{"id":8735,"date":"2019-04-23T12:12:19","date_gmt":"2019-04-23T16:12:19","guid":{"rendered":"https:\/\/blog.brainstation.io\/?p=8735"},"modified":"2020-05-21T12:32:06","modified_gmt":"2020-05-21T16:32:06","slug":"how-ai-is-transforming-banking-and-finance","status":"publish","type":"post","link":"https:\/\/brainstation.io\/blog\/how-ai-is-transforming-banking-and-finance","title":{"rendered":"How AI Is Transforming Banking and Finance"},"content":{"rendered":"

In the 2015 financial crisis drama <\/span>The Big Short,<\/span><\/i> quirky Wall Street sage Michael Burry \u2014 played by Christian Bale \u2014 stares intently at a spreadsheet, crunching numbers in his head.<\/span><\/p>\n

His ultimate realization? A big chunk of U.S. subprime home loans is at risk of defaulting. And spoiler alert here: Burry winds up cashing in \u2014 big time \u2014 by betting against the housing market and tossing more than $1 billion of his investors\u2019 cash into credit default swaps before the American housing bubble burst in the late 2000s.<\/span><\/p>\n

Fast forward a decade later, and it\u2019s less likely a guy like Burry would be the one to notice a major financial trend or an under-the-radar investment opportunity.<\/span><\/p>\n

Instead, that\u2019s increasingly the job of artificial intelligence.<\/span><\/p>\n

Experts say the entire banking and financial services industry \u2014 from trading to wealth investment to fraud prevention \u2014 will be radically transformed by machine-learning in the years ahead, be it chatbots handling financial questions or algorithms flagging credit card fraud.<\/span><\/p>\n

\u201cFinancial institutions around the world are making large-scale investments in AI, while governments and regulators seek to grapple with the significant uncertainties and growing public trepidation as AI becomes central to the fabric of institutions and markets,\u201d <\/span>according to a recent report<\/span> from The World Economic Forum (WEF).<\/span><\/p>\n

AI Will Change the Customer Experience<\/b><\/h3>\n

We might not see bank tellers replaced by humanoid robots in our lifetime, but the experience for customers in the financial services sector is set to transform in more subtle ways.<\/span><\/p>\n

Already, AI is reshaping wealth management through mobile banking offerings and robo-advisors like those at Toronto-based firm Wealthsimple, <\/span>writes Joel Schlesinger<\/span><\/a> in the Globe and Mail.<\/span><\/p>\n

\u201cThe company was launched in 2014 by tech wunderkind Michael Katchen, a millennial who made his fortune in Silicon Valley,\u201d he adds. \u201cIt has since won over more than 30,000 investors with $1-billion in assets under management.\u201d<\/span><\/p>\n

And there\u2019s a rising number of increasingly-popular apps now offering similarly personalized financial advice, underpinned by AI.<\/span><\/p>\n

\u201cThese intelligent systems track income, essential recurring expenses, and spending habits and come up with an optimized plan and financial tips,\u201d <\/span>according to<\/span><\/a> Arthur Bachinskiy, COO of <\/span>Delaware-based business solutions firm Django Stars.<\/span><\/p>\n

The big change for customers? All of it is now a click away, with no in-person personal advisor needed.<\/span><\/p>\n

\u201cAI can deliver a radically reimagined customer experience by allowing customers\u2019 finances to run themselves, and acting as a trusted adviser in moments of need,\u201d according to the WEF.<\/span><\/p>\n

The Decision-Making Process Will Get an Overhaul<\/b><\/h3>\n

Be it navigating potential risks or assessing credit ratings, AI offers a new way to streamline financial decision-making.<\/span><\/p>\n

\u201cIt\u2019s difficult to overestimate the impact of AI in financial services when it comes to risk management,\u201d <\/span>Bachinskiy writes. <\/span><\/p>\n

That\u2019s because the big<\/span> processing power of cognitive computing allows vast amounts of data to be handled in a short time, he adds \u2014 quickly identifying early warning signs and revolutionizing a task that would take humans far longer.<\/span><\/p>\n

Digital banks are also using machine learning to evaluate loan eligibility, Bachinskiy continues. The process is faster, more accurate, costs less, and yet potentially more complex and comprehensive than traditional credit scoring systems.<\/span><\/p>\n

\u201cObjectivity is another benefit of the AI-powered mechanism,\u201d he adds. \u201cUnlike a human being, a machine is not likely to be biased.\u201d<\/span><\/p>\n

Smarter decision-making will also come in the form of using advanced data science to optimize business outcomes \u2014 like obtaining lower default rates \u2014 and gain insights across business units to achieve better capital allocation, the WEF notes.<\/span><\/p>\n

AI Will Improve Fraud-Prevention Efforts<\/b><\/h3>\n

In a recent report, security firm McAfee estimates that cybercrime is costing the world economy around $600 billion, or 0.8 percent of global gross domestic product.<\/span><\/p>\n

But right now, fraud prevention efforts are being run inefficiently and ineffectively, according to the WEF \u2014 something that\u2019s thankfully set to change as AI grows more common in the financial services sphere.<\/span><\/p>\n

\u201cFor a number of years now, artificial intelligence has been very successful in battling financial fraud \u2014 and the future is looking brighter every year, as machine learning is catching up with the criminals,\u201d <\/span>Bachinskiy writes.<\/span><\/p>\n

It\u2019s particularly good at preventing credit card fraud, he adds, which is on the rise thanks to the growing popularity of online shopping. \u201c<\/span>Fraud detection systems analyze clients\u2019 behavior, location, and buying habits and trigger a security mechanism when something seems out of order and contradicts the established spending pattern.\u201d<\/span><\/p>\n

In traditional systems, false positives are too common as the frameworks flag anything outside a given set of parameters, <\/span>notes Vian Chinner<\/span><\/a> in Forbes.<\/span><\/p>\n

\u201cFor example, if you are planning a trip abroad and you start buying airline tickets and accommodation, this may trigger a fraud warning,\u201d he continues. <\/span><\/p>\n

But a smarter system could use your full customer data to paint a broader picture and compare you to other similar users \u2014 like holiday travelers, for instance \u2014 before raising a fraud flag on your account, Chinner explains.<\/span><\/p>\n

It\u2019s Going to Transform Trading<\/b><\/h3>\n

What\u2019s a more apt use of AI than crunching numbers for an optimal result?<\/span><\/p>\n

\u201cData-driven investments have been rising steadily over the last five years and closed in on a trillion dollars in 2018,\u201d <\/span>Bachinskiy writes. <\/span>\u201cThis kind of trading has been expanding rapidly across the world\u2019s stock markets, and for good reason: artificial intelligence offers multiple significant benefits.\u201d<\/span><\/p>\n

Benefits like increased accuracy, he says, thanks to the rapid algorithm-based analysis of vast troves of past data \u2014 leading to faster processing, faster decisions, and in turn, faster transactions.<\/span><\/p>\n

Taiwanese AI trading startup HiHedge puts it this way: Their software can recognize trading patterns that are undetectable by humans, including price and volume from exchanges around the world, global news in multiple languages, macroeconomic and company accounting data, and more.<\/span><\/p>\n

\u201cMachine learning, especially deep reinforcement learning, unfolds the potentials of computers to make unbiased decisions,\u201d <\/span>says the company\u2019s CEO<\/span><\/a> and founder Chiachi Ku. \u201cThis is what the future promises.\u201d<\/span><\/p>\n

Want to learn more about AI and machine learning? Check out\u00a0BrainStation’s<\/span> Data Science Certificate Courses<\/span><\/a> and<\/span> Diploma Program<\/span><\/a>.<\/span><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

From chatbots fielding investment questions to algorithms flagging credit card fraud, the banking and financial services industries will be radically transformed in the years ahead.<\/p>\n","protected":false},"author":7,"featured_media":8738,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[533,84],"tags":[494,810,481],"yoast_head":"\nHow AI Is Transforming Banking and Finance | BrainStation\u00ae Blog<\/title>\n<meta name=\"description\" content=\"Experts say the entire banking and financial services industry \u2014 from trading to wealth investment to fraud prevention \u2014 will be radically transformed by machine-learning in the years ahead. 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