To support digital transformation in a financial services company, you must first determine what needs to be altered. In all honesty, Teddy Flo, general counsel at Zest AI, asks, “What areas aren’t there?” “The financial services sector is far behind other consumer-focused sectors in many aspects,” as reported by Forbes.
AI Financial services
Any and all changes should be made with the customer’s connection with both banks and nonbanks in mind as their only and exclusive focus. If everyone does not have equitable access to capital, nothing can be improved, says Flo. “Credit judgements should be fair, inclusive, and made in a way that considers a wider picture of a person,” the statement reads.
Here are the ways AI can help assure more equitable access to financial services:
- Personalize without branches. While banks keep scaling down their in-person branch locations, AI may help keep things personalized. “Ironically, artificial intelligence can help redefine and restore personalized experiences that build trust for consumers and small business owners,” says Charlene Coleman, senior managing partner and head of the modern finance sector of Launch Consulting Group. “An example is AI-powered personalized conversational interfaces and biometric profiles that have shown promise in helping vulnerable consumers avoid debt traps fueled by late fees and inflexible payment schedules.”
- Make more informed risks. AI can help prevent financial disasters, thanks to current abilities to “make appropriate, informed decisions about risk and capital allocation,” says Dr. Lewis Z. Liu, CEO and co-founder of Eigen Technologies. “By leveraging AI, financial institutions are better equipped to really transform the decision-making process to be more accurate, efficient, and successful.” Many financial institutions “make risk, capital allocation and underwriting decisions, based on as little as 10% of the data available to them,” says Liu. “This is normally because it is simply too expensive or too difficult to access the data they need. Introducing AI into this process plays a major part in improving outcomes. Through the use of AI, a wide range of organizations have been able to access and utilize previously inaccessible 90% of relevant data, enabling them to make more informed and better decisions.”
- Reduce or prevent fraud. AI also “opens up a new world of opportunity to tackle and reduce fraudulent activities such as money laundering,” Liu continues. “This allows institutions to validate transactions, bolster security, and respond to threats.” As an example of AI in action, “companies are leveraging AI to monitor a large number of credit card and e-payment transactions daily, detect changes in our purchase behaviour, and provide a more streamlined process to deal with any fraudulent activities to protect us,” says Vrinda Khurjekar, senior director at Searce.
- Line up, new industry players. AI could shift the balance between traditional banks and faster-moving FinTechs. “Big banks and financial corporations should be wary of ceding ground to AI-first institutions, neo-banks and big tech looking to enter banking as their next adjacency,” Coleman cautions. “Traditional finance has an opportunity to block these disrupters with sector expertise and deep capital, but have shown a reluctance to truly embrace advanced technology.” As a result, AI-first companies and FinTechs “are certainly gaining ground and disrupting traditional financial services,” says Liu. “However, many of these FinTechs haven’t invented anything new. Instead, they’re increasing the standard of digital service for an existing concept.” For example, he continues, “Think about how Venmo transformed the mobile payments space, or how Klarna changed the game for short-term financing. It was less about bringing something new to financial services and more about changing the actual way it was done.”
- Speed up services. “Since the applications have not fully scaled with the new age technologies, there are a lot of processes which are still being done manually since seamlessly automating them is a challenge for most of these institutions,” says Khurjekar. For example, “loan processing, customer onboarding or check deposit processes are not very well integrated by the majority of the banking systems. If you are trying to get a mortgage loan it could still take a long time for you to complete all the steps which can be reduced drastically if the banks had less technical debt and were able to adopt new-age cloud solutions faster.”
- Leverage human-AI partnerships. While AI solves a lot of problems faced by financial institutions, successful banks have developed processes that keep humans in the loop. “Deploying AI to democratize the financial system requires bold, human-centred leadership willing to invest in technology and talent.“ says Coleman. “Credit underwriting decisions made only by an algorithm designed without humans in the loop will ignite the risk of prioritizing profit while ignoring social impact,” Coleman points out. “The algorithm might then learn to discriminate against specific population segments, resulting in unfair decisions.”
The rise of AI in financial services is raising expectations from banks and FinTechs alike. Banks “are fundamentally rethinking all their net new investments into their technology stack,” says Khurjekar. “If data centre leases are expiring, there is a very active effort to evaluate what portions of those applications need to be re-written or moved to the cloud for better scalability. Banks are using AI and machine learning to predict consumer behaviour, understand their purchase preference, and even outlier fraud detection to better card and transaction management.”
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Source: Forbes
