The financial industry is one of the most dynamic sectors that has witnessed significant changes in recent times. The emergence of artificial intelligence (AI) technology has played a key role in driving this change. With its ability to process vast amounts of data and analyze complex patterns, AI has brought about major changes to the financial industry.
Organizations in the financial industry are increasingly focused on strengthening their infrastructure and capabilities to drive AI-related innovation. From fraud detection and risk assessment to personalization and investment management, AI is used in a variety of applications in the financial industry.
Thanks to its widespread application in the financial industry, AI in the fintech industry is expected to grow at a CAGR of over 22% by 2031, reaching a market size of nearly $60 billion.One Therefore, the transformative capabilities of AI in the financial industry deserve the attention of all organizations and executives around the world.
AI has personalized the financial industry
With its ability to process vast amounts of data, AI allows lenders to evaluate borrowers more accurately and at a lower cost than traditional credit scoring systems. This has enabled us to make more informed, data-driven decisions based on a variety of factors, including alternative data sources such as smartphone data.
AI-based chatbots and voice-controlled virtual assistants are also revolutionizing the way customers interact with their banks, providing personalized self-help solutions that reduce call center workload. Many apps also use AI to help individuals achieve their financial goals by providing personalized financial advice and tracking an individual’s income, expenses, and spending habits to develop optimized plans and tips. Driven by consumer demand and technological advancements, the AI-based personalization trend is expected to grow at a CAGR of over 20% by 2027.2
Some of the nation’s largest banks, including Wells Fargo, Bank of America, and Chase, have introduced mobile banking apps that offer convenient features such as bill reminders, expense planning, and streamlined interactions with the bank from accessing information to completing transactions. . Meanwhile, Cleo, a London-based financial AI company, has developed an AI assistant to help customers improve their financial well-being and relationship with money. Cleo’s AI assistant facilitates saving and budgeting, giving customers detailed insights into their finances that contribute to their overall financial health.
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2 Technavio
AI has made the financial industry more efficient.
Forward-thinking financial industry leaders are turning to the application of AI as they look to reduce operating costs and improve productivity. With intelligent character recognition, many time-consuming, routine tasks that previously took thousands of hours can now be automated. Artificial intelligence-based software can verify data, generate reports based on specific parameters, review documents, and extract information from a variety of forms, including applications and contracts.
Financial institutions can use robotic process automation to handle high-frequency, repetitive tasks, eliminating the potential for human error and redirecting human resources to processes that require human input. Leading global consulting firm EY reports that implementing AI can deliver cost savings of up to 70% on these types of human error-prone tasks.three
Upstart, a startup co-founded by two former Google employees, is using AI to speed up the loan application process and assess creditworthiness.4Initially targeting young adults with limited credit histories, Upstart leverages machine learning to predict creditworthiness based on education, SAT scores, GPA, field of study, and job history, as well as existing FICO scores and credit history.
Similarly, US fintech startup B9 raised $5 million to provide early wage access services without charging employees any fees. The company uses AI to assess a borrower’s risk level by analyzing salary, employment history, age and financial behavior. B9 helps customers avoid the high interest rates charged by payday lenders by providing insight into their customers’ financial behavior patterns.5
Moreover, lack of credit scores or bank accounts is a serious problem in Africa, where approximately 57% of the population does not have access to credit.6 So many people are having trouble getting loans or credit cards. AI-based credit tools like Weza and CredoLab
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5 B9
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We solve this problem by using alternative data, such as phone metadata, to make financial services accessible to everyone.
AI has enabled better security in the financial industry.
In recent years, the financial industry has increasingly used artificial intelligence to enhance security and combat financial fraud. Credit card fraud has become a major concern as e-commerce and online transactions surge, but AI-powered fraud detection systems can detect unusual activity and prevent fraudulent transactions by analyzing customer behavior, location, and purchasing habits. More than two-thirds of all financial companies are leveraging AI to detect fraud and manage risk activities (such as cash flow forecasting), according to an article published in Forbes based on data from Deloitte Insights.7
AI is also effective in preventing money laundering because machines can identify suspicious activity and reduce the cost and workload of investigating such schemes. Using AI for fraud detection is especially important to maintain trusting relationships with customers and prevent financial loss.
Financial institutions like Plaid have developed complex algorithms that analyze real-time interactions and patterns to ensure safe transactions between banks and customers. AI can also quickly and accurately process massive amounts of data to identify potential future problems and provide detailed forecasts that are essential for business planning.
US leasing company Crest Financial successfully introduced AI on the Amazon Web Services platform to improve risk analysis without delaying the deployment of traditional data science methods. Overall, the use of AI in the financial industry has been a powerful tool to enhance security and manage risk.
The future of AI in the financial industry
AI has already brought major changes to the financial industry, and its influence is expected to continue to grow in the future. AI is expected to drive transformational change in the financial industry by automating routine tasks, improving fraud detection, providing personalized financial advice, and enhancing risk management.
The increased implementation of Banking-as-a-Service (BaaS) and Everything-as-a-Service (XaaS) business models will further drive the use of AI in the financial industry.8 Similarly, acceleration
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Digital literacy among consumers due to increased online activity during the COVID-19 pandemic will drive further change among organizations using AI in the financial industry. As the scope of AI expands, so does its supply. This trend will further drive down the cost of AI in the financial industry, and the benefits of its application will far outweigh the costs.