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Artificial intelligence is a concept that has enthralled us throughout the decades since the phrase was first coined by computer scientist John McCarthy in 1956. It has featured prominently in the worlds of literature, film and TV, yet now, some 60 years later, it is no longer the stuff of science fiction.
The concept of machines being able to do manual tasks better and faster than us is something with which we are familiar. It is why we drive a car instead of walking, or have robots working a production line. Yet the idea that a machine might think better and faster can be a more challenging concept to come to terms with. Yet surely that’s what we have been experiencing since the introduction of the first pocket calculator.
As machine learning has advanced, so have the applications for AI. Its power lies in its ability to process data far more rapidly than the human brain, and to draw conclusion from what it sees. It should come as little surprise, therefore, that the data-driven world of financial services is a hotbed of AI innovation. Here are some areas in which it is making its presence felt.
Advisory services
Robo-advisors have been hitting the headlines in the financial press over recent months, and not always for the right reasons. Used correctly, they can make more accurate market assessments than their human counterparts, while at the same time making investment recommendations and delivering portfolio management services for a vastly lower price. The downside is that, like any AI, they can only work within the parameters of the rules they are programmed to follow. A robo advisor cannot look a potential investor in the eye and understand the personal drivers and aspirations that he or she might have. AI delivers the biggest benefit when it is used in collaboration with the human viewpoint, in what is sometimes known as bionic advisory services.
Trading tools
The world of Forex trading has opened up broadly in the internet age. Once the domain of investment bankers and city slickers, today, anyone can download an app onto their smartphone and start trading with little or no experience. Successful trading relies on an ability to analyze past patterns and predict future behavior, and a range of Forex robots have been developed for this purpose. As with so many things in this world, some are better than others, but the best Forex robots can make the difference between an amateur trader making a solid trading profit or crashing and burning.
Risk assessment
Modern marketing is all about delivering tailored products and services, and AI makes it easier to bring this concept into the world of financial services. If a customer is looking for a new credit card, traditional risk assessment processes take a broad view of the applicant’s credit history and either accept or decline the application. AI can be used to delve far deeper, understanding the customer’s buying habits, repayment history, existing loan agreements and so on. It can then crunch this information to deliver a product offering with a credit limit and interest rate that is tailored to the applicant while meeting the lender’s risk appetite.
Fraud detection
Detecting and managing fraud is fundamental to any financial institution. However, banks and lenders are constantly treading a fine line. Genuine fraud needs to be identified and flagged rapidly, but a false alarm, in which a genuine purchase is blocked because it has triggered a red flag will cause embarrassment and irritation to the customer. Making the right call depends on understanding what is and is not anomalous behavior, and AI is perfect for this purpose. As well as being able to work from far larger data sets than any manual system, AI will constantly learn from its mistakes – in other words, the more the anti-fraud bots work, the better they get at their job.
Just the beginning
These are some of the ways AI is changing the financial services landscape, but its applications are only starting to be understood. Start ups like Wallet.ai are developing personal financial assistants that can help everyday people with their everyday finances. These seem certain to become commonplace over the coming years as we leverage the power of AI to help us manage our money better.
