by Andrea Laura on February 17, 2021
Collected at: https://datafloq.com/read/6-ways-ai-transforming-finance-industry/12516
Technology has been at the helm of evolution of mostly all businesses and industries the world over. And, the finance industry is no different!
Rather, Fintech (Finance + Technology) has opened up a plethora of options for the financial firms to understand their customers and devise products as per what they want and expect from the industry. Artificial Intelligence has been at the forefront of this evolution.
The ever increasing banking apps with their easy accessibility, banking websites providing ease of internet banking, insurance companies offering customized products, online platforms providing financial services at low service costs; are few widely used examples of this evolving business space.
Scope of Artificial Intelligence in managing Finances
The sector has been witnessing unprecedented growth in terms of sales as well as investments. The global Fintech market was valued at $111,240.5 million in 2019 and is expected to grow at a CAGR of 9.2% to nearly $158,014.3 million by 2023. As per a Statista report, the value of an investment in Fintech companies amounted to approximately 136 billion US dollars in 2019. Let us now analyze the reasons behind this record-breaking growth:
1. Automation
Since technology and its empowered tools have been part of our lives, humans have tried to develop gadgets that will be able to think and decide like human minds and do stuff autonomously. This exactly is what Artificial Intelligence aims to achieve.
For Instance: All Indian Citizens are touted to have their own personal CIBIL (Credit Information Bureau (India) Limited ) score which in fact is a 3-digit numeric summary of a consumer’s credit history and a reflection of the person’s credit profile. It is on this score that individuals further receive loans, bank investment offers, etc. But do you think that this score is calculated by individuals sitting within the organization? No, my dear! It is again an Artificial Intelligence based algorithm and software tool that crunches requisite data to provide exact solutions in terms of numbers.
The time of individuals standing in queues in banks, post offices, etc. for investments of their funds have long passed. Now, they simply need to open up the requisite website or mobile app and get the job done instantly. Be it a car loan or a car insurance, everything can be sorted through autonomous fintech platforms. AI has generally taken over all the mundane and repetitive tasks of the industry including filing and analyzing credit, loans and cards applications, etc. This helps to significantly reduce user acquisition costs and customer onboarding time, leading to better customer experience and the hired professionals too can make better use of their time, sorting out higher-end issues, that still seems to require human intervention.
2. Security
The rise and rise of fintech has been one of the reasons for the surge in the numbers of fraudsters out there who are always on a lookout for some user vulnerabilities to dupe them by stealing money from their financial accounts. Hacking of user cards, bank accounts, etc. are examples of this growing menace. These security issues can also escalate a business’s app maintenance cost in the long run . The good part is that the solution to these issues too lies with technology. As Artificial Intelligence based algorithms can train software to analyze user data, it can also be utilized to zero in on spurious activities, suspicious transactions and fraud-centric patterns. This enables faster detection of irregularities, leading to the concerned IT teams and professionals to take instant actions.
There also has been an evolution of technologies like Blockchain (under the purview of AI) that enables transactions (be it data or funds!) in a very secured manner on a real-time basis.
3. Evolution of Products and Services
Artificial Intelligence basically is the underlying technology of making hardware and software ‘smart’. So, when mobile apps, websites, data platforms, surveys, etc. collect and store eons of data in the form of Big Data (a technology under the purview of AI) and then analyze them with AI algorithms; it helps businesses to understand user requirements and expectations. As financial assets like investment funds, etc are directly based upon user choices and discretion for success; the collected data and its analysis helps financial institutions to build these products. For instance: When financial institutions gained data about the growth of user trust in ‘gold’ as an asset; it led to the development of various gold-investments related products.
Basically, cognitive technology and Artificial Intelligence has been boosting the overall digital presence of banks as well as assisting them to remain competitive and viable in this era of never-ending competition.
4. Chatbots for CRM
The pandemic era has made us all well aware of the limitations of humans and their availability in challenging times. With less manpower at hand, businesses the world over saw the inclusion of AI-based chatbots in various industries (in mostly all websites and apps!) and financial app developers were no different. With zero lapse time and instant resolution of user issues, they have been helping financial firms stay abreast of the CRM(Customer relationship management) ballgame, with or without customer support executives. In fact, chatbots that are becoming smarter by the day and they seem to multiply user experience and customer satisfaction manifolds.
5. Trading
Markets and financial firms just do not work on current investor sentiments and inclinations. In fact, future trends and analysis are of utmost importance to these companies that tend to trade on different market aspects and gain from their volatilities. Artificial Intelligence helps these financial firms to ensure returns to a certain degree in wake of market patterns and company graphs that they analyze with years of data. These software tools can also be utilized by Governments for more effective policy-making.
6. Mitigating Risks
We are all well aware that all financial decisions, both for the financial firms as well as users involve risks. But, as AI tends to crunch scores of data patterns and overall digital footprints of consumers, they can help in significantly reducing these risks, especially for financial firms. For instance, when a user applies for a loan or a credit card; these algorithms can track their previous records to analyze if the risk is worth to be taken or not. Moreover, there are now AI-based startups like ‘Wallet’ that analyze user patterns and advise them on investments that would help reduce their overall financial risks and increase returns.
Ai Is The New Backbone Of Financial Decisions
The debate of inclusion or exclusion of AI in finance is long over (though AI’s inclusion had many critics!). The technology has transformed the industry into a well-oiled machine that feeds on insightful data and its analysis and trustworthy patterns. It is here to stay and its evolving usage stated in the above pointers is ample proof.