IMPACT OF INNOVATIVE FINANCIAL SERVICES ON BANKS’ MARKET SHARE: THE ROLE OF ARTIFICIAL INTELLIGENCE

Abstract

The increasing reliance on technology in the financial sector has paved the way for innovative financial processes that enhance operational efficiency and market competitiveness. This study examines the role of artificial intelligence (AI) in moderating the relationship between innovative financial processes and the market share of banks in Pakistan. The research employs structural equation modeling (SEM) to analyze data collected from 307 respondents across various branches of UBL, the most innovative retail bank in Pakistan. The study identifies key components of the innovative financial process, including internet banking, mobile banking, telephone banking, ATMs, and point-of-sale (POS) terminals, and assesses their impact on the bank’s market share. The findings reveal a significant positive association between the adoption of innovative financial processes and an increase in market share. Banks that effectively implement digital banking solutions experience enhanced customer retention, cost efficiency, and expanded service reach, resulting in greater market competitiveness. However, the study finds that AI does not significantly moderate this relationship. While AI-driven technologies such as chatbots, automated decision-making, and machine learning algorithms contribute to service efficiency, their role in directly influencing market share remains limited in the context of Pakistan’s banking sector. The findings suggest that the lack of significant moderation by AI could be attributed to limited AI adoption, customer resistance, and insufficient technical infrastructure within the banking industry. The study has important implications for banking policymakers and decision-makers in Pakistan.