Achieving Transparency and Trust with Explainable AI (XAI) in Financial Services

Abstract

The swift proliferation of Artificial Intelligence (AI) in financial services has ushered a new era with respect to decision-making mechanisms across the domains including, but not limited to credit scoring, fraud detection, investment advising and risk analysis. Yet the growing complexity and non-transparency of AI models have raised issues around transparency, fairness and accountability. In this paper, we tackle the position of XAI in order to support trustful and transparent ethical verdicts within the financial world. In addition, interpretability techniques like SHAP (SHapley Additive Explanations) or counterfactual reasoning are used to increase human understanding of algorithmic results and enable compliance with regulatory requirements like the European Banking Authority (EBA) AI Governance Guidelines. The study is examining how explainability refines model auditing and bias identification while enhancing stakeholder faith, mitigating systemic risk, and driving responsible AI adoption. Results indicate that XAI narrows the chasm between algorithmic efficacy and ethical responsibility by turning black-box “black hole” systems into transparent, audit-ready, and human-centered decision forms. The study argues that embedding XAI principles will be imperative to ensure trustworthy AI governance, continuous innovation and compliance as the FinTech landscape evolves.