As we know, global technology has evolved over the years as the world has transitioned from the television to the internet, and, in today’s context, we are gradually and smoothly adopting artificial intelligence. The term ‘artificial intelligence’ was first coined in 1956 by John Mc Carthy. AI has become highly popular in enterprises today as companies are dealing with massive amounts of data. Companies use AI processes to efficiently identify data patterns to gain valuable insights and cater rightly to their target audience.
A perfect example of AI changing even the business landscape, even in the traditionally conservative areas, is the rising popularity of AI in the financial services sector. In this article, we will understand the various aspects in which AI is used in the financial services sphere. But before that, we will understand what AI means.
Understanding the term ‘Artificial Intelligence’
Artificial intelligence deals with using computers to understand human intelligence, and it is the science and of making intelligent machines, especially intelligent computer programs. It refers to adding human capabilities into machines. AI initiates problem-solving, common sense, and analytical reasoning power in machines. Put simply, AI involves making computer programs that imitate human behavior.
How AI Transforms the Finance Industry
Let us now understand the various ways in which AI transforms the finance sector.
1. Fraud Detection and Management
Any business will only want to minimize the risk conditions surrounding it. This holds true for financial institutions also. Financial institutions take fraud very seriously as the loan a bank gives you is someone else’s money. AI helps in fraud detection as it uses past spending behaviors for pointing out odd behavior such as using a card from another country hours after it was used somewhere else or attempting to withdraw an unusual sum of money. An excellent feature of fraud detection using AI is that the system does not have any qualms about learning. If a red flag is raised for a regular transaction and a human being corrects it, the system can learn from experience and make sophisticated decisions.
Investment companies rely on data scientists and computers to determine future patterns in the market. Trading and investments depend greatly on the ability to predict the future accurately. Machines are great at this as they can crunch large amounts of data within a short time. Machines can also predict and observe patterns in past data. AI can be used to suggest portfolio solutions for fulfilling each person’s demand. So, one can even count on AI for decisions such as buying, holding, and selling stocks. Those with lower risk appetite can use AI to receive alerts for when the market is expected to fall so that they can make a decision about staying in the market or moving out.
3. Risk Assessment
AI will certainly succeed in the financial services sector as the very basis of AI is learning from past data. Let us consider the example of credit cards for a better understanding. Today, the credit score is used to decide who is eligible for a credit card and who is not. But grouping people into haves and have-nots is not good for any business. Instead, using data such as the number of loans that are currently active, each individual’s loan repayment habits, and the number of existing credit cards can be analyzed to customize the interest rate on a card. This is where AI comes into the picture. As AI is data-driven, it can scan through these records to make recommendations on loans and credit offerings.
4. Managing Finances
Managing finances in today’s materialistic and well-connected world is a challenging task for many. One most recent development in the AI-based wallet is personal financial management (PFM). The wallet that has been developed by a startup based in San Francisco uses AI to build algorithms to aid consumers in making smart decisions while spending their money. The wallet creates a spending graph by accumulating the data from your web footprint.
As AI is built upon machine learning, it learns over time, analyzes vast volumes of data, and offers fewer possibilities for mistakes. Though advocates of privacy breaches on the internet may find it offensive, this is what the future awaits. AI proves to be extremely useful in managing finances for both small-scale and large-scale investments.
AI is undoubtedly the future of the financial services industry. It will soon replace humans and provide faster and efficient solutions. In today’s technology-driven era, firms are making massive investments as they view AI as a long-term cost-cutting investment. AI will help businesses save money and reduce human errors. As per a report by Forbes, more than 65% of senior financial management expects positive results from using AI in the financial services industry.