Ethical AI for Personalized Banking: Addressing Bias and Fairness Challenges

Introduction: The integration of Artificial Intelligence (AI) into personalized banking has enhanced service delivery in areas such as loan processing, credit assessment, and fraud detection. Despite these advancements, ethical concerns, especially algorithmic bias and lack of fairness, pose significant challenges. This study addresses the need for equitable AI systems that promote transparency, fairness, and regulatory compliance in the banking sector. Objective: This study aims to develop and implement a comprehensive framework for integrating ethical principles into AI-driven banking systems, with a focus on mitigating algorithmic bias, enhancing fairness, and improving transparency in personalized banking services. Methods: A comprehensive methodology is proposed that integrates bias-aware data collection, fairness-constrained machine-learning models, and explainable AI (XAI) techniques. Tools such as Shapley Additive Explanations (SHAPs) and Local Interpretable Model-Agnostic Explanations (LIMEs) are applied to interpret model outputs. Adversarial debiasing and fairness-aware learning algorithms were employed to identify and mitigate systemic biases in financial data. Alternative data sources, including utility and rental payment histories, were incorporated to enhance inclusivity. Results: The implementation of the proposed framework demonstrates improved fairness in decision-making without significantly compromising model accuracy. Bias metrics show measurable reductions in disparate impacts across the demographic groups. Explainability tools enhance transparency, enabling a more transparent communication of AI decisions to both users and regulators. Conclusions: Embedding ethical principles into AI-driven banking systems is critical to ensuring fairness, regulatory alignment, and public trust. The structured framework presented in this study supports the development of responsible AI systems to mitigate bias, enhance explainability, and foster financial inclusion. This approach serves as the foundation for building equitable and accountable AI applications in modern banking.