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March 28, 2024
AI is the way forward.
Artificial intelligence (AI) is revolutionizing the finance sector, emerging as a vital tool for industry leaders to rapidly enhance services and expand their customer base. Both big and small business entrepreneurs are eagerly embracing AI and machine learning technologies, recognizing their potential to drive innovation in financial services with no signs of slowing down.
According to projections from the International Data Corporation (IDC), worldwide spending on artificial intelligence (AI) is expected to reach about $251 billion by 2027. In simpler terms, as banks invest more in AI, they stand to gain substantial financial benefits, enhancing their profitability and operational efficiency and positioning themselves for sustained success.
The adoption of AI in the financial industry
Adopting AI in banks and finance institutions will help refine their operational processes. According to Forbes, banks will experience an approximate 22% to 30% productivity boost in the coming year. Here are five key ways artificial intelligence finance applications are shaping the sector:
By leveraging AI for financial services, companies can now predict the behavior of millions of customers in seconds. These AI solutions for finance companies mean faster data processing, better predictive models, and invaluable insights in a fraction of the time.
Another way companies are using artificial intelligence in financial services is by integrating AI into the processes that govern vital financial products, like insurance, banking, and asset management. Tedious tasks that used to be done by humans or slower system processes can now be completed almost instantaneously, eliminating human error and slashing operational costs associated with data entry and similar tasks.
Implementing AI in the financial industry is integral to maintaining competitive edges. According to Forbes, AI, coupled with sales, marketing, and customer interaction, will potentially increase annual revenue by at least 6% over three years, suggesting that AI in banking and financial services is a growth game-changer.
FinTech firms already employ AI in banking and finance services to improve customer satisfaction, retention, and engagement. We see this use of AI in finance through AI-driven chatbots designed for frictionless, 24/7 customer interactions. AI-based virtual assistants can further help these companies better understand their customers’ needs and, in turn, increase customer engagement.
AI in financial services is instrumental in fortifying online banking fraud detection and prevention, meeting stringent regulatory requirements, and safeguarding transaction security.
Diverse applications of artificial intelligence in banking and finance
Artificial intelligence financial services’ broad spectrum of business advantages has accelerated its widespread adoption. Below, we spotlight the most innovative applications of AI in banking and finance:
Algorithmic trading
Data-driven investments — algorithmic, quantitative, or high-frequency trading — have increased across the world’s stock markets. Intelligent trading systems use artificial intelligence for financial services to make precise predictions based on historical and real-time data. AI-powered trading systems can analyze massive, complex data sets, enabling quick decision-making and transactions, thus increasing profit opportunities.
Example: Infinite Alpha employs artificial intelligence (AI) in financial services to operate a cryptocurrency trading platform tailored for professional investors. The platform ensures the security of traders’ data and transactions through advanced authentication and encryption measures. Users benefit from an intuitive dashboard interface that grants easy access to account details, balances, and transaction histories.
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Fraud detection and prevention
Artificial intelligence in financial services is adept at detecting real-time anomalies in customer behaviors and transactions, fortifying fraud defense mechanisms.
AI enables financial services firms to analyze and detect irregular customer behaviors, locations, and spending habits in real-time. It can recognize suspicious or anomalous activity and trigger a security mechanism to reveal and prevent fraud.
Example: American Express employs machine learning to swiftly detect credit card fraud worldwide, analyzing vast amounts of real-time data. This technology processes over $1.2 trillion in transactions annually, ensuring rapid fraud decisions for every American Express card usage. Additionally, American Express ensures account security through encryption, automatic log-out features, and password recovery confirmations.
Process automation
Another beneficial use of AI in financial services is leveraging artificial intelligence to trim operational costs, increase productivity, and boost operational efficiency by setting up process automation. AI can help organizations automate repetitive, time-consuming tasks and eliminate human biases and errors. AI-enabled applications can also help firms verify data, generate reports, and review lengthy documents.
For instance, AI-enabled intelligent character recognition software can automate mundane tasks such as entering customer data from contracts, forms, and other sources and extracting information from documents like loan applications and agreements.
Example: The National Bank of Canada has adopted Robotic Process Automation (RPA) to streamline various back-office operations. Specifically, the bank integrated RPA into its finance department, automating tasks like journal entries and reconciliation. This adoption helps decrease processing time and increase accuracy, enhancing operational efficiency. The bank has also leveraged AI within its HR department to automate tasks such as employee onboarding and offboarding, helping to increase accuracy and reduce time spent on tedious manual tasks.
Personalized banking
Financial services firms leverage AI-enabled solutions to offer personalized products and services to customers, such as banking, lending, and payments. They also use AI-based chatbots powered by natural language processing to offer 24/7 financial guidance to customers.
Some also use voice-controlled virtual assistants to provide better customer service. AI-based applications employ algorithms that track customers’ regular expenses, income, and purchasing habits to offer personalized financial advice based on the user’s financial goals.
Example: Erica is a virtual financial assistant developed by Bank of America. This VA engages in tailored, proactive, and predictive customer interactions by drawing insights from various sources, such as account balances, past transactions, spending patterns, payment alerts, and identifying duplicate charges.
Insurance claim processing
AI-enabled applications are transforming the insurance industry by improving the accuracy and efficiency of claims. The insurance claim management process frequently employs an entirely data-driven approach wherein AI analyzes all required documents to process and automate claims. Using AI to automate claims processing also helps insurers identify fraudulent claims and offer digital services to improve customer experience.
Example: Cape Analytics empowers insurers and property stakeholders by utilizing computer vision algorithms to extract property details from geospatial imagery, expediting underwriting processes. This solution merges the accuracy of in-person inspections with the speed of a comprehensive database covering the entire US property base, delivering results within seconds.
Credit risk evaluation
An AI-based platform provides lending companies with a quick and accurate assessment of a potential borrower by considering several factors, such as their credit score and history. In other words, lenders can make better-informed, data-backed decisions to identify credit-worthy applicants and accelerate the overall credit risk evaluation process.
Example: Ocrolus transforms digital lending through AI-powered document automation, ensuring accurate data and insightful analytics for confident credit decisions in small business, mortgage, and consumer lending. By enabling lenders to analyze financial data more effectively, Ocrolus promotes fair credit access, lowering borrowers’ costs.
Artificial intelligence and finance go hand in hand
The impact of AI in finance and banking must be considered. Not only are artificial intelligence financial services faster, cheaper, and more accurate, but the more AI is used in the financial services sector, the harder it is to commit fraud. In this way, artificial intelligence for financial services is one of the industry’s most innovative—and disruptive—market shifts ever seen.
Want to know more? Escalon has helped over 5,000 companies across various industries improve their compliance regarding internal controls and streamline processes. Talk to an expert today.
With 6 years of experience in copywriting and social media management across genres, Devayani's heart lies with weaving words into stories and visuals into carefully crafted narratives that’ll keep you wanting more. She carries with her, her pocket notebook, a trusted confidante that goes with her wherever she goes, and scribbles down into it anecdotes on the go. Her secret weapon for keeping all things copy interesting! Apart from writing, Devayani is huge on travelling. You'll find her booking her next adventure while she's on her current one. And while on those adventures, you'll find her devouring true crime books one after the other. Whether it's a low down on a recent case or one that occurred 70 years ago, she can cook up a story narration you'll never forget.
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