How AI is Changing the Financial Services Industry
While the focus has historically been on fintech but artificial intelligence (AI) may well be the future of the financial services industry. The Global Head of the Artificial Intelligence Practice at Sapient recently noted that an increasing number of financial service companies are not only relying on AI minimize risk, but they are also deploying the technology in front office operations as well.
This can be as simple as the use of chatbots relying on low-level AI to interface with customers to “robo-advisors” which help clients chose the best investment opportunities. Some banks are also taking the technology further by merging it with data sets to help develop and manage the algorithms used for trading.
Granted, this application is relatively new, but it does indicate the push to automate more and more functions in finance. With that in mind, here are some of the ways AI is changing the financial services industry.
This is probably the first area where AI was deployed in banks and insurance companies as leaders were looking for ways to increase the effectiveness of their KYC (Know Your Customer) and AML (Anti-Money Laundering) controls while reducing transaction costs.
The introduction of AI has transformed complianceas it has helped to increase their oversight of suspicious transactions and has even automated the reporting to government agencies. The latter has become increasingly important as governments seek to crack down on tax evaders.
But the use of technology does not end there as an increasing number of banks and financial services companies are also deploying the technology to assist in their origination processes. In some ways, it could be as simple as scanning applications to highlight discrepancies, or in the case of insurance companies where AI is being used to aid in actuarial decisions.
As mentioned, AI is not only being used to bolster back-office operations. In the case of the Royal Bank of Scotland, the technology is used to support customer service agents by providing seamless interactions whether they be online, over the phone, or in a branch location.
This is especially true in the bank’s private wealth management division where the tool is used to identify which customers might be willing to take advantage of value-added services. According to industry observers, this will transform the role of financial advisors by giving them added insight into the needs of the customers rather than focusing on which products offer the highest commission.
While algorithmic training has been around for years, the introduction of machine learning into the process of creating and maintaining these algorithms represents the frontier of this highly competitive arena. This is especially true as the big banks and hedge funds try to eke out a competitive advantage.
Why is AI being used in this area? The answer is simple, trading depends on the ability to predict what might happen in the future. As such, traders must be able to process vast amounts of information in order to determine what is the best trade. In many ways, machines are better than humans at processing this data and while few banks are letting machines conduct trades solely on their own, more and more are using them to develop and test the algorithms used execute buy and sell orders.
Similar to trading, processing loan applications require the ability to process information and assess risk. While the stakes might be slightly different depending on the size of the loan, banks are increasingly seeking to automate the origination and underwriting processes.
Granted, most loans are still processed by people but if you were to apply for a small business loan from quick loans direct, then it is highly likely that some form of AI will be used to process your application.
What Does the Future Hold?
The days of walking into a bank branch are long gone, but with the promulgation of AI in finance so maybe the days of the banker. The march of automation in finance has already forced banks and insurance companies to rethink staffing needs. So much so, that the number of bankers working on Wall Street, and in other financial centers, has fallen in recent years – even as the stock market has boomed.
As such, it is undeniable that AI will become a support and decision-making tool in the financial services industry. While it might not replace all of the jobs, the use of this technology will redefine the work being done and ultimately, the customer experience.
Sources: blog.re-work.co, #FintechNepal #financialnotices