How AI is Transforming the Financial Services Industry

AI and Financial Services – The Transformation

The financial services industry has seen wave after wave of digital evolution in recent times. It doesn’t seem long ago when the heaps of files on the banker’s desk were replaced by a desktop computer. Soon you were busy setting up netbanking profiles and no longer queuing up in branches for money transfers. More recently, financial services became available on mobile applications, inspiring the financial services industry to build on that.

Artificial intelligence (AI) has already taken the baby steps into the financial industry and is poised to make giant strides to transform the industry. Here is a look at the areas where AI is beginning to have a huge impact.

Improving Credit and Disbursem*nt Decisions

AI is seen as a more accurate and reliable tool for credit scoring in the financial industry. Credit decisions are based on facts and evidence, whereas AI can add inferences to the mix. This will help lenders to sift and analyse the borrowers and applicants. It will help them to identify bankable applicants with little credit record among the borrowers with high default risks. AI can accumulate data faster and in large volumes, and at a lower cost. Objective and well-calculated credit decisions can be expected through the use of Machine Learning (ML) algorithms that can tap into various data sources to estimate loan eligibility.

Managing Risks and Preventing Fraud

Digital transformation also means that a new breed of offenders is trying to make malicious inroads into the systems. AI and ML capabilities are being deployed to battle financial risks and fraud. These capabilities allow systems to analyse user behaviour, patterns, locations, etc. to identify security red flags. AI and ML-based models process historical data that includes both legitimate and fraudulent transactions.

These models get introduced to examples of fraudulent patterns that make them more battle-ready and agile. With this, any transaction out of the ordinary or breaking a pattern can get immediately highlighted, thanks to cutting-edge AI tools. Installation of these technologies will also reduce the investigative workload in the banking and financial services industry.

Compared to legacy software, AI tools are processing larger amounts of data faster and more accurately. Findings and deliverables of these tools include fraudulent customer activities, faster payment authentication, real-time anomalies in transactions, suspicious app usage and payment methods, etc.

Personalised Experience in Financial Services

AI is helping financial service providers to understand their customers better and offer a more personalised experience. AI uses transactional data and data from other sources to draw patterns in customer behaviour and preferences. As a result, customers are getting more relevant insights, which is also resulting in better branding and product awareness.

AI-driven chatbots are transforming the way financial service providers address customer concerns and queries. It is reducing workload, gathering customer pain points and offering better solutions to the customers. With customer interactions used as data, service providers are getting better insights into the pain points, and resolving them proactively and efficiently. This is also improving the in-person interaction with customers.

Empowering Robotic Process Automation

Robotic process automation is being adopted by organisations across all industries. As a part of it, AI-enabled software is used to verify data, compile reports and gather meaningful information. This is aiding robotic process automation, as AI-driven tools are carrying out high-frequency and high-volume tasks. Organisations are getting faster results and without the risk of human error.

With AI taking over processes, many activities like inter-company transactions, treasury accounting, reconciliations, etc. are getting automated. Another advantage of this is that organisations are getting access to crucial information. For instance, companies that are using AI tools for these activities can have a more reliable cash forecast in place.

Driving Changes in Trading Activities

Avid traders may have heard about or even used algo trading. Algorithmic, quantitative or high-frequency trading predicts stock performance based on historical patterns and executes trade transactions based on the investor’s objectives. Powered by AI, these trading software and tools use the data from financial markets and quickly execute the trades at very precise moments. It is devoid of the emotional side, which is omnipresent in our day-to-day trading. Thanks to these advanced AI-driven tools trades are executed in a highly efficient manner. It has the potential to reduce trading costs significantly and place multiple orders simultaneously.

AI tools are also capable of understanding the short and long-term goals of the investor and designing portfolio recommendations based on such understanding. The future may see more and more financial institutions offering AI-enabled portfolio management services to their clients.

AI Expectations of Financial Services

In the days ahead, AI is expected to increase transactional efficiency in financial services. It will also improve account security by detecting and eliminating frauds more effectively. The reduction in human effort and speed can see AI reducing operational costs and transaction fees as well. With the increased use of digital assistants and apps, cognitive computing will be further perfected. This will lead to superior customer experience while simplifying the management of customer accounts and personal finances.

The benefits and influence of AI in financial services are hard to ignore. Expect it to be a part of your everyday financial activities in the coming years.