INTEGRATION OF ARTIFICIAL INTELLIGENCE IN RETAIL BANKING IN CYPRUS: A SEM ANALYSIS

Doros Dorotheou

Artificial Intelligence, Customer Experience, Data Privacy, Operational Transformation, Workforce Readiness

Artificial Intelligence (AI) is reshaping the banking industry worldwide, yet its integration in smaller markets like Cyprus remains under-studied. This research examines how key organizational factors like Workforce Readiness, Trust & Data Privacy, and Operational Transformation impact AI-driven Customer Experience in the Cypriot retail banking sector. Drawing on a survey of 500 banking professionals, we employ Structural Equation Modeling (SEM) to test a conceptual model linking these constructs. Confirmatory Factor Analysis indicates a robust measurement model with all standardized factor loadings above 0.70, composite reliabilities above 0.85, and average variance extracted (AVE) above 0.58 for each construct. The structural model exhibits good fit (CFI ≈ 0.95, RMSEA ≈ 0.05) and explains substantial variance in Operational Transformation (R² ≈ 0.77) and Customer Experience (R² ≈ 0.74). Results reveal that Workforce Readiness and Trust & Data Privacy significantly drive Operational Transformation (β = 0.58*** and 0.54***, respectively), which in turn is the strongest predictor of AI-Driven Customer Experience (β = 0.67***). Workforce Readiness also shows a positive direct effect on Customer Experience (β = 0.25***), whereas Trust & Data Privacy exerts only an indirect influence via Operational Transformation. These findings highlight the critical role of an AI-ready workforce and robust data privacy/trust frameworks in achieving the full benefits of AI for customer service. The study contributes to the literature by integrating internal readiness and transformation factors with external customer outcomes in the context of AI adoption. We discuss implications for bank management and policymakers, including the need for upskilling staff, fostering a trust-centric data culture, and aligning AI initiatives with strategic operational changes.

https://doi.org/10.31871/IJNTR.11.11.15