A digital marathon that began with the introduction of the internet and has brought businesses through numerous phases of digitalization has now reached the Artificial Intelligence (AI) phase in the Financial Services Industry.
The advent of AI is shaking up the industry’s fundamentals, fracturing the existing financial system’s pillars, and making way for fresh ideas and novel business models. AI in fintech had a market value of $7.91 billion in 2020 and is expected to reach $26.67 billion by 2026.
Artificial intelligence, or AI, is a subfield of computer science focused on building robots with the same level of intelligence as humans. These robots can learn new skills on their own, as well as sort, analyze, and draw conclusions from large amounts of data. As a result, it has rapidly become an integral aspect of BFSI Industry technology, impacting the provision of both goods and services.
Why Do Financial Institutions Need AI?
The banking business is one that is seeing a dramatic improvement in quality as a result of AI. It has not only improved data management and customer service, but has also streamlined, accelerated, and reimagined more conventional procedures to boost productivity.
Artificial intelligence and other technologies have made data the most important asset for every financial services company. Banks now realize that asset size, although still significant, will not be sufficient on its own to develop a successful company, thanks to the creative and cost-efficient solutions AI brings.
Statistics show that 61 percent of workers say that their adoption of AI within the workplace has led to a boost in productivity. Instead, the success of BFSI firms is increasingly gauged by their data-driven capacity to innovate and personalize their goods and services.
What forces are causing AI to cause an uproar in the banking industry?
- The Big Data Phenomenon
Due to clients’ shifting priorities, the banking sector has been profoundly affected by the big data market’s meteoric rise. Customers now have digital interactions with their banks, and businesses collect vast amounts of unstructured data like emails, text and voice messages, images, and videos through customer service, social media platforms, and other means of data collection.
With the use of big data, financial institutions can now provide customers with tailored solutions. A customer’s fundamental information, transaction history, and social media activities are all part of the big picture that banks are evaluating to make decisions.
Thanks to the proliferation of cloud computing and the wide availability of computational resources and infrastructure, massive data sets may be processed rapidly at reduced prices and with increased scalability. This implies that today, more than ever, businesses are prepared to utilize AI.
- Legal prerequisites
In order to fulfill their regulatory responsibilities, banks are under intense scrutiny from regulators who demand fast and accurate reporting. In order to ensure regulatory compliance, it is necessary to gather information from many systems.
By automating data gathering procedures, increasing the speed and quality of decisions, and bolstering the organization’s ability to fulfill regulatory compliance needs, AI-driven solutions provide the potential to solve some of the difficulties in today’s financial systems.
As AI technology improves, it will have a profound impact on both the customer-facing and administrative functions of financial institutions. Long-standing rules will need updating, and the existing structure of global financial markets will need a complete overhaul to accommodate the growth of AI.
This change presents a chance for compliance departments to make long-term investments in cutting-edge technology that will make institutions more prepared for the future.
Banks have always been in competition with one another and, more lately, with FinTechs to provide the finest products and services to their customers. As more and more businesses use state-of-the-art tools to mine the mountains of data at their disposal, technological innovation has emerged as a key differentiator in the industry.
The latest artificial intelligence statistics show that in 2019, 62 percent of consumers said they were willing to use AI to improve their experience. Therefore, banks are using AI to improve existing services, provide new services to the market, and deliver a more customized experience for their clientele for web hosting and PHP hosting.
To properly capitalize on the benefits given by AI, the aforementioned elements are always developing and delivering new values and possibilities to enterprises. The business, financial services, and insurance industry is well-positioned to benefit from this change and move forward on its digital transformation path.
- Predicting Abnormalities and Data Security
More than ever before in this era of digital transformation, data is crucial to the success of the financial services sector. As we enter a new era of artificial intelligence (AI), data will become even more crucial.
Because AI can detect and prevent fraud and other financial crimes, it is becoming more important in this area. Artificial intelligence may be used to track sales and client activity in real time, for instance. This data may then be utilized to swiftly spot and alert authorities to any suspicious behavior.
Artificial intelligence may also be used to confirm a customer’s identity and stop fraudulent transactions. AI can accurately verify clients by leveraging biometric data such as fingerprints or iris scans.
Finally, AI may be used to prevent and uncover fraud in its earliest stages. Artificial intelligence can learn to spot red flags suggestive of fraud by poring through past data. This paves the way for banks to prevent fraud from occurring in the first place by taking preventative actions.
- Effortless Cooperation With Clients
Customers’ needs must be prioritized at all times in the financial services business. Artificial intelligence (AI) also enables businesses to provide streamlined, cutting-edge support for their clients. Chatbots powered by AI might revolutionize customer service in the banking sector.
Anytime, everywhere, customers can have their questions answered with little effort. By doing so, financial institutions may continue to provide outstanding customer service while reallocating manpower to more demanding responsibilities.
Human mistakes in customer service encounters may be mitigated with the use of AI technology. Chatbots, for instance, may improve their comprehension of user questions and their replies via the use of natural language processing (NLP).
In addition, AI can assist financial institutions in providing consumers with enhanced, individualized service. Machine learning algorithms allow businesses to analyze client information and provide individualized recommendations for goods and services.
- Bringing Down Running Costs
The paperwork is a problem that the banking sector will have to face in the future. The employees of a bank face a mountain of paperwork every day. Such labor-intensive routines elevate the possibility of human error and may drive up operational costs.
This problem can be solved by using AI. It eliminates the need for these time-consuming human processes. According to the latest artificial intelligence facts and statistics, 54 percent of firms using AI reported seeing cost savings and efficiencies
Machine learning (ML), automation tools, and artificial intelligence (AI) assistants might be used by financial institutions to replace human labor in a variety of ways. In addition to reducing operating expenses and generating new income, artificial intelligence is crucial for banks to broaden their present area of activity.
- Risk Assessment
The financial services sector is ideal for the development of AI because of how important it is to keep accurate records and draw conclusions based on them.
In order to instil a sense of trust in the lending institution, AI may be used to track a customer’s loan payback history and use that data to personalize the service. Scanning these records gives AI the capacity to provide the best loan and credit products since banking is data driven and data dependent.
Artificial intelligence (AI) is based on machine learning, which improves over time to reduce the likelihood of making mistakes while analyzing massive amounts of data. Automating tasks that formerly required human intelligence, analysis, and clarity has become much more commonplace thanks to AI.
In the field of “Know Your Customer” (KYC), for example, AI has shown capable of screening massive volumes of information and creating connections between widely dispersed personal and financial data. It’s a win-win since the ensuing cost reduction is substantial.
Employing AI talent for the public good
Without the right people in place, all the regulatory innovation dreams of AI will amount to nothing. Convolutional neural network models for identifying new dangers or abnormalities that might cause widespread consumer damage need to be developed by AI engineers, and regulators should compete as strongly as Google and Amazon to attract them.
AI in finance is expected to improve employee productivity by 40%. The significance of accountability and explainability in machine learning has also been widely recognized by academic researchers.
However, the kind of development we want will not be achieved via a research paradigm; rather, it will require a government-funded mandate. The government can only start to stop playing catch-up if we do this.
Financial Institutions Using AI Technologies
Several subsets of financial services have already begun to use this game-changing technology. Here are some of the most notable applications of AI in fintech sector.
Chatbots driven by AI and equipped with NLP improve online interactions with clients around the clock. Chatbots may now do more than just respond to common client inquiries about their accounts; they can also assist with tasks like creating new accounts and routing complaints to the proper departments.
- The Detection and Prevention of Fraud
Traditional rule-based Anti-Money Laundering (AML) transaction monitoring and name screening systems have historically been depended upon by financial institutions. However, these systems have been shown to produce a large proportion of false positives.
As the number of fraud-related crimes and fraud patterns continues to rise at an alarming rate, more advanced artificial intelligence (AI) components are being added to existing systems to help detect unusual behavior in terms of transactional patterns, data anomalies, and suspicious connections between people and businesses.
The old method of detecting fraud is replaced with a more proactive one in which AI is utilized to prevent fraud before it ever occurs.
- Relationship Management With Customers
Banks must prioritize customer relationship management. In order to attract and retain consumers, financial institutions are increasingly offering convenient, custom-tailored services around the clock.
Artificial intelligence is also being used by financial institutions to study consumer behaviour in order to automatically divide clients into distinct groups for the sake of marketing and customer service.
- Analytics Prediction
The arrival of ML and AI has made it possible to make reliable predictions. Revenue projections, stock market forecasts, risk assessments, and even case management are all getting data analytics and AI treatment. As the amount of data we gather grows exponentially, we are able to fine-tune our models and reduce their need for human input.
- Managing the Risk of Credit
Financial organizations are under increasing pressure from regulators to provide more robust models and solutions for risk management. Artificial intelligence is becoming more popular in the field of credit risk management, particularly in the Fintech and Digital Banking industries.
To make better credit judgments, GPU-dedicated hosting is used to assess a borrower’s creditworthiness by using data to anticipate the likelihood of default. As a consequence, the market is shifting toward insights-driven lending rather than expert opinion, which helps financial institutions reject more high-risk consumers while rejecting fewer creditworthy people and therefore reducing credit losses.
Role of AI in regulating consumer financial protection
It’s easy for the financial sector to have too high of an expectation on artificial intelligence (AI) technologies, despite the fact that the potential of AI in the consumer financial services marketplace would benefit customers and arbitrage profits for financial institutions plying the AI trade.
Data that does not accurately reflect specific consumer groups that have been excluded from mainstream settings by a cutting-edge system raises the stakes for the long-debated topic of algorithmic bias in tech-policy circles.
In spite of the fact that modern AI algorithms are very good at complicated computational tasks, they are still a long way from accurately simulating human intellect; pattern recognition accounts for just a small portion of our natural mental capacity.
Artificial intelligence (AI) has the potential to amplify pernicious, long-standing issues including product bias, unequal access to finance, exclusionary screening, and digital redlining.
Complex human choices have given rise to a consumer financial services sector that encompasses a vast array of goods, services, and degrees of financial access. It’s naïve to think that computers can replace complex human judgments and boost consumer well-being.
Artificial intelligence (AI) has the potential to amplify pernicious, long-standing issues including product bias, unequal access to finance, exclusionary screening, and digital redlining. These methods highlight the need for considerate human agency, especially when dealing with unforeseen results and subtle marginal issues.
In the future financial market, regulators, financial institutions, and consumer advocacy parties will need to work together to provide consumers with secure solutions that protect their financial security.
Many people lost trust in banks and the government agencies that were supposed to be watching out for them during the Great Recession. If regulators don’t find new methods to collaborate with key stakeholders, consumers’ financial security will continue to be at risk.
In the information age, authorities will face a formidable challenge: providing adequate disclosure of algorithmic models. According to the AI principles succinctly outlined by Sundar Pichai, we need stringent monitoring to guarantee AI applications stay responsible to society (the people and the government) and avoid discriminatory prejudice.
Good consumer financial protection regulatory regimes will be distinguished from poor ones by their use of innovative instruments and supervision strategies. To keep up with the fast-paced changes in the financial sector, future consumer protection oversight must make use of artificial intelligence (AI) tools such as machine learning, natural language processing, computer vision predictive models, big data, and other emerging technologies.
AI and consumer complaints
Spotting increases in customer complaints is the first step in anticipating problems in the consumer finance industry. Artificial intelligence’s strengths in pattern identification may be used by regulatory systems to draw attention to unusual complaints and provide estimates of whether or not a real concern is developing.
Unsophisticated customers, such as those without access to advocates, those who are technologically impaired, and those who have basic reading challenges, may be harmed if such systems deviate from their hard-coded, feature-engineered norms.
Conversational interfaces powered by AI may be used to sift through customers’ unstructured phone calls for useful information. Integrating data from consumer complaint forums on the internet may need the use of other algorithms. The potential of big data technology, together with the growing number and breadth of customer complaints, has far-reaching consequences.
Instead of depending on the sheer number of complaints or occasional formal grievances, government institutions may be moved toward a predictive guidance model that is in sync with market trends.
Increasing the variety of sources from which government agencies get information on consumer complaints may also help bridge the communication gap between everyday people and the organizations that work to protect them.
Despite AI’s many advantages, widespread deployment inside the financial sector faces obstacles related to obtaining appropriate authorization. In a hyper-digital financial system, users must be aware of, and provide their explicit permission for, the collection, storage, and potentially invasive use of their financial transaction and personal identification data.
Artificial intelligence in the financial sector is predicated on a never-ending cycle of learning and re-learning new patterns, data, and advances. With AI, it’s possible to expand upon an already-established framework or series of monetary services and goods. This eliminates the need to begin from scratch and makes it possible to gradually enhance the services provided.
Once AI is used, the financial sector will always be competitive and up-to-date. Thus, the use of AI to finance is making significant contributions to that sector. Artificial intelligence (AI) will eventually replace humans in the finance sector.