquiries. These are deployed in the form of chatbots and have since evolved to become custom-fitted, personalized virtual bankers to several bank customers across Nigeria. UBA’s AI-powered chatbot– Leo is a good example, and other Nigerian banks utilizing AI include Zenith Bank with Ziva; Fidelity Bank’s Ivy; FCMB’s Temi; amongst others.
The adoption of AI is not all roses, it comes with its own downsides as well. Security and online safety risks, lack of transparency, security risks, habitual overreliance, and ethical concerns are chief reasons that might cause institutions to raise eyebrows regarding AI. To tackle these issues and the negative impact it could likely have on financial institutions in Nigeria, it is important that financial institutions invest in developing methods to detect and address biases in AI algorithms, ensure AI systems are transparent and understandable, strengthen cybersecurity and safeguard the privacy of customers. On the part of the Nigerian government, it is crucial that ethical guidelines and regulations be established to guide the development and use of AI. This action would promote responsible and accountable AI practices in Nigeria.
What then would the future look like?
The future of AI in the Nigerian financial sector holds immense potential for innovation, growth, and enhanced customer experiences. However, it is important to note that while the future of AI in Nigeria’s financial sector is promising, its successful implementation will require putting in place strict measures to address challenges such as data privacy, cybersecurity, talent acquisition, and regulatory frameworks. By addressing these challenges and embracing AI technologies responsibly, Nigeria’s financial sector can unlock the full potential of AI and drive significant advancements in the industry.
As much as we still have a long way to go, the AI transformation in Nigeria’s financial institutions so far is impressive – driving innovation, improving efficiency, and enhancing customer experiences. From expanding access to financial services and improving fraud detection to delivering personalized offerings and automating processes, AI’s impact is gradually reshaping the financial landscape in Nigeria, and we are yet to even scratch the surface. As technology continues to get simpler and more applicable through AI, it presents exciting opportunities for Nigerian financial institutions to further innovate and thrive in an increasingly digital and competitive environment.