Banking and financial services are developing faster than any other industries in the world. A lot of it can be attributed to emerging technologies such as Artificial Intelligence and automation. These two sectors of the economy are anticipated to be impacted and benefited the most by AI and machine learning tools.
Artificial Intelligence in the finance and banking sector is a leading technological trend that brings about total revamping and renewal of industries. Many AI tools, algorithms and platforms deployed already have transformed traditional methods of banking and business of money. The impact can be felt across the banking sphere, including core banking, efficiency, customer service, products and services, and profits. Not only traditional banking methods but also modern banking methods such as mobile and internet banking are undergoing evolution and transfiguration.
Modern banking is not only about apps and internet banking. In the wake of AI, Robo advisors and chatbots are helping customers manage and improve their financial health with personalized and customer-specific models. In so many ways, AI in banking is transforming the industry to greater levels that allow smooth functioning of banks, improved return on investment, enhanced customer services, increased opportunities, customized solutions, and reduced risks for banks and customers, both. In addition, Artificial Intelligence systems are helping banks save operational costs, improve ROI, and strengthen their customer base. Initially, it was feared that AI will be one of the reasons for reduced employment opportunities. On the contrary, it is predicted that AI will boost their revenue and enhance employment opportunities. Today, AI has become a driving force of modern banking and financial institutions.
What is Artificial Intelligence?
Artificial Intelligence is one of the most revolutionary technologies that has evolved over decades. It is a field of computer studies that makes it possible for machines to mimic human abilities, perform human-like tasks, and learn from experience. Classic examples of AI are self-driven cars, game-playing computers, and virtual assistants. These technological innovations use AI models that are a blend of various sub fields of computer science and information engineering such as deep learning and natural language processing.
Artificial Intelligence is also referred to as machine intelligence because it is a field of computer science that studies intelligence demonstrated by machines and create tools and platforms that imitate intelligence capabilities similar to human beings. Global industries are rapidly adopting this technology and exploring its immense potential.
Today, AI is everywhere. Industries are using it in a variety of ways ranging from data analytics to virtual assistants. Speech recognition, face detection, learning, planning, problem-solving, reasoning, recording, manipulation of data and objects are some of the other use cases in industries worldwide. The impact of AI can be felt by several fields that are impossible to list here: Healthcare, banking, finance, government, armed forces, gaming, security, education, advertising, investment, and Fintech are just a few applications of Artificial Intelligence in Banking.
AI in Banking and Financial Services
Only recently, the world has begun to explore and realize the potential of Artificial Intelligence. However, the history of AI goes back to the 1950s when the term was first coined by a Stanford Professor, John McCarthy. Though it is rapidly being adopted by various industries, it is still in nascent stages when it comes to banking and financial sectors. There are a number of changes that are expected to come about in areas of customer service, communications, recruitment, wealth management, and risk management.
Meanwhile, banks continue to implement AI tools to stay relevant in a world driven by smartphones and smart devices. They are using digital personal assistants and chat bots to transform customer service and customer experience. Availability of big data, mobile technology, and open-source software make it easier for banks to apply various platforms of AI in the banking space. Automated assistants and chat bots are not only assisting people in performing banking activities but also are providing them with a personalized experience.
According to a study, AI will change the way banks interact with their customers. Tools of AI in banking will become the primary method of interaction between customers and banks. It will automate a large number of banking processes and result in a better understanding of customer behavior and expectations. Consequently, banks will be able to provide more personalized and customer-centric services.
How AI Is Used in Improving Their ROI
As mentioned above, banks are using AI to improve ROI and reduce costs. They are using it to create more efficient and accessible sectors.
1. AI in finance:
In the financial sector, AI is being implemented in the mortgage and insurance industries remarkably. Advanced technological innovations allow institutions to assimilate and analyze complex information and use it for the benefit of the organization as well as the customers. These sectors of financial industries have been struggling for years with intensive paperwork. With the deployment of machine learning and AI algorithms, it is easier to analyze risk, perform tedious and repetitive backend work and process claims faster.
2. AI in wealth management:
Wealth management is a rising industry. With growing per capita income, people are looking for advanced ways to manage their financial health. Therefore, many financial institutions and banks are using AI to guide their clients with investments. Advanced methods of AI are efficient in creating effective solutions and provide lucrative returns for both clients and companies.
AI makes it easier to assess market data and changes in the market situation. This knowledge can be used to make investments in the stock market and optimize the returns. Data is crucial for financial services. AI provides these industries with such data that can be used to enhance the proficiency of companies in all aspects.
3. AI to reduce operating costs:
The banking sector is still in the process of digitisation. A huge amount of paperwork is one of the biggest concerns of the industry. To tackle these issues, banks face huge costs and risk of human error. To overcome these challenges, banks are adopting AI to alleviate high-cost processes and reduce chances of errors. With the use of natural language processing, speech recognition, and automation, banks are using AI to ease out back-office operations and reduce workload.
4. AI in loan services:
Just like insurance, loan services are also paper-intensive and involve a huge amount of risk. Human errors in analyzing data can be very costly to financial institutions. Therefore, machine learning and intelligent automation are used to review and interpret loan agreements and client history. It allows banks and financial institutions to create safe and profitable loan and credit decisions. Even though banks are using credit scores, credit history and banking transactions, these methods may not enable the best decisions. AI provides advanced systems that can interpret the behaviour and patterns of a customer and determine the veracity of the customer’s credit history.
5. AI for risk management:
Risk assessment is one of the primary processes in commercial and investment banks. However, it can be complex and tedious because it requires a high level of accuracy and confidentiality. AI has simplified this process tremendously. It can syndicate the latest transactions, market trends, customer history in the most relevant manner that provides a great insight into customer’s financial habits. This can help them minimize inaccuracy and reduce the probability of fraud.
6. Prevent frauds:
Speaking of fraud, AI security systems are deemed better than even the most sophisticated IT platforms. AI algorithms are designed in a way to detect fraud on the basis of predetermined rules. It uses predictive analysis to prevent fraudulent activities. Additionally, AI is a great way to protect personal data and cyber crimes.
7. Fund management:
Hedge funds are a growing trend that allow people to earn active returns on their investments. Most of the hedge fund managers prefer AI-related tools because it enables real-time date from the global financial market. This is critical to come up with accurate predictions and make faster decisions.
8. Meeting regulatory requirements:
Banking is not only the most important part of the economy, but it is also a highly regulated industry of the country. Government has introduced several regulatory authorities to ensure banks are following the law and order and prevent fraud and money laundering. For this, banks must comply with regulatory standards. If not followed, it can be very costly for banks. AI tools make this job easier for banks. It allows them to monitor and process transactions, customer behavior, and aids in regulatory compliance.
9. Enhance customer service and experience:
Banking technology has grown vastly. Now banking and managing money are a lot easier. Long gone are the days when standing in long queues for withdrawal was a norm. AI technology has empowered customer support allowing customers to interact with their banks from anywhere and anytime. Meanwhile, several features that banks provide to its customers are possible due to the data gathered by AI-supported technology that provides insights in line with users’ behavior. Analysis of this data enables banks to provide appropriate services and products.
AI in banking and finance has many benefits. It has the ability to bring about revolutionary changes in financial services by understanding customer behavior and expectations. However, it is still in the nascent stage and only proactive efforts can help banks realize its full potential and become more relevant in the market.