Many financial activities have been digitized, and AI is taking this to the next level with the abundance of available data and affordability of computing power. From consumer finance to corporate finance, AI is making it easy for customers to take control over their finances and for corporations to offer the personalized support their people are after.
Exercising Control Over Personal Finances with AI
AI software provides tools that allow consumers to check balances, schedule payments, and search account activity. Given AI’s ability to consume massive amounts of data, some apps even offer personalized financial advice to help people achieve financial goals and exercise control over their money. These intelligent systems track income, recurring payments such as Wifi and electric bills, spending habits and come up with plans and tips for users.
All of this can be done without having to go to an in person branch, an important stipulation for today’s younger generations. 78% of millennials said they never wish to go to a branch if they don’t have to according to Business Insider. Tech savvy consumers want financial independence and are putting pressure on corporations to make digital options widely available.
AI in Corporate Finance
Corporations have responded to the need for accessibility and ease of managing finances by leveraging AI. AI allows for 24/7 access to accounts, chatbots, and financial advice services and personalized insights on wealth management. Information at consumers’ fingertips includes balance inquiries, payment information and more.
AI can also monitor risk given its ability to process structured and unstructured data quickly and make real time predictions, a critical skill as things in finance move fast and incur lasting repercussions.
AI’s data processing abilities also streamline tedious work. Intelligent character recognition, for instance, automates mundane and time consuming tasks that otherwise require costly hours. AI can verify data, review documents, and generate reports given parameters. It can also extract information from financial documents such as forms, applications, and agreements. On top of this, AI reduces the workload of call center employees as it is able to answer customers’ questions.
AI’s ability to automate these middle office tasks could save North American banks an estimated 70 billion by 2025. The total potential cost savings for banks from AI is estimated at 447 billion, with front and middle office accounting for 416 billion of that total according to Business Insider.
Fraud and Cyber Attack Detection
Another asset of AI in finance is fraud and cyber security. Online payment fraud losses are expected to reach 48 billion per year by 2023 as reported by Insider Intelligence. AI powered fraud detection systems analyze client behavior, location, and spending habits, triggering a security mechanism when something violates typical spending behaviors.
J.P. Morgan Chase has a proprietary algorithm that detects these types of patterns. Every time a credit transaction is processed, information about the transaction is sent to central computers in the data center which determine if the action is fraudulent.
Another example is Paid, which works with American Express, Goldman Sachs, and CITI, and whose algorithm analyzes interactions under variables, conditions and patterns updated in real time to ensure secure transactions.
AI helps companies increase their value using machine learning to improve loan underwriting and risk reduction and anti-money laundering too.
AI and Trading
AI helps in algorithmic, quantitative or high-frequency trading. Intelligent trading systems monitor structured (spreadsheets, databases) and unstructured (news feeds, social media, news) data and do so in a fraction of the time it would take humans. This fast processing means faster decisions and transactions.
Not only are these decisions faster, but they are also more accurate, as algorithms can test trading systems based on past data and validate it before going live. Al makes recommendations on the best portfolios depending on investors’ short and long term goals. Some financial institutions even trust AI to manage entire portfolios. An example is Bloomberg’s Alpaca Forecast AI Prediction Matrix.
The Bottom Line
AI’s ability to manage data efficiently is unmatched, saving humans hours and money. Of course AI will not replace humans but will work alongside them to enhance their abilities and take financial services to the next level.
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