Artificial Intelligence in Banking 2022: How Banks Use AI

The ability of AI and Machine Learning models to make accurate predictions based on past behavior makes them a great marketing tool. From analyzing the mobile app usage, web activity, and responses to previous ad campaigns, machine learning algorithms can help to create a robust marketing strategy for finance companies. An excellent example of this could be machine learning algorithms used for analyzing the influence of market developments and specific financial trends from the financial data of the customers. Machine learning algorithms can be used to enhance network security significantly. Data scientists are always working on training systems to detect flags such as money laundering techniques, which can be prevented by financial monitoring.

• This secures ROI, reduces costs and ensures accurate and quick processing of services at each step.
• Limited risk management leaves financial institutions, firms, and households more exposed to shocks than they could be and is arguably a key factor in financial crises.
• Artificial Intelligence is the future of banking as it brings the power of advanced data analytics to combat fraudulent transactions and improve compliance.
• If it raises a red flag for a regular transaction and a human being corrects that, the system can learn from the experience and make even more sophisticated decisions about what can be considered fraud and what cannot.
• From the lack of credible and quality data to security issues, a number of challenges exist for banks using AI technologies.
• It provides policy recommendations that can assist policy makers in supporting AI innovation in finance, while sharpening their existing arsenal of defences against risks emerging from, or exacerbated by, the use of AI.

This is done by using a variety of factors that paint a more accurate picture of those who may be traditionally underserved. Chatbots and virtual assistants have reduced the need to spend time on the phone waiting to speak with a customer service representative. Consider the introduction or reinforcement of frameworks for appropriate training, retraining and rigorous testing of AI models. Such processes help ensure that ML model-based decisioning is operating as intended and in compliance with applicable rules and regulations. Datasets used for training must be large enough to capture non-linear relationships and tail events in the data, even if synthetic, so as to improve model reliability in times of unprecedented crisis. AI in finance should be seen as a technology that augments human capabilities instead of replacing them.

Fraud Detection And Management:

For example, finance organizations can leverage digital assistants to notify teams when expenses are out of compliance or to automatically submit expense reports for faster reimbursement. Today’s digital assistants are context-aware, conversational, and available on almost any device. But their intelligence level is restricted to providing solutions to problems that the system is programmed for, anything beyond that cannot be accomplished by it. Machine Learning today plays a crucial role in different aspects of the financial ecosystem from managing assets, assessing risks, providing investment advice, dealing with fraud in finance, document authentication and much more. According to a research, for almost every $1 lost to fraud, the recovery costs borne by financial institutions are close to $2.92. Apart from spotting fraudulent behavior with high accuracy, ML-powered technology is also equipped to identify suspicious account behavior and prevent fraud in real-time instead of detecting them after the crime has already been committed.

Banks can use AI to transform the customer experience by enabling frictionless, 24/7 customer service interactions — but AI in banking applications isn’t just limited to retail banking services. The back and middle offices of investmentbanking and all other financial services for that matter could also benefit from AI. One of the strongest trends in innovation is the use of AI to improve customer experience.

Predictive Modeling to Maximize Bank Incomes

Enova created the Colossus platform, which utilizes AI and machine learning to provide advanced analytics and technology to both non-prime consumers, businesses and banks in order to facilitate responsible lending. Artificial intelligence solutions help banks and credit lenders make smarter underwriting decisions by utilizing a variety of factors that more accurately assess traditionally underserved borrowers in the credit decision making process. Have you ever received a phone call from your credit card company after you’ve made several purchases? Thanks to artificial intelligence, fraud detection systems analyze a person’s buying behavior and trigger an alert if something seems out of the ordinary or contradicts your traditional spending patterns, according to Towards Data Science. The majority of banks (80%) understand the potential benefits of AI, but now it’s more important than ever with the widespread impact of COVID-19, which has affected the finance industry and pushed more people to embrace the digital experience. The world of artificial intelligence is booming, and it seems as though no industry or sector has remained untouched by its impact and prevalence.

• ‌As AI establishes its presence in the world of finance, it brings with it numerous impacts—both beneficial and detrimental.
• They can also process drastically higher volumes of transactions in a given period.
• Additionally, AI and Cognitive ML models can decrease the likelihood of false positives or the rejection of otherwise legitimate transactions , thus increasing customer satisfaction.
• AI-based anti-money laundering solutions are helping them prevent fraud, among several other use cases.
• Personalization, on the other hand, can help your clients trust your organization and increase brand loyalty.
• With that said, let’s go over the main applications of artificial intelligence in finance.

AI also makes investment a passive process that requires minimal supervision, which reduces costs while bringing in money at the same time. The financial industry is waking up to the tremendous transformative potential of AI. Industry experts believe that leveraging AI will help the banking industry save a whopping $1 trillion come 2030. There are tons of opportunities to use artificial intelligence technologies in financial services. All of them aim at the process of automation and improvement and elimination of the necessity to involve human action and effort.

Examples of AI in Cybersecurity & Fraud Detection

Modernising existing infrastructure stock, while conceiving and building infrastructure to address these challenges and providing a basis for economic growth and development is essential to meet future needs. AI-based systems can also help analyse the degree of interconnectedness between borrowers, allowing for better risk management of lending portfolios. Section three offers policy implications from the increased deployment of AI in finance, and policy considerations that How Is AI Used In Finance support the use of AI in finance while addressing emerging risks. It provides policy recommendations that can assist policy makers in supporting AI innovation in finance, while sharpening their existing arsenal of defences against risks emerging from, or exacerbated by, the use of AI. With millennials and Gen Zers quickly becoming banks’ largest addressable consumer group in the US, FIs are being pushed to increase their IT and AI budgets to meet higher digital standards.

Considering the interconnectedness of asset classes and geographic regions in today’s financial markets, the use of AI improves significantly the predictive capacity of algorithms used for trading strategies. At this point, there’s no way back – both the companies and their clients have grown used to the convenience provided by the AI tools. Will the market pick all the most recent AI-based solutions, like controversial facial recognition for payments? Time will tell – but undoubtedly, artificial intelligence will continue changing the face of the industry, fuelling a customer-first attitude. AI technologies have become an integral part of the world we live in, and banks have started integrating these technologies into their products and services at scale to remain relevant.

Personalized banking experience

Blockchain technology can remove unnecessary third parties from multiparty transactions, ultimately accelerating the speed of transactions and increasing efficiencies across transactions. Reducing the friction between these transactions empowers individuals to own their data and blockchain ensures the security of the transaction process. Another example of establishing trust in AI using blockchain goes back to the foundations of blockchain. Today, many people do not trust what government and large companies do with their data. The challenge is being able to provide assurance to users that technology hasn’t crossed the line and infringed on privacy. Conversational AI systems can instantly support customers to fulfill their requests.

Fraud prevention is another use case of artificial intelligence in finance and banking. To react faster to fraud and shield their clients, financial companies need to implement innovative AI solutions. Machine learning and deep learning technologies proved to be highly efficient in both preventing and investigating illicit financial activities.

Regulatory compliance

In case of a new anomaly, AI takes in the new rarity and improves the whole compliance process. In the past, compliance officers were tasked with digging through various communication channels, searching for anything unethical and/or unlawful. This work was costly, time-consuming, and prone to many errors and risks that arose due to these errors. Highmark Inc. has saved over $850 million in fraud prevention in the last five years, thanks to AI fraud detection and prevention.