Artificial Intelligence (AI) is taking most of the sectors by storm, and finance sector is one of the beneficiaries. To a layman, AI basically is the ability of a machine or a computer program to perform functions in place of humans.
Of late, several finance companies have been making investments in AI and autonomous devices such as Robo-advisors and chatbots that allow them to provide a simpler and less time-taking experience to clients. Improving economic backdrop in the United States has made these investments easy, especially for banks, majorly due to lower tax rates and capital strength.
Let’s walk through where AI is being applied and the potential areas of its use.
VIDEO Adoption of AI in Everyday Financial Services
The investment advisory scenario has been influenced by the presence of certain Robo-advisors available in the market such as TD Ameritrade Essential Portfolios and Schwab Intelligent Portfolios by TD Ameritrade (
AMTD - Free Report) and Charles Schwab ( SCHW - Free Report) , respectively.
Introduction of such AI-powered platforms has replaced human advisors and enabled investors to avail investment advises at considerably lower fees. The automated system gathers information about an investor’s personal financial targets and the level of risk they are willing to take, which it then inputs into algorithms. With this technology investment, advisors have been able to significantly cut down costs and increase compliance with regulatory norms.
AI can be used to provide a personalized banking experience to customers through chatbots that use big data and machine learning to answer general queries and provide advice on complex topics such as loans and investments. Though still in early stages, several chatbots are currently active in banks such as Bank of America’s (
BAC - Free Report) Erica and Ally Financial’s ( ALLY - Free Report) Ally Assist.
Further, stock market predictions can be made more accurately through AI. The system can consider companies’ public remarks and compare with data over several decades and predict a stock’s future performance with more efficiency than a human. This can come to the aid of wealth managers, enabling them to take better investment decisions on behalf of their clients.
Lastly, fraud detection is another key area where AI can be of great help. Sometimes, it is difficult to keep track of fraudulent activities in large organizations, but AI can efficiently identify loopholes and bring to notice for investigation before the problems go out of hand.
JPMorgan Chase (
JPM - Free Report) had launched Contract Intelligence better known as ‘COIN,’ which uses machine learning to review and interpret commercial loan agreements, a task which previously took an estimated 360,000 hours of work each year by lawyers and financial loan officers. The task now gets completed in seconds and is less error prone. How Finance Companies Can Gain From AI
The above examples highlight how AI is transforming the banking and investment management industry. The most standout benefit of embracing AI is the reduction in costs that are incurred by performing repetitive everyday tasks. Further, it can operate on a larger scale and perform functions in much lesser time compared to the traditional human methods.
Need for several branches will be reduced if AI is applied on a large scale. Also, it would be in sync with the declining trend of customers visiting those branches, thereby enabling large cost saving for these companies.
Another major benefit that can be derived from introducing such sophisticated technology is improvement in operational efficiency through enhanced decision-making process whereby companies can use AI and predictive analytics to consider their history and identify patterns that might be missed by humans.
Moreover, legal costs can be kept to a minimum through these technologies as fraud will be detected in early stages. This can be of a major help to the finance companies, especially banks, which are under constant vigilance of regulators.
However, machine intelligence cannot compete with humans in every aspect of work. Implementation of AI in mundane tasks can enable relocating employees to other core operations that require personal touch.
Race for AI Lies Ahead?
Customers are likely to get attracted to these services and look forward to using them due to the various benefits derived from these such as lower costs and ease of availing services from the comfort of their homes or while on move.
While it is easier for large companies to invest hefty amounts in AI, smaller companies might want to join the automated race in order to maintain their current market share either by entering into partnerships with companies dominant in AI space or developing their own platforms.
Currently, the operating environment for finance sector seems favorable in the form of increasing real GDP numbers, declining unemployment rate, improving consumer spending and stabilizing housing market. Further, high chances of the Federal Reserve announcing the third rate hike for 2018 in September along with investments in newer technologies keep the financial stocks’ prospects bright for the quarters ahead.
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