The finance industry has been one of the most dynamic sectors that have witnessed significant transformations in recent times. The rise of Artificial Intelligence (AI) technology has played a significant role in driving this transformation. With its ability to process vast amounts of data and analyze complex patterns, AI has enabled significant changes in the finance industry.
Organizations in the finance industry are increasingly focusing on bolstering their infrastructure and capabilities to facilitate AI-related transformation. From fraud detection and risk assessment to personalization and investment management, AI is used in various applications in the finance industry.
Thanks to its vast application in the finance industry, AI in the FinTech industry is projected to grow by more than a CAGR of 22% by 2031 to reach a market size of almost $60 billion.1 Therefore, AI’s transformative capability in the finance industry is worth keeping an eye on for every organization and executive worldwide.
AI Has Personalized the Finance Industry
With its ability to process vast amounts of data, AI has enabled lenders to assess borrowers more accurately and at a lower cost than traditional credit scoring systems. This has allowed them to make more informed, data-backed decisions based on various factors, including alternative data sources such as smartphone data.
AI-powered chatbots and voice-controlled virtual assistants have also revolutionized how customers interact with their banks, providing personalized self-help solutions that reduce the workload of call centers. Additionally, many apps are using AI to provide personalized financial advice, helping individuals achieve their financial goals by tracking their income, expenses, and spending habits to develop optimized plans and tips. Due to consumer demand and technological development, the AI-powered personalization trend is expected to grow at a CAGR of more than 20% till 2027.2
Several of the largest banks in the US, 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 financial AI company based in London, has developed an AI assistant to assist its customers in improving their financial well-being and relationship with money. Cleo’s AI assistant facilitates saving and budgeting, providing customers with detailed insights into their finances contributing to their overall financial health.
1 Allied Market Research
2 Technavio
AI Has Made the Finance Industry More Efficient
When seeking to reduce operational costs and enhance productivity; forward-thinking finance industry leaders turn to the application of AI. Through intelligent character recognition, numerous time-consuming, mundane tasks that used to take thousands of work hours can now be automated. Artificial intelligence-driven software can verify data, generate reports based on specific parameters, review documents, and extract information from various forms, such as applications and agreements.
By using robotic process automation to tackle high-frequency repetitive tasks, financial institutions can eliminate the possibility of human error and redirect the workforce towards processes that require human input. A leading global consulting firm, EY, reports that the implementation of AI can result in up to 70% cost reductions for these types of human-error-prone tasks.3
Upstart, a startup co-founded by two former Google employees, is utilizing AI to accelerate the loan application process and evaluate creditworthiness.4Initially targeting young adults with limited credit history, Upstart utilizes machine learning to predict creditworthiness based not only on traditional FICO scores and credit history but also on education, SAT scores, GPA, field of study, and job history.
Similarly, B9, a FinTech startup in the US, has raised $5 million to offer early wage access service without charging any fees to employees. The company uses AI to assess the risk level of borrowers by analyzing their paychecks, employment history, age, and financial behavior. By providing insights into the financial behavior patterns of clients, B9 helps them avoid the high-interest rates charged by payday lenders.5
Furthermore, the lack of a credit score or a bank account is a significant problem in Africa, where about 57% of the population does not have access to credit.6 As a result, many people find getting a loan or a credit card challenging. AI-powered credit tools like Weza and CredoLab are
3 EY
4 Upstart
5 B9
6 The Africa CEO Forum
addressing this issue by using alternative data, such as phone metadata, to ensure everyone can access financial services.
AI Has Enabled Better Security in the Finance Industry
In recent years, the finance industry has increasingly turned to artificial intelligence to increase security and combat financial fraud. With a steep increase in e-commerce and online transactions, credit card fraud has become a significant concern, but fraud detection systems utilizing AI can analyze clients’ behavior, location, and buying habits to detect unusual activity and prevent fraudulent transactions. According to an article published in Forbes, based on Deloitte Insights’s data, more than two-thirds of all financial firms are utilizing AI to detect fraud and manage risk activities (such as predicting cash flows).7
AI is also effective in preventing money laundering, as machines can identify suspicious activity and reduce the cost and workload of investigating these schemes. The use of AI in fraud detection is particularly important in maintaining trusted relationships with clients and preventing financial losses.
Financial institutions such as Plaid have developed complex algorithms that analyze real-time interactions and patterns to ensure secure transactions between banks and clients. Additionally, AI can handle vast amounts of data quickly and accurately to identify potential future issues, providing detailed forecasts vital to business planning.
Crest Financial, a US leasing company, has successfully employed AI on the Amazon Web Services platform to improve risk analysis without the deployment delays of traditional data science methods. Overall, the use of AI in the finance industry has been a powerful tool in increasing security and managing risk.
The Future of AI in the Finance Industry
AI has already brought significant changes to the finance industry, and its impact is expected to continue growing in the future. AI is anticipated to drive transformative changes in the finance 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 finance industry.8 Similarly, the accelerated
7 Forbes
8 Insider Intelligence
digital knowledge among consumers due to the increased online activities during the COVID-19 pandemic will also drive further changes among organizations using AI in the finance industry. As the wider application of AI increases, its supply is also ramped up. This trend will further drive down the costs of AI in the finance industry, and its applied benefits will far outweigh the costs.
