What is artificial intelligence (AI) in finance?

Published 08 May 2024
6 min reading
Share

What is artificial intelligence (AI) in finance?

AI has been the leading technology at the forefront of innovation in the last few years. Deep learning, as a key technology alongside AI, is driving significant advancements in the finance industry, with its applications ranging from portfolio management to fraud detection. Not only does it have unique capabilities and almost limitless potential, but its sheer versatility, use cases, and modes of application make it highly sought-after. Finance sectors in particular have been significantly impacted by artificial intelligence, with everything from the inception of digital alternatives to fiat currency to machine learning software that can streamline the loan underwriting process. Understanding AI and deep learning in finance is the first step to making the most of its adoption and fully leveraging its advantages, revolutionizing the finance industry with enhanced predictive analytics and trading strategies.

How is AI being used in financial institutions?

A key factor to keep in mind is that AI can be used to completely transform how financial institutions, companies, and even consumers access and manage a host of financial-driven activities. AI is enhancing cybersecurity and fraud detection specifically for financial institutions by improving security measures, identifying compromised information, and ensuring compliance with financial regulations. With increasing user acceptance and even regulations becoming more defined, financial institutions such as banks are quickly going to fall behind the curve if a myriad of AI protocols are not soon established. The top applications for AI are:

Artificial intelligence chatbots

Whether financial institutions are looking to improve their customer services or enhance decision-making processes, AI chatbots are taking the spotlight. They are currently the most integrated tools for their ability to utilize natural language processing and curate personalized insights from user data. These are playing a pivotal role in enhancing customer service, from dealing with issues to compiling comprehensive overviews at record speeds to evaluate both an individual's potential and an institution's loan risk appetite. There is also an increasing use of speech-to-text technology in similar areas.

ai bots

AI fraud prevention software

Fraud prevention software is probably the strongest argument for AI in the industry, as banks and financial services industry are at significant risk of a whole host of security breaches. Digital environments have opened up a whole new world of risk, but AI in fraud prevention is not only able to automatically trigger risk management protocols, but also analyze and single out irregularities in patterns at a speed and accuracy rate that humans simply can't replicate. AI fraud prevention can even help identify key aspects of financial behavior that could indicate bad practices, minimize unwanted scenarios, and create products such as anti money laundering software.

Image recognition

One of the newer applications of AI in finance is image recognition. With the use of images and videos, artificial intelligence is able to take specific information and provide insights from imagery. This can be used to streamline identity document verification, supporting and enhancing KYC protocols while expediting customer onboarding. It can also be used to improve and even speed up responses to insurance claims, as artificial intelligence will be better at spotting visual issues and determining their severity.

Artificial intelligence in risk management

In today’s dynamic financial world, effective risk management is a key element of every financial institution's strategy, especially within the complex landscape of financial markets. The development of technology, particularly artificial intelligence (AI), is bringing revolutionary changes to the approach to risk management in these markets. Artificial intelligence, leveraging advanced data analytics techniques, is revolutionizing traditional methods of risk assessment and mitigation in the financial industry, including the analysis and prediction of trends, risks, and market behavior in financial markets. The introduction of AI in finance enables faster and more precise data processing, leading to better decision-making in risk management. The integration of AI technology into data analytics in the financial sector creates new opportunities for optimizing risk management processes, contributing to increased efficiency and competitiveness of financial institutions. Utilizing historical data is paramount in enhancing AI-driven risk assessment and mitigation strategies, as it aids in making predictions about the future, identifying risks, analyzing market trends, and assessing and managing risks with greater accuracy.

ai in risk management

Many of the above-mentioned AI applications and more are becoming intrinsic to improving risk management in financial spaces. Everything from natural language processing to machine learning and predictive analytics can identify risks, perform assessments, and put mitigation into practice, particularly by optimizing credit trading, automating trades, predicting stock prices, and analyzing investor sentiment in financial markets. AI is well-known for its ability to process large datasets, including historical data, in a matter of seconds to provide real-time risk management for finance and potentially improve regulatory compliance through automation.

How AI is changing the financial services industry?

AI is significantly changing the financial landscape in relation to financial services, especially in front and middle office scenarios. Financial institutions are now able to offer frictionless customer service interactions 24/7, improving consumer sentiment while lowering the occurrence of false positives and eradicating human error. It also reduces the need for repetitive tasks, so that physical staff will be able to better dedicate their time elsewhere. Automation accuracy and efficiency are making financial services more accessible than ever before, and there is significant money savings potential for banks both now and in the future. Additionally, financial organizations are leveraging AI to enhance their services and operations, including improving predictions, managing risk, and streamlining tasks such as controlling derivative portfolios, running stress test analyses, and managing risk for fintech businesses.

ai is changing the financial services

How to use machine learning in finance?

Machine learning technology blends computer science with artificial intelligence and is used to both design and develop the learning algorithms that make multiple processes capable of functioning as highly as they do. With the ability to mix cognitive processes, derive data-driven knowledge, and more, it is typically found when supporting cognitive tasks. These AI systems impact the finance sector by:

Performing financial monitoring
Inputting vast datasets for significant data analysis
Improving customer acquisition
Providing security analysis and portfolio management
Undertaking process automation tasks
Streamlining risk assessment
Assess loan applications and accurately perform credit scoring
Extract and analyze key information from unstructured data sources that may otherwise be inaccessible

As artificial intelligence, machine learning technology, and generative AI are consistently growing and banking industry innovation is at an all-time high, this will continue to grow in function, and its use cases will become more diverse as adoption grows.

Will finance be automated by AI?

AI in finance, powered by machine learning and data analytics, is poised to automate various aspects of the financial industry. This includes tasks such as risk assessment, fraud detection, portfolio management, and customer service. While complete automation may not be feasible or desirable in every financial function, AI technologies will increasingly handle routine and repetitive tasks, freeing up human professionals to focus on higher-value activities such as strategic decision-making, complex problem-solving, and client relationship management. Thus, while AI will certainly automate many finance processes, human expertise will remain crucial for guiding and overseeing these automated systems.

ai in finance automated

Why artificial intelligence is the future of finance?

AI in finance is driven by more diverse factors than any other industry. With a growing consumer demand for digital services, innovations in tech and digital finance, and the increasing capabilities of those looking to exploit financial services, it is clear why AI systems is already having an impact, as well as its future potential.

The advantages of AI solutions far outweigh factors that may currently be holding banks and similar companies back (such as ease of adoption, service upgrading, or costs). The reasons behind the need for AI in this industry are indicative of a strong need for digital transformation, unrivaled innovation, and solutions that will keep businesses providing top level services well into the future.

More about AI in finance