The financial sector is leading the way as industries prepare for a future with artificial intelligence.
By Xische Editorial, September 3, 2018
Buying a home is one of life’s most important and stressful decisions. Even for those who can afford it, securing a long-term bond to purchase a home can be nerve-racking and difficult. Banks require detailed and complex documentation of one’s finances. Bankers have traditionally established a rapport with prospective buyers, bringing the human element to ease the anxiety of the overall experience. Imagine if that human touch was replaced by little more than a computer and advanced algorithms. Would the banks’ decisions be different? Would the experience be less stressful?
This reality is already upon us, and it highlights how artificial intelligence (AI) is fundamentally transforming the finance industry. For those concerned about AI’s influence on daily life, the finance sector’s rapid embrace of AI sheds critical light on how the technology will change our lives. Of all the consumer industries, finance has done more to embrace AI in business than most.
The World Economic Forum (WEF) cast this transformation in no uncertain terms in a report published in August. “Artificial Intelligence is fundamentally changing the physics of financial services,” the executive summary noted. “It is weakening the bonds that have held together the component parts of incumbent financial institutions, opening the door to entirely new operating models and ushering in a new set of competitive dynamics that will reward institutions focused on the scale and sophistication of data much more than the scale or complexity of capital.”
This is not set to happen sometime in the future; it is happening right now. Just look at the cast of new hires at major financial institutions. Last month, JP Morgan Chase hired Apoorv Saxena, the former head of Google’s AI products. Saxena will join the bank as the head of AI and machine learning services in a clear signal of JP Morgan’s AI intent. According to CNN, the hiring flurry is confirmation that Wall Street’s biggest banks are in a race to “deploy AI, which could eventually be used for services from fraud detection to loan approval while making internal operations more efficient.”
The changes in the finance industry provide a glimpse into how AI will soon become ingrained in our daily lives. Individuals can expect to see major changes to normal bank interactions. Many people already access their accounts online, but AI innovation will improve the utility of chatbots, for example, where users can text with virtual personal assistants to carry out tasks. Services will be streamlined and banking decisions will, according to AI proponents, be made faster and without error.
Such developments could also have a huge impact on the millions of unbanked people in emerging markets. Traditionally, banks have avoided emerging markets due to the high operating costs associated with new markets and rural areas. Mobile banking powered by smart AI could transform the equation and allow banks to offer services to an entirely new class of customer. The effects will be profound.
Through advanced machine learning, decision-making about personal consumer products, such as loan approvals, will soon be handled by computers. With the ability to scan documents and fully understand complex regulations and laws of any locality in a matter of seconds, algorithms can “crunch” numbers to make critical decisions in a fraction of the time required by humans. As such, AI decision-making is already disrupting the relationship between individuals and banks. However, the use of algorithms to screen and profile potential clients raises critical anti-discrimination concerns. Numerous attempts to deploy AI to streamline decision-making have failed when the algorithm exhibited sexism or racism caused by biases in the data. Spurred by concerns about bias, consumer trust is a roadblock to adoption.
Perhaps the biggest changes to come in the finance sector will happen behind the scenes and not through direct client interaction. Banks are starting to use powerful machine learning to detect fraud in banking transactions, and banks are already using AI to assist with risk prevention. As institutions transform how standard operations utilize AI systems, an entirely new services sector could emerge. This new banking services sector will accelerate the pace of innovation, according to WEF research. In fact, WEF found that early AI adopters have a qualitative edge over rivals that have been slow to adopt the technology.
The primary risk to the exciting changes AI is bringing to finance is in the field of cybersecurity. The systems being employed by many banks feature cloud-based AI solutions. Anytime these institutions wish to access the power of an algorithm or other AI service, they open themselves up to risks inherent in cloud computing. WEF notes that this risk is compounded by the sharing of data between institutions. Data partnerships are critical in the early stages of AI development, but they can be “fraught with strategic and operational risks”.
In short, AI in finance is exciting, dynamic, innovative, and especially challenging. Given the level of hype surrounding AI and its power to change society as we know it, a healthy dose of cold water is welcome by finance leaders plotting the next stage in banking. Likewise, consumers should manage their expectations for the new world on the horizon and be vigilant for unintended outcomes of the technology. Perhaps the greatest benefit of finance’s push into AI has been to facilitate a healthy debate about the effects of AI, its dangers, and its practical uses. As science fiction increasingly becomes a reality, the simple experience of an AI-assisted bank transaction highlights the profound changes taking shape around us.