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Posted by Tasnim Ahmed
November 9, 2022
It’s not easy to develop a strong brand identity in the crowded financial services industry. But when every competitor has comparable products and services, it’s imperative to stand out.
Enter artificial intelligence technology, which is expected to play a distinguishing role among financial services companies.
The AI market is predicted to reach $1394.30 billion by 2029 versus $387.45 billion in 2022 — a compound annual growth rate of 20.1%, according to a Fortune Business Insights report.
And during this forecast period, the banking, financial services and insurance sector is apt to account for a sizable share of the market, the report finds.
AI is already well underway in reshaping the accounting field, and it’s transforming finance as well. These activities are expected to further accelerate expansion of the AI market.
Broadly speaking, the BFSI sector is using AI technology for functions like fraud prevention, trading decisions, credit scoring and lending decisions, financial market analyses and risk mitigation, among others.
AI can process massive amounts of data to find insights and offer predictions, previously a tedious and time-consuming activity prone to human error, or simply impossible.
This processing superpower lets finance professionals capitalize on data much more efficiently. For example, AI can be integrated with forecasting tables to help companies fine-tune operations and boost the bottom-line.
AI can also be used to analyze customer data in real-time, providing an improved understanding of their needs and behavior. This can be used to create more seamless interactions and financial services with more value.
Another benefit of AI for financial services companies is that it can save money by taking over certain high stakes but tedious responsibilities. Data crunching and sifting won’t warrant an extra pair of hands when it can be processed in minutes by AI.
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In the BFSI sector, arguably the most useful application of AI lies in its powers of fraud prevention. Reducing fraud is important for banks not only because it impacts their bottom line, but also because it can hurt their reputation and affect customer retention.
Nowadays, consumers want financial services and banks that can ensure account security, with losses due to online payment fraud projected to reach $48 billion in 2023, per Insider Intelligence.
By parsing vast amounts of data, AI can detect whether a particular customer’s transaction differs from their normal purchasing profile to the extent it should be flagged as potentially fraudulent. To that end, banks have developed huge data centers that process terabytes of data every minute.
Risk management has typically been the purview of a select few who convene in a council-like setting to talk about what risks the organization faces, like a checks-and-balances discussion.
With the advent of AI, those tasked with risk management can make better decisions based on data. Some 56% of financial institutions have invested in AI for risk management, according to an EY report performed in conjunction with the Cambridge Centre for Alternative Finance and the World Economic Forum.
When it comes to the human side of financial services, AI can help fulfill customer requests via tools such as chatbots, voice recognition and facial recognition. It also makes once time-consuming tasks, like checking your account balance or previous transactions, readily available.
On a more sophisticated side, AI can be used to create a collective or “hive” intelligence for financial services customers. While blockchain can authenticate and verify transactions, AI can develop customized plans and opportunities for customers rather than one-size-fits-all offerings.
AI’s use in financial services will keep growing due to its powerful fraud-detection capabilities. Separately, its utility at identifying risks associated with management decisions, market conditions and loan default probability make it invaluable to the industry.
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