Despite artificial intelligence (AI) having been around since the 1950s, it still seems like a modern invention. Why? Because it is constantly developing and expanding into new industries, revolutionizing how we consume products and perform tasks.
In the 1950s, AI was utilized as a means of enabling computers to make decisions - better yet, make predictions - based on the datasets provided to it. In the 2020s, AI has taken this to the next level. A 2023 study published on Forbes Advisor identified AI trends in financial services and learned that the industry as a whole is projected to exceed $4 billion by 2027, while another report found that the implementation of AI will save the banking industry approximately $1 trillion by 2030.
Numbers like this prove that AI is already having an impact on financial institutions and will continue. How this will happen is explored below.
Detecting Fraud in Banking Systems
Stunning data shows the loss of over $500,000 in 2022 to fraud. Online lending services led to the majority of these losses, accounting for approximately 75% of all financial institutions experiencing fraud when compared to national banks, and even the cryptocurrency industry.
These types of losses are bad for business, especially when you factor in the loss of customer trust. After all, customers are less likely to put their money or financial information in a company that experiences rampant fraud.
With the implementation of AI, financial institutions like these, are learning that detecting fraud can be as simple as an adjustment in their computer’s algorithms. Many fraud management systems can automatically identify phishing schemes and flag instances of common fraud, such as when a customer’s online behavior goes outside of what’s deemed normal.
Analyzing Risk Management
Risk management is at the heart of the finance industry. Financial institutions have a responsibility to analyze a customer’s risk, especially in terms of credit scores and loans. However, risk management ultimately casts a wider net.
A more recent example involves the collapse of the Silicon Valley Bank (SVB). In March of 2023 - and in what would soon be known as the “second largest bank failure” in the United States - customers withdrew their funds after their treasury bonds (initially considered to be low risk) started decreasing in value due to higher interest rates and inflation. The result was that the bank began to sell off its investments, totaling over a billion in losses. But with artificial intelligence, banks can minimize financial losses, as the algorithm will process real-time data and make predictive analyses that can help banks make better decisions in terms of risk mitigation.
What About Deep Tech and its Influence on Financial Institutions ?
Whereas artificial intelligence is used to streamline processes, deep tech is the business model that makes it happen. In other words, though they are different, they are intrinsically intertwined.
Technically speaking, artificial intelligence falls under the deep tech umbrella, as does robotics and language processing. It aims to utilize advanced technologies - such as AI - to revolutionize an industry as a whole. Think Apple. Microsoft. Uber. Even the invention of the lightbulb.
At its core, deep tech identifies problems and ways in which advancements can overcome them, while also expanding our overall knowledge of the world at large. For financial institutions, deep tech is working to solve complex issues such as those mentioned above, and it does so by analyzing trends. One such trend that is expected to explode in popularity is the idea of open banking.
Open banking includes the sharing of financial big data through APIs with fintech apps, such as PayPal. These institutions have been around forever, so they have earned a reputation of dependability and trustworthiness with their consumers.
However, newer fintech apps, such as Tamara, Tabby, Bayzat in the Middle East, are rapidly building equity amongst younger generations.
This appeal to a younger generation isn’t to be overlooked, as they are revolutionizing the landscape for businesses and consumers alike. As Gen Zers continue to enter the marketplace, businesses are utilizing deep tech concepts to adapt to their consumer habits. One of these consumer habits is the use of artificial intelligence and its importance in making informed choices.
Making it necessary for banks and other financial institutions to recognize the new wave of demand, to avoid the risk of their business model becoming outdated. This is just one of the many ways in which AI is the future of finance.
Artificial Intelligence in Finance is Here to Stay and Change the Game
When it comes to artificial intelligence, the key thing to keep in mind is that it is designed to automate tasks and processes typically handled by humans. Doing so allows companies to save on their bottom line and focus employee efforts on other areas that don’t fully benefit from automation while unlocking new ideas that can improve overall efficiency.
In terms of the finance industry, technologies such as artificial intelligence are here to stay. While the jury may still be out in regards to how far we want AI to go, its benefits in terms of offering financial recommendations and advice, detecting fraud patterns, and providing assistance through chatbots can’t be overlooked. It will help financial institutions globally reduce costs, mitigate mistakes, and help meet growing demand.