- Artificial intelligence (AI) is revolutionizing the way consumers and businesses access and manage their finances.
- And with the overall potential cost savings for banks from AI applications estimated at $447 billion by 2023, banks are finding new ways to integrate technology into their services.
Artificial intelligence (AI) and machine learning in finance encompasses everything from chatbot assistants to fraud detection and task automation. Most banks (80%) are very aware of the potential benefits presented by AI, according to Insider Intelligence. AI in banking report.
The decision of financial institutions (FIs) to adopt AI will be accelerated by advances in technology, increased user acceptance and changing regulatory frameworks. Banks using AI can streamline tedious processes and dramatically improve customer experience by providing 24/7 access to their accounts and financial advisory services.
Applications of AI in financial services
Keeping in mind key business benefits and pressure from tech-savvy consumers, AI algorithms are being implemented by financial institutions across all financial services. Here’s how :
AI in personal finance
Consumers crave financial independence, and providing the ability to manage one’s financial health is driving the adoption of AI in personal finance. From offering 24/7 financial advice via chatbots powered by natural language processing to personalizing insights for wealth management solutions, AI is a necessity for any financial institution that seeks to become a leading player in the industry.
An early example of AI in personal finance is Capital One’s Eno. Eno was launched in 2017 and was the first natural language SMS assistant offered by a US bank. Eno generates insights and anticipates customer needs through more than 12 proactive features, such as alerting customers to suspected fraud or rising prices for subscription services.
AI in consumer credit
One of the most important business arguments for AI in finance is its ability to prevent fraud and cyberattacks. Consumers are looking for banks and other financial services that provide secure accounts, especially with online payment fraud losses expected to soar to $48 billion a year by 2023, according to Insider Intelligence. AI has the ability to analyze and isolate irregularities in patterns that would otherwise go unnoticed by humans.
JPMorgan Chase is a bank leveraging AI in consumer credit. For Chase, retail banking represents more than 50% of its net income; as such, the bank has adopted key fraud detection applications for its account holders. For example, it has implemented a proprietary algorithm to detect fraud patterns – each time a credit card transaction is processed, details of the transaction are sent to central computers in Chase’s data centers, which decide then whether the transaction is fraudulent or not. Chase’s high scores for security and reliability, largely bolstered by its use of AI, earned it second place in Insider Intelligence’s US Banking Digital Trust 2020 survey.
AI in corporate finance
AI is particularly useful in corporate finance because it can better predict and assess loan risk. For companies looking to increase their value, AI technologies such as machine learning can help improve loan underwriting and reduce financial risk. AI can also reduce financial crime through advanced fraud detection and spot anomalous activity as company accountants, analysts, treasurers and investors work toward long-term growth.
US Bank uses AI in its middle and back office applications. US Bank unlocks and analyzes all relevant customer data through deep learning to help identify bad actors. It uses this technology to combat money laundering and, according to an Insider Intelligence report, has doubled the performance compared to the traditional capabilities of previous systems.
Benefits of AI in finance
The benefits of implementing AI in finance (for automating tasks, detecting fraud, and providing personalized recommendations) are significant. AI use cases in the front and middle office can transform financial sector by:
- Enable seamless customer interactions 24/7
- Reduce the need for repetitive work
- Reduce false positives and human error
- To save money
Automating middle-office tasks with AI has the potential to save North American banks $70 billion by 2025. IAs are estimated at $447 billion by 2023, with front and middle office accounting for $416 billion. of this total.
Fintech: the future of AI in financial services
Between growing consumer demand for digital offerings and the threat of cutting-edge tech startups, FIs are rapidly embracing digital services – by 2021, global banks’ IT budgets will reach $297 billion.
With Millennials and Gen Z rapidly becoming the largest addressable consumer group for banks in the United States, financial institutions are being pressured to increase their IT and AI budgets to meet higher digital standards. These young consumers prefer digital bank channels, with 78% of millennials never going to a branch if they can help it.
And while the migration from traditional banking channels to online and mobile banking was underway before the pandemic due to growing opportunities among digital native consumers, the coronavirus greatly amplified the movement as stay-at-home orders were implemented across the country and consumers sought more over-the-counter options -service. Insider Intelligence estimates both online and
U.S. consumer adoption will increase by 2024, reaching 72.8% and 58.1%, respectively, making AI implementation essential for financial institutions looking to succeed and compete in the evolving industry.