Since John McCarthy first coined the term artificial intelligence (AI) back in 1956, things have come an awful long way. AI is the intelligence and problem-solving attributes demonstrated by machines rather than humans. These machines utilise their cognitive functions to pinpoint and overcome issues. Today, AI is helping to undertake tasks in the financial industry far better than most humans. It is helping to change the face of the financial sector, expanding the boundaries of what is possible today and in the years to come.
In all types of financial businesses, organisations are seeking to minimise the risks involved; that goes for even the largest high-street banks too. For example, high-street banks and financial institutions are increasingly looking to AI when it comes to enhancing their identification of fraudulent activity within client accounts. Financial fraud can result in a hefty hit to a bank’s reputation and integrity, so many are investing in AI fraud detection technologies that review past spending and detect transactions that are beyond the norm.
The beauty of AI systems such as these is that they are always learning. In the event an AI fraud detection system highlights a potentially fraudulent cash withdrawal and it is later deemed legitimate, the system learns from the scenario to allow it to make more accurate decisions in the future.
The very essence of AI is that it learns from past data to make more informed, accurate decisions in the future. It’s therefore unsurprising that AI now plays a major role in the risk assessment of credit applications. Lenders now prefer the bespoke risk assessment functionality that AI affords them. When dealing with new credit applications, lenders can use AI to assess the applicant’s repayment history, the number of active loans and place this alongside their annual salary to design a purpose-built lending plan that suits all parties. There is even talk of AI replacing credit scores, reshaping how consumers obtain loans.
AI has also helped to add a new dimension to the world of customer service in financial services. The advent of conversational AI, also known as ChatBots, has helped banks, lenders and other financial institutions to greatly improve their levels of customer satisfaction by providing swift, accurate answers to common questions and tapping in to vast amounts of data to provide customers with fast solutions that are much-needed in a society where everyone wants answers yesterday.
Finally, AI is also helping to improve the efficiency and automation of all types of financial trading, from forex and options trading through to futures trading and government bonds. Some of the largest hedge funds are now utilising AI to accurately predict market moves based on past patterns. Furthermore, they are also using AI to automate the execution of trades.
High-frequency trading is removing the emotion of placing trades in the financial markets, minimising the prospect of human trader error. The AI systems are being designed to execute trades in markets when the predefined market conditions are met. This can range from a set price or time, or even a predefined percentage loss or gain on an asset. AI does not have feelings or emotions and can execute trades reliably 24/7.