In recent years, artificial intelligence has been protruding a multitude of industries, and the financial sector was certainly not left behind. Despite a brief AI adoption slowdown during the height of the pandemic, financial institutions are once again heavily investing in this technology.
Incidentally, the global AI in fintech market has been doing so well that it is projected to reach $46.8 billion by 2030. That’s an impressive CAGR of 19.8% since, in 2020, the market had generated a revenue of $7.7 billion.
With so much growth and potential, it’s more important than ever for business leaders to understand how artificial intelligence can be applied in the financial services industry. So, that’s precisely what we’re going to talk about today.
Specifically, we’ll cover:
Now, let’s dive in.
The Role of AI in Finance
To understand intelligence tools, we first need to address what AI is and how it helps your organization.
Artificial intelligence merges machine learning, natural language processing, deep learning, and predictive analysis. All in all, it uses computer algorithms to mimic human actions.
Basic types of AI have been around for a few years. Amazon’s product recommendations that use machine learning to improve upsells and cross-sells are a great example.
However, because of advances in technology, product recommendations are just the beginning. In recent years, a couple of factors have positively contributed to the adoption of AI in banking and finance. So much so that some companies are already busy implementing these solutions to improve business performance.
AI in Finance Adoption Drivers
The most recent crisis that the majority of companies have faced is probably the COVID-19 pandemic. Interestingly, it ended up leading to an acceleration of AI adoption, with 52% of companies speeding up their implementation plans.
However, besides the need to innovate due to the “new normal”, there are other key adoption drivers that are causing companies from all sectors, finance included, to begin leveraging artificial intelligence. Specifically, the following:
- Big Data. The enormous increase in the amount of data that is being generated within the financial services sector has peaked the interest of organizations. Now, they are eager to leverage it for a better understanding of customer behavior and the delivery of more personalized services.
- High Competition. Competition is getting stiffer every year. Naturally, this makes banks, insurance companies, brokerage firms, and other financial institutions eager to find new ways of differentiation.
- Regulatory Obligations. Financial institutions tend to be under a high level of scrutiny from regulators. After all, any inquiries must be answered promptly and the requested reports provided without accidental mistakes. Thus, organizations are looking for ways to speed up and systematize internal processes to ease regulatory compliance.
Of course, the above-mentioned factors are non-exhaustive. After all, every business is different and has varying priorities that drive digital transformation. However, no matter what your unique case is, chances are high that you can benefit from the development of AI applications.
Top Uses of Artificial Intelligence in Finance
We’ve already seen how financial organizations are being disrupted by various technologies. Predictive analytics is a game-changer for insurance, blockchain is revolutionizing banking, and these are just a few recent examples.
Today, we’re focusing on yet another innovation that’s transforming finance — artificial intelligence. So, in this section, we will take a closer look at the top AI use cases within the industry.
1. Personalized Banking
In recent years, with the number of options growing, customers have become more selective than ever with their banking choices. Now, if you can’t deliver a smooth and efficient service that goes beyond providing the basic financial necessities — clients might quickly flock to competitors. With artificial intelligence, this can be avoided.
You see, thanks to AI’s ability to comb through large amounts of data in seconds, it can be an invaluable technology for banking and finance applications. Specifically, intelligent systems can keep track and regularly analyze customer income, expenses, spending habits, and disclosed financial goals.
Then, AI-powered software uses the gathered insights to provide personalized financial advice and recommend investments or related services to those that may be interested. Thus, helping you deliver a unique experience to each and every customer.
2. Intelligent Customer Relationship Management
As we’ve already established, personalization is important because it helps financial organizations deliver better customer experiences. However, that’s not the only thing that can improve your relationship with clients. AI-powered CRM platforms, contact centers, and even chatbots can all prove invaluable in boosting the quality of the services you offer.
Financial institutions use data from the first contact to ongoing services for current customers. With an intelligent CRM solution, you can leverage the gathered digital information to tailor a personalized experience for each customer and streamline entire sales operations.
For instance, if you implement a platform like the Creatio CRM that combines big data and advanced technology to improve your contacts management process, you’ll quickly observe more deal closures and happier sales agents.
This happens because an intelligent solution like that has a robust set of features for helping you achieve your goals. Specifically, Creatio comes with the following AI-enabled functions:
- Lead scoring to identify and prioritize high-value candidates.
- Lead routing to connect the right opportunity to the right sales agent.
- Personalized nurturing campaigns to study customer behaviors and create relevant, automated communication.
- Predictive analytics to provide agents with recommendations on the steps to take to generate the most revenue.
- Sales forecasting to foresee quarterly or annual results based on historical and pipeline data so that adjustments can be made if needed.
- Operations optimization to identify where and when certain staff members will be required.
- Data enrichment for acquiring relevant information from different channels and creating a more effective sales pitch.
So, if you’re looking to give your sales and marketing operations a significant boost — definitely consider implementing an intelligent CRM solution that will take most of the hard work off your hands.
Another important area of customer relationship management that AI can improve is definitely contact center performance. Since the flow of conversation is often hard to predict, agents may struggle leading the discussion towards a fruitful conclusion.
However, with AI-based contact centers, financial companies can ease the work of sales and customer service agents by providing them with real-time conversational intelligence and call analytics. Specifically, intelligent platforms deliver real-time suggestions that guide the dialogue and automatically adjust what is the next best thing to say.
As you can imagine, this can help your staff feel more confident throughout the discussion. Thus, leading to more closed deals, faster resolving of customer issues, and better experience for everyone involved.
Full-featured Inbound & Outbound call center with AI-based agent scoring and call analytics.
Great customer support is of utmost importance in any business. However, it’s particularly imperative in finance, where people are dealing with money, and tensions can quickly rise. So, unless you’ve got a team working 24/7 to respond to queries, an automated chatbot can be a good tool to employ.
By relying on natural language processing, chatbots can quickly decipher a received question, find the optimal answer, and deliver an accurate response that the client is looking for. Thus, allowing you to reduce operational expenses while still catering to customer needs and providing an excellent level of service.
3. Predictive Credit Risk Assessment
Another one of the major artificial intelligence uses in finance and banking is definitely within credit decision-making. As you know, determining the creditworthiness of a borrower can be a time-consuming task, especially when you’re dealing with a brand new client. However, it’s imperative for financial institutions to accurately identify high-risk customers so that unnecessary issues and losses can be avoided.
Here, AI can come in and quickly analyze a myriad of factors that impact a person’s ability to pay back what they’ve borrowed. Moreover, AI-powered software typically uses more elaborate credit scoring approaches than traditional platforms. For instance, it can seamlessly distinguish between a high-risk applicant and someone who just doesn’t have enough credit history but might otherwise be reliable.
For these reasons, more and more financial organizations are relying on artificial intelligence to carry out credit risk assessments and optimize their lending processes.
4. Data-Driven Investment Management
In investments, information is everything. Yet, analyzing it isn’t usually the quickest process. After all, there are many factors that go into determining whether something is a worthy investment or not.
As you may suspect, artificial intelligence has a role to play in this area of finance as well. First, thanks to ML algorithms, all the structured and unstructured data that’s needed for investment decision-making can be analyzed at a much faster speed than a human is capable of. Thus, allowing to capitalize on more opportunities within a shorter time frame
Moreover, besides partially automating the decision-making process, the investments that AI recommends tend to drive better results. This occurs due to the algorithm’s ability to go through historical data and leverage predictive analytics to forecast, with a high degree of accuracy, potential profits from an investment and its impact on your portfolio.
5. AI-Enabled Security and Fraud Prevention
An industry that deals with as much sensitive information as finance, data security and fraud prevention are of utmost importance. However, with so many payments and transactions getting carried out daily, it’s easy for issues to fall through the cracks.
Once again, AI can come to the rescue. It can detect any suspicious activity and send alerts in order for your staff to check it out. Previously overlooked transactional patterns, anomalies, and suspicious relationships can be detected and any fraudulent activities prevented. Thus, allowing for a more proactive approach when it comes to avoiding deceptive behaviors.
Additionally, since AI can learn from experience, it continuously improves its understanding of cybersecurity threats and detects potential breaches faster to prevent them altogether. Malicious files, suspicious IP addresses, and other items that may pose a cybersecurity risk are quickly eliminated before any lasting damage occurs. Thus, boosting your company’s data safety and reducing the likelihood of any financial losses.
6. AI-Powered Trends and News Analysis
Markets are highly affected by everything that’s going on in the world. Hence, pretty much any piece of news can send a stock plunging or, on the contrary, boost its value. Eventually, by monitoring enough of such occurrences, one can identify patterns and emerging trends. Of course, that’s a time-consuming process.
AI applications, however, can leverage natural language processing to go through news, perform sentiment analysis, and quickly determine the impact a particular article will have on the world of finance. Thus, empowering your organization with almost immediate insights on how markets or any other financial areas are going to be affected and giving you time to prepare.
Key Obstacles to Artificial Intelligence Implementation
Now that we’ve covered the main uses and benefits of artificial intelligence in finance and banking, it’s time to look at the challenges that may obstruct seamless development. Unfortunately, given the relative novelty of the technology, there are a couple of obstacles you might encounter.
Data silos are individual repositories of digital information that are typically controlled by one department and are thus isolated from the rest of the company. As you can imagine, this is a problem for AI models that require as much relevant data as possible to perform at the highest level of accuracy.
Thus, it’s important to consolidate digital information prior to starting AI development. That way, you’ll acquire a truly helpful AI system that makes use of the best data science practices to deliver results.
Another major AI implementation challenge in finance and banking is data protection. Since financial institutions deal with large amounts of sensitive information, your organization must have good security measures to ensure data safety. After all, you wouldn’t want to lose valuable customers because of breaches that could’ve been avoided.
Limited Trust in Algorithms
For someone who doesn’t work with artificial intelligence directly, it can be hard to understand what actually goes on in the “black box” of an AI solution.
Are the algorithms extracting accurate insights? Can the algorithm be biased? How can I trust that what the software is suggesting is good? All these questions may lead your employees to doubt the performance of your tool and hence avoid using it. So, make sure you educate your staff and answer any questions they may have before implementing AI into their workflows.
Lastly, limited access to skilled talent can be a major obstacle to successful AI implementation. At the end of the day, you need skilled and experienced specialists to help build your solution.
Unfortunately, they may simply not be available at your location or be too expensive to hire internally.
Hence, it might be worth considering outsourcing software development so that you can avoid wasting time and money on the talent search and get right down to work with a professional team.
Develop Intelligent Software for Your Financial Institution
Financial organizations are undergoing change. More and more companies are embracing digital transformation, implementing new fintech software solutions, and leveraging technologies like AI to drive business growth.
As we’ve seen today, artificial intelligence can deliver a variety of benefits to the finance industry. Largely, thanks to its capacity to process large volumes of data and derive meaningful insights from it.
However, AI implementation doesn’t come without its challenges, and not every company might be prepared to deal with them. Hence, at Velvetech, we are proud to offer extensive AI software development services to help empower financial institutions with any kind of intelligent tools they may seek.
So, don’t hesitate to reach out to our team to discuss a potential collaboration. We’re always happy to dive into a new, innovative project.