Artificial intelligence is a complex subject with a diverse amount of opinions. From Elon Musk claiming AI will destroy humanity, to Stephen Hawking proclaiming it humanity’s greatest invention, there’s no shortage of the world’s geniuses weighing in on the subject.
But opinions, no matter the source, are simply that. What are the straight facts of AI, and how it has improved industries using it in its current form? Perhaps no industry has better utilized AI than the financial sector, which is using AI for everything from fraud prevention, market predictions, to portfolio recommendations and beyond.
Whether or not AI will someday lead to a Skynet-type scenario for humanity, there’s no denying that it has become deeply integrated with some of the world’s most important industries. Doomsday scenarios may be fun to speculate about in sci-fi circles, but, truth be told, there are too many nuances a business owner should think about – from management to accounting, and AI, while possibly enslaving us for our own good in the medium to long-term, can improve their efficiency in many aspects today.
The positive benefits of AI are numerous, particularly for financial institutes and business owners of all sizes. Whether it’s predicting market trends, or pinpointing customer habits and boosting your email campaign effectiveness, AI gives business owners and the financial industry at large a significant edge that surpasses human capability. Enough chit-chat let’s look at the facts of how AI has changed, or rather significantly improved, the financial sector.
Assessing credit lending decisions
Artificial intelligence is much faster at providing an accurate assessment of the risks in lending to potential borrowers. Because an AI can use a more complex scoring system than traditional credit ratings, the AI is better able to distinguish between credit-worthy applications who lack a detailed credit history, from applicants who pose a high risk for defaulting on their loans.
Another factor is objectivity, or the lack of emotional bias in artificial intelligence. An AI will not be persuaded into approving a risky loan, nor will it deny loans based on appearances. The AI simply weighs the facts and aids the financial institution in making more informed lending decisions, based solely on risk factor. AI is also widely used in other financial processes, i.e. auditing, to overcome the human fallibility.
Numerous companies such as digital banks and loan institutions are using machine learning algorithms in their AI, which is useful in evaluating eligibility for loan amounts, and personalizing options. This report shows that companies who turned to AI technology were able to cut losses by 23% annually.
AI has been incredibly successful in the fight against financial fraud for a number of years and is always improving. Where AI has been most successful is preventing credit card fraud, which has risen sharply in recent years.
Credit card fraud has been rising because of e-commerce websites and online transactions. An AI-based fraud detection system is much quicker at analyzing things such as a customer’s location, buying habits, and overall online behavior. If the AI detects anything abnormal, it will trigger a security mechanism.
So, for example, many banks would already raise some questions if you live in the US but purchased $5,000 worth of audio equipment to be delivered to Russia. But they might not raise those questions fast enough. AI fraud prevention works much faster, and will put a stop to the transaction immediately, based on the surrounding factors.
AI has also been successful in recognizing and preventing money laundering. Because the AI is able to catch suspicious activity faster than humans, it also cuts the costs associated with investigating money-laundering schemes – approximately a 20% reduction in the investigate process.
Financial companies such as Goldman Sachs, American Express, and CITI boast some of the most advanced fraud-detection systems, which utilize complex algorithms.
Trading and market predictions
Also known as algorithmic, quantitative, or high-frequency trading, investments that are data-driven have been steadily rising in the past few years, and were worth nearly a trillion dollars in 2018.
AI is being used in stock markets across the world, because AI offers numerous significant benefits to the investors. For starters, ITS (Intelligent Trading Systems) can monitor numerous forms of data, whether spreadsheets and databases, or social media, much faster than any humans. Because the upper echelons of trading can depend on split-second decision making, the AI is able to process this data and make trade recommendations much faster than human traders.
The AI is also able to predict stock performance more accurately, by weighing past data and circumstances. An AI will also recommend portfolio options depending on the investor’s specific short- and long-term investment goals, and more financial institutions are beginning to trust AI in managing their entire portfolios.
Bloomberg news outlet launched Alpaca Forecast AI Prediction Matrix, which is a price-forecasting app for investors that is entirely AI-driven. It works by combining real-time market data from Bloomberg, with an advanced learning engine that will find patterns in price fluctuations, which then enables it to deliver highly accurate market predictions.
Numerous banks have introduced AI-powered chatbots, which not only reduce the strain on the bank’s call-centers but are able to provide customers with accurate information immediately. These chatbots can do routine tasks for the customer such as checking balance, scheduling payments, providing account activity, and more.
Aside from that, AI-driven banking apps are also able to offer personalized financial advice, by tracking the customer’s income, spending habits, and outgoing expenses. By using machine-learning, the AI can provide information tailored specifically to the end-user.
Several largest banks in the US, such as Bank of America, Chase, and Wells Fargo, have all launched mobile banking apps with AI capabilities. These apps can notify the user of not only upcoming bills but plan the user’s budget for them.
AI may be predicted to potentially disrupt several service industries, but there’s no doubt it has tremendous benefit on the financial industry. In fact, industry analysts estimate that AI will save the financial industry up to $1 trillion USD by 2030, no small sum indeed.
This isn’t simply top-level Wall Street companies either, as AI offers numerous benefits to SMB’s who want to harness its power as well. It’s all about researching the available technology and figuring out how AI can best apply to your business. Whether it’s virtual agents, cloud-based services, or applications, the tools are available for any business to utilize AI effectively.
This article comes to us from Ken Boyd of Accounting Institute for Success