Some people call this artificial intelligence, but the reality is this technology will enhance us. So instead of artificial intelligence, I think we will augment our intelligence. — Ginni Rometty
The goal of Artificial Intelligence (AI) for banks and other financial institutions is to increase efficiency, customize clients’ experience and reduce the overall costs. Starting since the late 80s, AI has steadily reached more activities in the finance sector. Nowadays, people are so used to benefit of computers and codes, that they sometimes do not acknowledge the great help that AI brings in ensuring a safe and progressive world. This article aims to describe how machine learning algorithms are influencing the financial markets.
Decision making and risk management
The advance of data and the opportunity to analyze this data through machine learning and neural networks, which were proved to surpass the conventional methods, strengthen every stage of the investment process. One of the most important tasks is to create more proficient investment portfolios, where the ability of computers to process huge data sets about market performance, interest rate and inflation comes to great help. By monitoring everything the company does through codes, the returns can be clearly replicated and risks are easier supervised. Actually, a recent report by the consulting firm McKinsey stated that due to the fact that AI is improving and assumes even more work, there will be a shift in the roles of workers. While today about 50% of staff is dedicated to operational processes such as credit administration and 15% focus on analytics, by 2025, the numbers would convert to 25% and 40%, respectively.
One of the most important tasks is to create more proficient investment portfolios, where the ability of computers to process huge data sets about market performance, interest rate and inflation comes to great help
The progress of e-commerce has collaterally boosted online fraud, accounting for $118 billion in losses for retailers. Moreover, the concern consists in the fact that the damage is worth 13 times the value of actual fraud, because clients lose trust in and loyalty to the firms that are struggling with it. Luckily, Artificial Intelligence could be used to detect fraudulent transactions that could be undiscovered by humans.
the concern consists in the fact that the damage is worth 13 times the value of actual fraud, because clients lose trust in and loyalty to the firms that are struggling with it
For example, banks can track any dubious transactions on your credit card. Each credit card owner has a profile in the bank’s database and when an unlikely purchase occurs, a red flag risen. To put it in perspective, if a person uses his/her credit card for grocery shopping and suddenly the lastest version of a flat-screen TV is bought, this could be a reason of concern for the credit card company. Evidently, the algorithms make this type of detection possible, by correlating the information already known about the client or even geo-locating the client.
The blockchain is defined as a live network of distributed ledgers, used to record and verify transactions and its technology relying on the simultaneous work of the computers (like cryptocurrency bitcoin). As every participant in the network has access to the ledger, the process is accurate and could be traced by anyone who has the software.
As for the finance departments, the new technology could remodel how transactions are recorded, reconciled and reported.
Even though blockchain is a new technology, whose opportunities and limitations are still being explored, according to a survey by the World Economic Forum, “the adoption of blockchain in finance is expected to happen by 2023”. As for the finance departments, the new technology could remodel how transactions are recorded, reconciled and reported. Moreover, it could raise security, offer automation, diminish error rates and significantly reduce costs.
Client advisor and chat agents
Last, but not least, AI is a wise personal assistant for financial institutions. The algorithms track clients’ spending habits and make good recommendations afterwards. Plus, chatbots are an efficient method of keeping clients satisfied and creating the feeling of being taken care of. The purpose of chatbots is to help customers navigate through products and guide them through simple operations. Most of the people would not even recognize if they were talking to a real person or to the script driven by AI.
Most of the people wouldn’t even recognize if they were talking to a real person or to the script driven by AI.
Risks and limitations
Artificial Intelligence is continuously reshaping how operations are performed in every economic field, including finance. Improvements in the machine learning algorithms are rapidly developed and people do not hesitate to embrace them. However, relying entirely on an automated system is precarious. A simple mistake in the code could lead to dangerous consequences, such as the hacked Associated Press’ Twitter account that published the false alarm about a bomb at the White House and offsetting the stock markets.
It also takes a lot of time for the machines to be installed and for staff to understand the “state-of-the-art” systems.
The main limitation persists in the high costs of implementing the smart technologies in the financial institutions’ activities, due to complex nature of AI and need for careful maintenance. It also takes a lot of time for the machines to be installed and for staff to understand the “state-of-the-art” systems.
To summarize, the importance of Artificial Intelligence is undeniable. We are moving towards more advanced technology that will increase productivity, create a more personal relationship with the customer, better model portfolios, and even a decentralized money system. However, the intellect of a person, its power to analyze and make authentic decisions are not yet taken over by Artificial Intelligence. Until that day comes, we should rely on our wisdom and take full advantage of all the opportunities that AI gives.