AI IN FINANCIAL SERVICES: AN OVERVIEW
AI and machine learning could transform the way we manage money, banking, and other financial processes. Offering opportunities in everything from fraud detection to chatbot self-service, AI has emerged as a powerful tool for today’s innovators. Around 80% of banking professionals say they’re already aware of the potential benefits presented by AI.
More financial institutions will be making the decision to adopt AI now, thanks to issues like COVID-19 accelerating the digital transformation of the landscape. In an environment defined by technological advancement, increased user acceptance, and shifting regulatory frameworks, banks can use AI to streamline tedious processes and improve customer experience.
According to experts, the global market for AI in banking will be worth around $130 billion by 2027, featuring a CAGR of 42.9% for the forecast period.
The Future of AI in Finance
Finance is one of the many sectors rapidly adopting AI as a tool for innovation and growth. Financial services groups are already adopting artificial intelligence bots and services to deliver self-service solutions to customers through apps and widgets. Business leaders are implementing AI as a tool for fraud prevention and security too, using AI algorithms to track biometric elements in a password.
In trading and investment, data-driven strategies delivered by AI are becoming steadily more valuable. Intelligent trading systems monitor unstructured and structured data in a fraction of the time it would take for people to process the same data. AI also provides better predictions for the stock market and opens the door for better analysis of entire ecosystems at speed. Some of the major trends in financial AI include:
AI in Personal Banking
Consumers are growing increasingly impatient for financial independence. People need to be able to manage their own financial environments and health in a single, intuitive space. This is driving the rise of personalized banking experiences and apps delivered by financial leaders.
In the personal banking sector, AI is also powering the smart assistants and chatbots that provide clients with access to comprehensive self-service strategies for dealing with monetary issues, while reducing call center workload. Voice controlled virtual assistants powered by smart tech like Amazon Alexa are gaining traction fast, and a number of personalized financial advice apps are using similar technology in helping consumers to overcome debt issues fast.
AI in credit management
AI provides an accurate and faster solution for assessing a potential borrower’s creditworthiness, often at lower costs for providers. An AI algorithm can be equipped with tools to account for a wider variety of factors, leading to better informed, more data-backed decisions. Credit scoring provided by AI is also based on more sophisticated and complex rules compared to those used in traditional credit scoring environments.
AI can help lenders to distinguish between people with a high level of risk, and those with limited credit history. AI can also provide a higher level of objectivity when determining where credit should be issued. Even automobile companies have shown 23% reductions in losses with AI assistance.
AI and fraud prevention
Perhaps one of the most important uses of AI in the financial environment is in the management of fraud and risk. For a number of years, AI has been growing increasingly effective at battling financial fraud, detecting suspicious behavior, and tracking biometric details to reduce the risk of theft and other crimes. Fraud detection systems can now analyze client behavior on a deeper level, looking at things like buying habits and location to determine whether a transaction is genuine.
Banks also use artificial intelligence to prevent other kinds of financial crime, like money laundering. Machines can easily recognize suspicious activity and help to cut the costs associated with investigating money laundering schemes. One report showed a 20% reduction in workload when using AI.
AI in Corporate Finance
AI is also increasingly helpful in corporate finance, as it can help with predicting and assessing all kinds of risks for companies. Businesses looking to increase their value or improve cash flow can tap into AI and machine learning products to check for opportunities where growth may be available. AI can also reduce financial crime through advanced fraud detection strategies when dealing with all kinds of different customers.
In risk management, AI provides companies with access to huge amounts of processing power and information, with cognitive computing to manage both unstructured and structured data with speed. The same kind of task would take much longer for humans to process.
AI and automation in finance
Industry leaders in the banking and financial sector are also looking into robotic process automation to reduce operational costs and improve productivity. Intelligent character recognition allows for the automation of various time-consuming tasks that would otherwise take thousands of hours. Artificial intelligence software can verify data, develop reports, and accomplish a huge range of tasks.
According to Ernst & Young, they saw a 50 to 70% reduction in repetitive tasks prone to human error when implementing automation. Leading financial firms like JP Morgan Chase are already using Robotic Process Automation to perform tasks like extracting data, complying with regulations, and capturing document information.
Fintech and AI in Financial Services
Fintech is another area worth considering when looking at the future of AI in financial and banking environments. Between an increase in tech-savvy startup companies and an increasing demand for digital offerings from consumers, Fintech solutions are quickly becoming more common. AI will be a powerful tool for the Fintech innovators of the future, who will be unlocking more immersive, personalized and secure digital channels of banking for modern customers.
Around 78% of customers in the millennial landscape say they would never go to a banking branch if possible, meaning that Fintech companies are under more pressure to deliver secure self-service solutions. The demand for Fintech offerings also increased significantly during the pandemic, following stay-at-home orders and reduced operation among bank locations.
There’s no doubt Fintech will continue to be a point of significant investment and growth for the banking and financial sectors going ahead.