From Friction to Flow: Establishing a New Era of AI-Enabled Banking

Financial friction is one of the most persistent challenges facing the banking sector today. As institutions grapple with increasing complexity, legacy infrastructure, and mounting regulatory obligations, operational bottlenecks are becoming costlier and more entrenched. At the same time, customers and stakeholders expect faster, more intuitive financial experiences.  

To navigate this evolving landscape, banks must not only adapt – they must transform. Artificial Intelligence (AI) offers a decisive advantage: the ability to turn friction into flow, data into insight, and regulation into strategic clarity. By embedding AI deeply into banking operations, financial institutions can enhance efficiency, reduce risk, and deliver on the promise of truly intelligent financial services. 

Friction in financial services 

Traditionally, banking has relied on manual processes and siloed systems that were adequate for a less complex financial landscape.  While these approaches were manageable in a slower-moving environment, today’s interconnected and digitised economy exposes their limitations. From fragmented customer onboarding journeys to time-consuming compliance checks, these inefficiencies are more than just operational headaches – they’re growth inhibitors. 

Our recent study, The Harmony Gap: Finding the Financial Upside in Uncertainty 1, reveals that poor alignment across departments costs UK businesses an average of £70 million per year. Unfortunately, it is not only alignment across departments that creates friction. Processes and procedures, for instance those in risk management and compliance, can often act as bottlenecks, slowing down operations, increasing costs and reducing productivity and customer satisfaction.  

Banks are often faced with challenges linked to complex legacy procedures, overlapping processes and a lack of automation. These issues not only create friction but also limit a bank’s ability to innovate or scale at speed. There’s now an urgent need for innovative approaches to handle the increasing demands on banks, and by harnessing AI’s transformative power, banks can ultimately create harmonised processes to overcome friction.  

AI as a strategic lever 

AI has emerged as a powerful antidote to this inertia. Its applications in banking are no longer limited to experimental proofs-of-concept – they are mission-critical tools that enhance decision-making, accelerate workflows, and reduce risk. 

In particular, AI-driven automation has the potential to transform back-office functions. Transaction reconciliation, credit scoring, and fraud detection can now be handled in real time, with dramatically higher accuracy than traditional methods. This frees up human talent to focus on strategic tasks that require judgment and creativity. 

Compliance, one of the most resource-heavy areas in banking, stands to gain significantly from AI adoption. AI-powered RegTech solutions can automate surveillance, monitor transactions for unusual behaviour, and generate real-time compliance reports. These tools are not just cost-saving; they’re essential in a landscape where regulatory requirements are evolving faster than ever.  

Our data shows that 80% of executives who have invested in AI report improved fraud detection and risk management capabilities. Additionally, AI enables hyper-personalisation – tailoring product recommendations, financial advice, and support based on real-time behavioural and transactional data. These capabilities don’t just reduce friction; they redefine customer engagement. 

The ripple effect: intended and unexpected consequences 

The benefits of AI often extend beyond its original scope. While most firms begin with use cases like fraud detection or process automation, many experience broader organisational transformation as a result. 

According to our study, 72% of businesses report enhanced employee engagement following AI implementation – likely driven by the removal of repetitive tasks and the upskilling of staff into more strategic roles. Other firms report faster product development cycles, improved cross-department collaboration, and stronger alignment between compliance and technology functions. 

These second-order effects matter. They point to AI’s role not just as a tool, but as a catalyst for cultural change within the organisation. When implemented thoughtfully, AI encourages agility, experimentation, and a greater focus on customer-centricity 

Overcoming barriers to adoption 

Overcoming these requires a multi-faceted approach. First, leadership must view AI as a strategic investment, not a one-off technology project. Executive sponsorship and a clear business case are essential. Secondly, firms must prioritise use cases that offer quick wins and measurable ROI, building internal confidence and momentum.  

Equally important is a commitment to workforce transformation. AI implementation often fails not because of technology limitations, but due to lack of training, change management, and stakeholder engagement. Empowering employees with the skills to work alongside AI systems is crucial.  

What’s next? The AI-powered future of finance  

We are entering a new era of AI-enabled banking—one defined by real-time decisioning, intelligent automation, and proactive risk mitigation. As AI becomes embedded across the financial value chain, we can expect: 

• Faster, safer money movement through intelligent payment orchestration 

• Proactive compliance that predicts and prevents regulatory breaches 

• Personalised financial experiences that deepen customer loyalty 

• Holistic risk management powered by real-time analytics and predictive models

But realising this vision will require more than technology. It will require a shift in mindset: from viewing compliance and operations as cost centres to seeing them as platforms for innovation. It will demand stronger collaboration between data scientists, compliance officers, engineers, and business leaders. And above all, it will call for a renewed focus on long-term value – where trust, transparency, and resilience are as important as profitability. 

In short, AI is not just another tool in the banking toolkit. It is a foundational capability – one that will define the winners and laggards in the next generation of financial services. For those prepared to lead with intelligence, the path from friction to flow has never been clearer.