Machine intelligence is a reality today. Billions of dollars are getting invested and hundreds of thousands of scientists, researchers are working and refining AI technologies every day. AI tools are getting used in different fields from our everyday lives. And in many cases such tools are actually proving more effective and efficient than human interventions. Let’s take example of finance industry.
Finance is a very complex field of study involving knowledge of different disciplines; starting from mathematics and statistics to human psychology and linguistics. So, it is evident that managing day to day financial challenges is no less superhumanly task. In fact, quite often we hear about or face financial glitches, attributed to human errors. Such incidents might be things of past very soon with the latest AI applications custom-built for financial industry. Before we get into more in-depth discussion let us have a quick primer on some key AI terms.
Quick guide to AI technologies
- Cognitive technologies – these are applications of AI and help machine to conduct human-like thinking. For example, speech recognition, machine vision, natural language processing, machine learning etc.
- Natural language processing – another AI application that helps machine to sense, analyse and decipher meaning from human speech in natural language.
- Machine learning – another AI application that allows computer to gather data, analyse and gain new insight without any explicit programming assistance.
- Algorithms – a set of rules, processes and logic expected to be followed for completing any operations.
Broadly, AI is revolutionizing financial industry in 5 ways. Let’s learn about them
Risk assessment activities involve getting as much as data possible and find plausible insight from them about any entity. In financial services, regular risk assessment involves monitoring operational risks on day to day basis. It is the responsibilities of risk managers. However, very little happen in the space of risk analytics. In today’s world every moment scores of data is getting generated about organizations, individuals. Most these data is unstructured; not well defined in rows and columns of spreadsheets. And here human interventions fall short of machines. AI, like, cognitive technologies, are in particularly effective in evaluating unstructured data. NLP or natural language processing tools are using advanced algorithms to process and analyse texts and similar unstructured data for insights. AI tools are mining web for all sorts of unstructured data related to any entity, analysing them and reporting in real time. As a result financial risk assessment is becoming more proactive activity than ever before.
Fraud detection and management
This is another area where AI is coming to the forefront. “False positive” is common trouble in any fraud detection process. It causes loss of revenue, reputation and customers. Many of us have experienced similar situations; remember instances when despite all legitimacy our online transactions got denied. However, things are improving nowadays; AI-based applications are being used by major financial transaction clearing organizations, like Mastercard. Machine learning technologies are analysing tons of data point at a time to identify anomalies. Such capability was unachievable with human-only processes.
Wealth management, for individual as well as institutional accounts, traditionally involved lots of human interventions starting from analysts, fund managers to advisors. Investment decisions were made on the basis of portfolio performance tracking, market information analysis and research feedback. Machine intelligence is being used to do all these more diligently and efficiently; because of sheer power of data analytics. Portfolio managers are getting real time information on market trends worldwide along with comprehensive report on investors’ risk appetite, quantitative models of potential investment decisions and many other parameters. Such advisory services were available earlier only to a few super riches and that too were mixed with human judgement. AI-based services have cleared all those clutters; investment decisions are now becoming truly informed.
Algorithm-based machine learning for trading is already an everyday practice in stock, commodity and currency markets. Firms engaged in such practices are often despised for enjoying unduly advantages over human traders. Modern AI based tools are taking algorithm-based trading to another level where machines are taking decisions and executing them within a fraction of millisecond. And these are not guess work or gut feels; on the contrary, often these trades are based on technical as well as market sentiments, derived from real time unstructured data analysis.
This is another area seeing lot of new app development using AI. You must have heard of chat bots. AI is making them smarted with conversational interfaces. They are interacting with customers through proper security checks, proving account information as well as services like password resetting using social media validation. Many global as well as Indian private sector banking companies have rolled out similar services.
It is true that human interventions are definitely not going to end, at least in near future, in financial industry. However, these interventions will be more enriched with AI-backed insights. So, be ready for more flawless financial experiences in coming days.