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How Will AI Transform the Finance Industry?

DZone's Guide to

How Will AI Transform the Finance Industry?

In the financial sector, AI is going to lead to minor losses, smarter trading, and, of course, top-notch customer experience.

· AI Zone ·
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Insight for I&O leaders on deploying AIOps platforms to enhance performance monitoring today. Read the Guide.

Check out how AI has transformed the finance industry in terms of risk assessment, fraud detection and management, financial advisory services, trading, and managing finance.

1. Risk Assessment

Since the very basis of AI is learning from past data, it is natural that AI should succeed in the financial services domain, where bookkeeping and records are second nature. Let’s take the example of credit cards. Today, we use credit score as a means of deciding who is eligible for a credit card and who isn’t. However, grouping people into "haves" and "have-nots" is not always efficient for business. Instead, data about each individual’s loan repayment habits, the number of loans currently active, the number of existing credit cards, etc. can be used to customize the interest rate on a card such that it makes more sense to the financial institution that is offering the card. Now, take a minute to think about which system has the capability to go through thousands of personal financial records to come up with a solution... a learned machine, of course! This is where AI comes in. Since it is data-driven and data-dependent, scanning through these records also gives AI the ability to recommend loan and credit offerings which make historical sense.

AI and ML are taking the place of a human analyst very fast as inaccuracies which are involved in human selection may cost millions. AI is built upon machine learning, which learns over time, resulting in a smaller possibility of mistakes in analyzing vast volumes of data. AI has established automation to areas which require intelligent analytical and clear thinking. Chatbots have indeed proven themselves as a powerful tool to customer satisfaction and an unmatched resource for enterprises, helping them save a lot of time and money. Now, getting back to Facebook’s endeavors in designing and developing bots to make negotiations the way humans do, let's analyze the chances of the success of this research. This new technology will not only change the way we do business but also non-commercial activities. The example of non-commercial activities can include fixing meeting times. Bots can schedule meetings, keeping in mind the availability of everyone involved in the meeting.

2. Fraud Detection and Management

Every business aims to reduce the risk conditions that surround it. This is even true for a financial institution. The loan a bank gives you is basically someone else’s money, which is why you also get paid an interest on deposits and dividends on investments. This is also why banks and financial institutions take fraud very, very seriously. AI is on top when it comes to security and fraud identification. It can use past spending behaviors on different transaction instruments to point out odd behavior, such as using a card from another country just a few hours after it has been used elsewhere, or an attempt to withdraw a sum of money that is unusual for the account in question. Another excellent feature of fraud detection using AI is that the system has no qualms about learning. If it raises a red flag for a regular transaction and a human being corrects that, the system can learn from the experience and make even more sophisticated decisions about what can be considered fraud and what cannot.

3. Financial Advisory Services

According to a PWC report, we can look forward to more robo-advisors. As the pressure increases on financial institutions to reduce their rates of commission on individual investments, machines may do what humans don’t: work for a single down payment. Another evolving field is bionic advisory, which combines machine calculations and human insight to provide options that are much more efficient than what their individual components provide. Collaboration is key. It is not enough to look at a machine as an accessory — or, on the other end, as an insufferable know-it-all. An excellent balance and the ability to look at AI as a component in decision-making that is as important as the human viewpoint is the future of financial decision-making.

4. Trading

Investment companies have been relying on computers and data scientists to determine future patterns in the market. As a domain, trading and investments depend on the ability to predict the future accurately. Machines are great at this because they can crunch a huge amount of data in a short while. Machines can also be taught to observe patterns in past data and predict how these patterns might repeat in the future. While anomalies such as the 2008 financial crisis do exist in data, a machine can be taught to study the data to find "triggers" for these anomalies and plan for them in future forecasting, as well. What’s more, depending on individual risk appetite, AI can suggest portfolio solutions to meet each person’s demand. So a person with a high-risk appetite can count on AI for decisions on when to buy, hold, and sell stock. One with a lower-risk appetite can receive alerts for when the market is expected to fall, and can thus make a decision about whether to stay invested in the market or to move out.

5. Managing Finance

Managing finances in this well-connected and materialistic world can be a challenging task for so many of us. As we look further into the future, we can see AI helping us to manage our finances. PFM (personal financial management) is one of the recent developments on the AI-based wallet. Wallet, started by a San Francisco based startup, uses AI to builds algorithms and help consumers make smart decisions about their money when they are spending it. The idea behind the wallet is very simple. It accumulates all the data from your web footprint and creates your spending graph. Advocates of privacy breaching on the internet may find it offensive, but maybe be this is what lies in future. Thus, it has to be the preferred personal financial management in order to save time from making lengthy spreadsheets or writing on a piece of paper. From small-scale to large-scale investments, AI commits to be the watchdog of the future for managing finances.

Without a speck of doubt, AI is the future for the finance industry. Since the speed at which it is making progressive steps toward making financial processes easier for customers, it is very soon going to replace humans and provide faster and much more efficient solutions. Bots are gradually evolving as innovations are being in the AI sector. Massive investments are being made by firms who are seeing this as a long-term cost-cutting investment. It helps companies save money when hiring humans and also helps avoid human errors in this process.

Though it is still in its nascent stage, with the speed at which it is progressing to evolve the finance sector, it can be well expected that the prospects are going to lead to minor losses, smarter trading, and, of course, top-notch customer experience.

TrueSight is an AIOps platform, powered by machine learning and analytics, that elevates IT operations to address multi-cloud complexity and the speed of digital transformation.

Topics:
ai ,machine learning ,robots ,financial ,fraud detection

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