Ask any tech enthusiast to list the innovations they are most excited about at the moment, and there’s a good chance artificial intelligence (AI) will be pretty close to the top of that list. Some will tell you it’s the next great frontier in technological exploration, while others might argue that AI, machine learning and robotics will create just as many concerns as opportunities.
Whatever your personal opinion on the subject, there’s little doubt that AI is about to become a much more important part of how we conduct business, do our jobs and live our lives. As far as industries are concerned, financial services could be more heavily affected by this phenomenon than any other.
How AI is changing financial services
The potential for deployment of AI and machine learning across the financial services sector seems almost limitless. These innovations are already changing how the industry operates and how businesses engage with their customers, and are only set to become more important in the years to come.
One example is the use of intelligent ‘chat bots’ such as Luvo, which is based on IBM Watson Conversation, a cloud-based cognitive service. Royal Bank of Scotland will start using it for online communication from December 2016. Luvo will answer simple questions – such as ‘How do I authorize my card to be used overseas?’ – itself, and direct more complicated queries to a human customer service assistant.
AI also looks set to make its mark in the payments sector. A survey by Pelican, a financial services solutions provider, found that nearly three-quarters (72 per cent) of payments professionals across 32 countries thought AI had strong potential to address some of the inefficiencies in their payment processing activities. More than two-thirds (67 per cent) predicted higher adoption of these technologies by banks to boost payment efficiency over the next two years.
Pelican founder and CEO Parth Desai said: “We hope this survey serves as a wake-up call to an industry still relying heavily on manual processes and legacy systems. The need to adopt smarter tools has never been more vital. By using the latest cutting-edge AI technology, financial services providers can innovate and significantly reduce time to market.
“At the same time, they can introduce context and human-like understanding to their payments and compliance processes. This reduces the need for manual intervention, allowing for precious resources to be re-deployed.”
Fighting fraud with machine learning
Machine learning is a key element of AI and an exciting area of innovation for financial institutions (FIs). As the name suggests, machine learning gives computers and automated systems the ability to learn without explicit programming. It is concerned with the development of programs that can teach themselves to grow and respond to new data.
Machine learning has many potential applications in the financial services industry – in areas such as risk management, evaluating creditworthiness and product targeting, for example.
One field where this cutting-edge technology can prove particularly beneficial for FIs is fraud analytics, where businesses should always be on the lookout for new ways to stay ahead of the latest threats. Banks today can access intelligent fraud detection and prevention solutions that use machine learning to improve detection rates and reduce false positives. These tools have become sophisticated enough to track the latest patterns in fraudulent activity and respond accordingly.
Is the growth of AI a cause for concern?
There’s certainly plenty of excitement around AI and its vast potential, but there is also concern about what the growth of this concept will mean for the future of the human race, not to mention our businesses and industries. When someone like Stephen Hawking says AI could be “either the best, or the worst thing, ever to happen to humanity“, it’s time to sit up and take notice of just how complex and important a subject this is.
As far as FIs are concerned, one thing that seems fairly clear is the need to improve understanding of concepts like AI, machine learning and robotics, and to be in the strongest possible position to benefit from these innovations, rather than being overshadowed by them.
KPMG has envisaged a future in which virtual assistants carry out a range of everyday financial tasks for customers, rendering traditional banking cornerstones such as call centers, branches and sales teams obsolete. As disquieting a prospect as this is, the firm also pointed out that banks can position themselves for success in this new era by leveraging their data, building positive partnerships and delivering a high standard of cyber security.
Warren Mead, fintech lead at KPMG, said: “Currently, technology firms invest ten to 20 per cent of revenues into research and development; for banks it’s just one to two per cent. With banks’ return on equity under five per cent it’s hard to see that changing significantly in the short to medium term, but if firms want to remain relevant, it has to.”
So there’s plenty of work ahead if FIs and the industry want to make the most of these groundbreaking innovations, but for those that go about it in the right way, it could be the start of a fascinating new era in financial services.