AI’s definition and role in finance Artificial Intelligence (AI) is a paradigm-shifting technology that is seamlessly changing the way we operate in this world today. From shopping, interacting, receiving help, and much more. This begs the question, do we students truly understand what kind of momentous role it plays in the financial sector? If not, buckle up for a test drive as we take you through some of the key points. In broad terms, Artificial Intelligence is the application of human intelligence into machines such that they are programmed to learn and solve problems like we do or even beyond. The crux of AI is machine learning in which computer programs automatically perceive and adapt to data without human assistance. Hence, it is inevitable that AI has now extended its influence to the financial industry, where it is used for an array of things. Examples of AI application in Fintech As mentioned earlier, as the world and various industries are equipping Artificial Intelligence to expedite various streams, FinTech is another industry that heavily benefits with the use of AI. Its application in the Financial industry is multifaceted, being of use in Corporate, Consumer and Personal Finance. In terms of Corporate Finance, companies are able to leverage AI to aid aspects like Data Analysis, with the help of the powerful visualisation tools and data science mechanisms that Fintech software apps provide. This reliable and extensive information helps companies with financial decision making. Moreover, another example of AI facilitating companies is through its ability to develop and use complex Algorithms to create robust forecasts and simulations. This is an efficient substitute for humans, as the algorithm would be able to detect patterns that may be hard for human traders to see, as well as be able to execute trades much quicker, thus time- sensitive which is of essence in volatile markets.
In regards to Consumer Finance, AI technology has also shown its success at improving security for financial firms. As digital transformation processes spread over the world, finance-related cyber crimes have also grown. With cyber security being a top issue in recent years for finance-related firms, and individuals, as seen by Javelin Research, stating that users and businesses experienced a 56 billion dollar loss in 2020 due to fraud. The ability of AI to block user requests based on their detection for potentially fraudulent activity and to be monitored consciously is a key benefit to several industries and the general community. Lastly, AI has improved aspects in Personal Finance through features like 24/7 chat-boxes, which help with Customer service and experience by tackling frequent consumer issues. Chatboxs make use of Sentiment Analysis which analysis focuses on understanding the customer’s experience with the service/application, as well as their core issues, thus immediately resolving complaints. The Bank of America is a great example of a multinational company who has benefitted through this, as they reported to generate over one million new clients two months after introducing their chatbo feature.
Implications of AI in FinTech The overall implications and benefits provided by AI in FinTech are evident from the preceding paragraphs. Providing things like Improved financial decision making, Security and fraud detection, Customer support, Forecasts, Asset management, and much more. That being said, there is always a cost provided with anything that yields a benefit. A few risks associated with AI in Fintech are the high costs associated with the creation of the machines and algorithms. In addition, the inability of creativity from bots is a key disadvantage of IA, and one that humans in employment can bring. Bots can’t think out of the box! Finally, the potential of increased unemployment that AI brings as they replace human jobs is another huge drawback to the economy.
References https://www.businesswire.com/news/home/20210323005370/en/Total-Identity-Fraud-Losses-Soar-to-56-Billion-in-2020 https://www.iotforall.com/4-ways-artificial-intelligence-will-change-fintech#:~:text=AI%20in%20FinTech%20is%20used,and%20high%2Dspeed%20query%20resolution. https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp https://www.businessinsider.com/ai-in-finance https://www.coindesk.com/markets/2017/03/07/state-street-wants-to-monetize-blockchain-with-artificial-intelligence/ https://towardsdatascience.com/the-growing-impact-of-ai-in-financial-services-six-examples-da386c0301b2 The views expressed within this article are those of the authors and do not represent the views of the Finance Student's Association. All images and references in this article are for fair and educational purposes only. The content in this article is not intended as legal, financial or investment advice and should not be construed or relied on as such.