Impact of AI on Banking Industry

The assignment delves into the influence of artificial intelligence (AI) on the banking industry. It examines how AI automates processes within banks, enhances customer service quality, potentially increases bank profitability, and may lead to changes in the banking workforce. The analysis requires considering both the benefits and potential drawbacks of AI integration in this sector.

Examine the economic impact of innovation on
the financial performance of HSBC and Barclays

TABLE OF CONTENTS
INTRODUCTION ...................................................................................................................... 3
1.1Background of study........................................................................................................... 3
1.2 Research aims and objectives............................................................................................. 3
1.3 Rationale of research.......................................................................................................... 4
1.4 Significence of research..................................................................................................... 4
1.5 Methodology used in the research......................................................................................5
CHAPTER 2................................................................................................................................ 6
LITERATURE REVIEW............................................................................................................ 6
CHAPTER 3.............................................................................................................................. 10
RESEARCH METHODOLOGY............................................................................................... 10
CHAPTER 4.............................................................................................................................. 12
DATA ANALYSIS.................................................................................................................... 12
CHAPTER 5.............................................................................................................................. 15
CONCLUSION AND RECOMMENDATION..........................................................................15
REFERNECES.......................................................................................................................... 16
APPENDIX............................................................................................................................... 17

INTRODUCTION
Background of study
Innovation is the buzzing word of 21st century as it can be observed that it is taking place
at a wide level in the banking field across the globe. Advancement in technology makes banking
operations more innovative in nature. There are number of banks like HSBC and Barclays that
are upgrading their technology base and providing better services to the customers. Innovation
makes relevant banks different from the competitors. With passage of time banks are giving due
importance towards upgradation of technology base at the workplace. Huge advancement have
taken place during past couple of years which has changed shape of banking services across the
globe. In the current report detailed analysis in respect to innovation in the business firms like
HSBC and Barclays has been done and a number of areas where they have introduced new
technology is identified (Akhisar, Tunay. And Tunay, 2015). It can be said that these are one of
the prominent banks across the globe and play an important role in promoting innovation in
banking industry. Apart from this, in the report innovation that takes place in the last 10 years in
UK will be described in detail. Along with this, economic impact that innovation of technology
has on these firms will also be discussed in detail. In the past years, many researches were
carried out on the innovation that is done by the banking sector firms. It was identified in these
researches that performance is heavily affected by the introduction of new technology because it
enables firm top offer effectual services to the customers at a rapid pace in the short time period.
Thus, it can be said that in past lots of innovations have already been done and in future also lots
of improvements can be observed in the same future prospects of the same are high.
1.2 Research aims and objectives
Aim and objective of research are given below.
Aim: To examine the impact of technological innovation on the financial performance of HSBC
and Barclays.
Objectives of research
 Review the progress of technological advancements done by the banking sector within
the UK for past 10 years.
 Investigate & published annual reports of the banks, compare yearly statistics to see
performance rate.
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 Examine additional outcomes (both positive and negative) which occurred due to
implementation of innovative products/services.
Research questions
 What level of technological advancements took place in the banking sector within UK for
past 10 years?
 What variations came out in the yearly performance of Barclay and HSBC bank?
 What additional factors (both positive and negative) are observed due to implementation
of innovative features in products/services?
1.3 Rationale of research
It is important to conduct the current research study because with passage of time more
and more banks are upgrading their technological base to a great extent so that better services
can be offered to the customers Advancement is necessary for banks to enhance customer
satisfaction level to a greater extent. In order to do this study broadly it becomes necessary to
identify the developments that happened in the technology base of the nation banks. It can be
said that there is huge importance of the present research study in the recent times (Obay, 2014).
Focus of the present study is measuring variations that comes in the performance of banks after
innovation of technology has been implemented. Another importance of this research is to find
out the negative suspects if any are there in respect of implementation of new technology for
different entities. From evaluation, it has been assessed that it was necessary condition to explore
the every aspect of innovation of technology. Thus that there are a number of reasons due to
which it becomes important to carry out research related work.
1.4 Significance of research
It is one of the important section of the present research study. Merely preparation of
research report is not sufficient, it is very important to communicate significance of research to
the audience. Main significance of this research study is that it to help one in understanding the
positive and negative sides aspects of the innovation that is going on in the banking field. Thus,
one can come to know advantages as well as disadvantage that firm and other relevant entities
have to bear due to innovation in technology base (Reis, Ferreira and Monteiro Barata, 2013).
Through this research one will come to know about performance of the banks and its association
with the firm performance will also be explored. Thus, present research study will help one in
identifying whether there is any relationship between performance of the banks and
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advancement of technology. Current research report will give an overview of technological
advancement that happened in last 10 years. Hence, it can be said that there is huge significance
of the present research study for the readers because it is not just giving brief overview of the
innovation that happened in the banking sector but also cover varied aspects of same. It can be
said that there are multiple dimensions in respect to innovation of technology in banking sector
that are covered in this report.
1.5 Methodology used in the research
In the current research study literature review will be done in respect to research subject.
In this regard in respect to topic varied literature like research papers will be downloaded from
the internet and will be reviewed. Data’s that are related to the Barclays and HSBC banks are
analysed by using ratio analysis method. Appropriate research approach had been taken in the
present research. Along with this, appropriate research design had been chosen for the study of
various available alternatives. There are three sort kinds of research designs namely
experimental, descriptive and exploratory research design. Out of these exploratory research
design is being used because in the current research this study at initial stage relevant literatures
are reviewed and broad understanding is developed about technological innovation that is done
by the business firms. It can be said that research methodology is prepared in proper manner in
the current study and it will be very helpful in conducting the research study.
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CHAPTER 2
LITERATURE REVIEW
Review the progression of technological advancements used by the banking sector within
the UK for past 10 years
According to Lewis, (2013) innovation in technology is happening at rapid pace across
the nations. It can be observed that there are number of nations where focus is on
advancement of the current technology base in banking field. This is because technology
makes human life easy to live and ensure safety from performance of activities. In the
banking field lots of innovations takes place at fast rate. These innovations highly transform
the mentioned industry and brings lots of changes in the same. It can be said that
technological advancement brings big change in the banking operations. In last 10 years many
big changes comes in the UK banking sector in terms of innovation. Analytics is used at wide
level by the banks in UK to solve business problems. Number of trends in respect to
innovation of banking operations can be observed in UK and use of analytics is one of them.
Under this banks are either creating their in-house data analytics team or are taking help of
the third party. Through the use of analytics number of unfair trade practices in the business
like fraud, misrepresentation and customer segmentation etc. can be identified. Apart from
this, lots of hidden facts can be identified using data mining techniques on the bank’s
database. It can be said that analytics play a vital role for the business firms. Increasingly
banks are using analytics in their business. Use of analytics lead to less cost as well as
increased efficiency in the business operations. Hence, there is advancement in the banking
sector of UK.
As per view of Cornaggia and et.al., (2015) social value chain is the new concept that is
introduced in the market. As per this new concept banks ask public to give proposal about
changes that are required to be made in the product line. Bank of UK think that correct advice
is given then in that case they must do innovation in the product. Few banks are doing this
and they successfully are innovating their business operations. Along with this, there is
significant importance of such kind of concepts for the banks.
Contrary to this Van der Boor, Oliveira and Veloso, (2014) states that practice of taking
opinion from public in respect to innovation in the product is not so successful idea because
they do not have much knowledge about variations that must be brought in the product. In
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addition to this,it depends on the firm that which option to choose. There is need to select this
option as part of innovation strategy with due care. This is because if same will not be done
then in that case firm may move in wrong direction.
According to Bultum, (2014) recent trend that is going on in the market is that
increasingly firms are using artificial intelligence in the business for prediction purpose. It can
be observed that use of artificial intelligence is increasing in the UK banks. UBS bank in the
UK is offering real time portfolio analytical services on personalized basis to those clients that
have large size portfolio by using IBM Watson. This is one of the big innovations that is
being done by any bank of UK in decades. It can be observed that when someone ask
portfolio details from the portfolio manager then it takes long time to prepare portfolio
details. But this software enables them to provide immediate details to the customers about
their products. It can be assessed that use of artificial intelligence by UBS bank enable it to
provide much better services to the customers.
As per views of Gheeraert, (2014) in the UK banks “Bank of things” like internet of
things is the new concept that has emerged recently. Under this varied non-living items can be
interlinked to each other. For example, it is possible that an individual’s bank account may be
linked to car and automatically according to requirement, order is placed for replacement of
product to spare part repairer. On single click from side of client automatically amount will
be deducted from bank account. This example fit to the mentioned concept “Bank of things”.
It is just an example which is revealing extent to which technology that is used by banks and
people related to banks will become advance and will automate operations that today we
perform manually. Above given example envisage picture that in upcoming time period in
comparison to last decade technology will become more advance at fast pace and this will
automate all operations that are today performed manually. It is very important to access the
pros and cons that users will observe due to implementation and usage of advance technology.
Main benefit that people will receive is that they will need to make very minimum efforts to
do banking. Thus, lots of time will be saved and it became very easy to make transactions
online. Moreover, same will be secure. Use of advanced technology will lead to loss of
employment and less generation of jobs in the market which will further increase
unemployment rate in the market. Thus, it can be assessed that automation will bring both
benefits and losses for the people. Along with this, lots of things are evolved under bank of
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things in the banking industry of UK. This is the one of the latest trend that is going on in
UK. Barclays bank in partnership with Hitachi group recently launched new biometric reader
for the customers under which one simply needs to put its thumb on machine and the same
will be recognized and will get direct access to the bank account and can make payment in
seconds. Interesting fact is that one does not need to use ID or passwords for login. By doing
so Barclay bank ensured that transactions through its banks are safe and no one can access
individual account without taking its permission.
Investigate published annual reports of the banks, compare yearly statistics to see
performance rate
According to Barclays return to sustainability, (2015) it can be observed that on yearly
basis in case of Barclays net interest income increased to £12558 from £12060. Statutory total
income net of insurance claims amount elevates to £24454 from £25288. This reflects that
overall net income increased in case of Barclays bank. On the other hand, credit impairment
charges reduced from £2168 to £2114 which reflects that values of assets reduced by less
amount. Due to innovation in operations, adjusted operating expenses declined from £18069
to £16998, which reflect that overall expenses get reduced in the business and profit
increased. It can be said that Barclays bank performed well than previous year due to
innovation. However, loss on sales increased from £446 to £577. It can be identified that
Barclay bank get benefited by innovation that happened at workplace. Innovation is bringing
huge changes in the banking field and due to this reason employee cost decline sharply in case
of banks which generated economies of scale in their business. It can be said that innovations
bring revolutionary changes in the banking field. On financial instruments from profit to firm
transitioned into loss from £1532 to £-2666. Dividend income also declined from £2068 to
£1385. Total operating expenses increased from £39768 to £39808. Profit for year declined
sharply from £15096 to £3446. Further, firm give poor performance in its business.
As per views of HSBC Holdings plc, (2017) in case of HSBC bank it can be identified
that net interest income reduced from £32531 to £29813 which reflects that even firm who
brings innovation in its products and services face heavy losses in its business. Net feee
income reduced from £14706 to £12777. This reflects that upto some extent firm’s customers
have reduced. It is also possible that technology does not innovate across all branches that are
located in different nations the world.
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Examine additional factors (both positive and negative) which are caused by
implementation of innovative products/services.
As per views of Bultum, (2014) positive and negative sides are faced by an organization
when it brings innovation at the workplace. It can be observed that there are number of
companies across the globe that innovate their operations and this lead to reduction in cost of
the business and improving efficiency in the business. Hence, it can be depicted thatthat
innovation have lots of positive benefits for the business firms. Along with this, there are
some negative sides of the implementation of innovation at the workplace. Contrary to this
Obay, (2014) state that if all business operations are innovated then in that case conflict arises
between management and labour. All these things leads to curtailment of workforce and
organization’s employees go on strike or feel uncomfortable which directly affects their
loyalty and dedication that they have towards work. It can be identified that there are both
positive and negative sides of innovation for the business firms. Management of an
organization need to balance all these things in order to ensure that innovation should be
implemented in a proper manner at the workplace. Thus, it can be found that management
needs to take innovation related decisions with due care. Management must prepare strategies
from time to time with changing environmental factors. By doing so situation can be handled
in proper manner by the business firm.
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CHAPTER 3
RESEARCH METHODOLOGY Research type: There are two types of researches namely primary and secondary
research. In the current research report both the researches will be carried out namely primary
and secondary research (Chilisa, 2011). By doing secondary research, analysis of literature will
be done in the current report and by doing so information about current trends can be identified.
It can be said that both primary and secondary researches are necessary for conducting research
in an effectual way. Research design: In the current research out of all methods exploratory research design
will be used. By using this research design in detail all information will be explored by the
researcher. There are many other methods of research design like descriptive and experimental
research design. From all the above depicted methods only exploratory research design will be
used in the present research. Research approach: There are mainly two kinds two sorts of research approaches
namely inductive and deductive research approach. Both of these approaches are different from
each other. In case of inductive approach first of all observation is done and collected data is
analysed to form hypothesis in respect of the research. In this way theory is formed. On other
hand, in case of deductive approach theory is already prepared and it is tested by using statistical
tools. On the basis of outcome of the research theory that already exist is tested. In the present
research study, inductive research approach is being used in the current research study. It has
been assessed that there is huge significance of the inductive research approach in the present
research study. Research philosophy: Research philosophies are of two types namely interpretivism and
positivism. It can be stated that there is huge difference in these philosophies. Both research
philosophies are inverse of each other (Petty, Thomson and Stew, 2012). Interpretivism
philosophy is used when one is going to conduct non-scientific research. On other hand,
positivism philosophy is one that applied on researches that are scientific in nature. Present
research study is non-scientific in nature and due to this reason interpretivism philosophy is
applied on present research study. Data collection methods: There are number of data collection methods that are used in
the research. Data that is collected either may be primary or secondary data. Primary data can be
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gathered from the distribution of questionnaire. On other hand, secondary data is taken from the
books, journals and magazines. Thus, in the present research secondary data gathered from
journals and annual report of the firms and data for primary research will be taken by
distributing questionnaires among 20 scholars. In this way entire research work will be carried
out. Data analysis: Data analysis done by using ratio analysis method and by using thematic
analysis (Coleman and Ringrose, 2013). Data that is taken from the annual report is analysed by
using ratio analysis method. Apart from this, by using thematic analysis method primary data
can be analysed. Validity and reliability: After collection of data validation of same is being done.
Missing values are filled by relevant values and answers are then rectified if some are wrong. By
doing so it will be ensured that collected data is valid and reliable in nature. Ethical consideration: It should be ensured that sample size that is taken in the present
research study is reasonable and must be helpful in collecting relevant data. Security measures
should be taken to ensure that collected data cannot be accessed by unauthorized person. Limitation of study: Main limitation of this study is that sample size is small and
unreliable results can be obtained. However, knowledgeable persons are taking in the present
research. Hence, real results will be obtained from research.
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CHAPTER 4
DATA ANALYSIS
Do you know about AI or artificial intelligence?
Figure 1Respondents response on question “Do you know about AI or artificial intelligence?”
Interpretation
Results are reflecting that there are 17 respondents who think that AI is used in the
banking field. There are only 3 respondents who think that AI is not used by the banks. The
above mentioned aspect shows that majority of banks are aware about artificial intelligence.
AI is used to automate process in the banks.
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Figure 2Respondent’s response on question "AI is used to automate process in the banks."
Interpretation
On the basis of results, it can be observed that there are 5 respondents that strongly
agreed on asked statement followed by 6 respondents are agreed. Apart from this, there are 2
respondents that are neutral on asked statement. 4 respondents are disagreeing followed by 3
respondents who strongly disagree on asked statement. Hence, it can be presented that most of
the respondents agree on the fact that AI is used in the banks to automate process and it is used
for innovation at workplace.
Use of AI make services of banks better in past 10 years.
Figure 3Respondents response on "Use of AI make services of banks better in past 10 years."
Interpretation
Results are reflecting that in past 10 years’ banking services have become better due to
use of AI services in the business. There are 6 respondents that strongly agree on asked
statement followed by 5 respondents agreed and one responden who is neutral. Apart from this,
5 respondents are disagreeing and 3 respondents are strongly disagreeing on asked statement. It
can be summarized that use of AI have made banking services better in last 10 years.
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Do you think that use of AI will lead to increase in profitability of banks?
Figure 4Respondents response on "Do you think that use of AI will lead to increase in
profitability of banks?"
Interpretation
Results conclude that there are 18 respondents who think that use of AI will leads to
increase in profitability of banks. There are only 2 respondents who state that AI have no impact
on firm’s profitability.
Do you think that introduction of AI technology will lead to decline in workforce?
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Figure 5Respondents response on question "Do you think that introduction of AI technology will
lead to decline in workforce?"
Interpretation
On the basis of analysis of data, it can be presented that 17 respondents are agreeing with
the fact that use of AI will lead to decline in workforce. Only 3 respondents think that no impact
of AI will be observed on workforce.
Secondary data analysis
Barclay HSBC
2015 2014 2015 2014
Net profit 623 845 15096 14706
Net sales 24454 25288 71092 74593
Net profit
ratio 2.55% 3.34% 21.23% 19.71%
Current assets 91629 1321528 2270064 2479831
Current
liability 1031951 1260598 2109177 2319636
Current ratio 0.09 1.05 1.08 1.07
Equation 1Ratio analysis of Barclay and HSBC
 Net profit ratio: It is the ratio which reflect the portion of sales that is covered by the
profit that is earned by the firm in its business. It can be observed that net profit ratio in
case of Barclay is 2.25% in the FY 2015 which declined from 3.34% in FY 2014. On the
other hand, in case of HSBC profit percentage increased from 19.71% to 21.23%. It can
be said that firm’s profitability enhanced to a great extent. Hence, it can be said that to
some extent benefit of innovation is derived by HSBC then Barclays.
 Current ratio: Current ratio reflect the proportion of current assets to current liability. It
can be observed that current ratio declined in case of Barclay from 1.05 to 0.09 which
reflect that stiff decline occurred in firm’s capability to meet its working capital needs. In
case of HSBC current ratio value increased from 1.07 to 1.08 which reflects that firm has
managed to maintain its previous year’s performance.
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CHAPTER 5
CONCLUSION AND RECOMMENDATION
On the basis of above discussion, it is concluded that there is significance of the latest
technology for the banks because it automates firm’s operations and better services are provided
to the customers with full efficiency. In last 10 years many big changes happened in the
technology and it helped firms in offering better services to their clients. However, this does not
mean that all firms that adopt new technology will earn huge amount of profits in business.
Adoption of new technology help firm in performing operations with full efficiency but this does
not mean that firm will earn good amount of profit in business. This is because change in
economic conditions of nation encourage or discourage more and more people to do banking.
Thus, it is recommended that firms must do automation of their services but at same time must
prepare wise strategy to beat competitors in foreign market.
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REFERNECES
Books and Journals
Akhisar, ?., Tunay, K.B. and Tunay, N., 2015. The effects of innovations on bank performance:
The case of electronic banking services. Procedia-Social and Behavioral Sciences. 195.
pp.369-375.
Bultum, A.G., 2014. Factors affecting adoption of electronic banking system in Ethiopian
banking industry. Journal of Management Information System and E-commerce. 1(1). pp.1-
17.
Cornaggia, J. and et.al., 2015. Does banking competition affect innovation?. Journal of
Financial Economics. 115(1). pp.189-209.
Gheeraert, L., 2014. Does Islamic finance spur banking sector development?. Journal of
economic behavior & organization. 103. pp.S4-S20.
Lewis, M.K., 2013. Off-balance sheet activities and financial innovation in banking. PSL
Quarterly Review. 41(167).
Obay, L., 2014. Financial innovation in the banking industry: the case of asset securitization.
Routledge.
Reis, J., Ferreira, F. and Monteiro Barata, J., 2013. Technological innovation in banking
services: an exploratory analysis to perceptions of the front office employee. Problems and
Perspectives in Management. (1). pp.34-49.
Van der Boor, P., Oliveira, P. and Veloso, F., 2014. Users as innovators in developing countries:
The global sources of innovation and diffusion in mobile banking services. Research
Policy. 43(9). pp.1594-1607.
Chilisa, 2011. Indigenous research methodologies. Sage Publications.
Petty, Thomson and Stew, 2012. Ready for a paradigm shift? Part 2: Introducing qualitative
research methodologies and methods. Manual therapy. 17(5). pp.378-384.
Coleman, R. and Ringrose, J. eds., 2013. Deleuze and research methodologies. Edinburgh
University Press.
Online
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HSBC Holdings plc, 2017. [PDF]. Available through:< file:///C:/Users/user/Downloads/170221-
annual-report-and-accounts-2016%20(3).pdf>. [Accessed on 7th July 2017].
Barclays return to sustainibility, 2015. [Online]. Available through:<
https://www.home.barclays/content/dam/barclayspublic/docs/InvestorRelations/
AnnualReports/AR2015/Barclays_PLC_Annual_Report_%202015.pdf>. [Accessed on 7th
July 2017].
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APPENDIX
Name:_________________
Age:__________________
Occupation:____________
Do you know about AI or artificial intelligence?
 Yes
 No
AI is used to automate process in the banks.
 Strongly agree
 Agree
 Neutral
 Disagree
 Strongly disagree
Use of AI make services of banks better in past 10 years.
 Strongly agree
 Agree
 Neutral
 Disagree
 Strongly disagree
Do you think that use of AI will lead to increase in profitability of banks?
 Yes
 No
Do you think that introduction of AI technology will lead to decline in workforce?
 Yes
 No
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