Artificial intelligence opens up the world of financial services

If you run a financial services company and want to drive digital transformation, you need to decide exactly what needs to be transformed. “In all honesty, what areas don’t exist?” says Teddy Flo, general counsel of Zest AI. “The financial services industry lags behind other consumer-centric industries in many ways.”

Any and all transformations should have one goal, and one goal only: to deliver to the customer—ultimately enriching their relationships with banks and non-banks. “You can’t change anything for the better if everyone doesn’t have equal access to capital,” says Flo. “The way we make credit decisions must be fair and inclusive and done in a way that takes into account the bigger picture of a person.”

Here are ways AI can help ensure more equitable access to financial services:

• Customize without branches. As banks continue to scale back their face-to-face branches, AI can help keep things personalized. “Ironically, artificial intelligence can help redefine and restore personalized experiences that build trust for consumers and small business owners,” says Charlene Coleman, senior managing partner and head of modern finance at Launch Consulting Group. “One example is AI-powered personalized conversational interfaces and biometric profiles that have shown promise in helping vulnerable consumers avoid debt traps fueled by late fees and inflexible payment schedules.”
• Make more informed risks. AI can help prevent financial disasters, thanks to today’s abilities to “make appropriate, informed decisions about risk and capital allocation,” says Dr. Lewis Z. Liu, CEO and co-founder of Eigen Technologies. “By leveraging AI, financial institutions are better equipped to truly transform the decision-making process to be more accurate, efficient and successful.” Many financial institutions “make risk, capital allocation and underwriting decisions based on as little as 10% of the available data,” says Liu. “Typically, this is because it is too expensive or too difficult to access the data they need. Introducing AI into this process plays an important role in improving outcomes. Through the use of AI, a wide range of organizations have been able to access and utilize 90% of previously inaccessible relevant data, enabling them to make more informed and better decisions.”
• Reduce or prevent fraud. AI also “opens up a whole new world of opportunities to tackle and reduce fraudulent activities such as money laundering,” continues Liu. “This allows institutions to validate transactions, tighten security and respond to threats.” As an example of AI in action, “Businesses are leveraging AI to monitor large numbers of credit card and electronic payment transactions on a daily basis, detect changes in our purchasing behavior, and provide a more streamlined process for dealing with any fraudulent activities for protect us,” says Vrinda Khurjekar, Senior Director at Searce.
• Align new players in the sector. AI can shift the balance between traditional banks and faster FinTechs. “Large banks and financial corporations should be careful about ceding ground to institutions that prioritize AI, neo-banks and large tech companies that want to enter banking as their next adjacency,” warns Coleman. “Traditional finance has the opportunity to lock in these disruptors with industry experience and deep capital, but has been reluctant to really embrace advanced technology.” As a result, companies prioritizing AI and FinTechs “are certainly gaining ground and disrupting traditional financial services,” says Liu. “However, many of these FinTechs have not invented anything new. Instead, they are raising the standard of digital service to an existing concept.” For example, he continues: “Think about how Venmo transformed the mobile payments space or how Klarna changed the game for short-term financing. It was less about bringing something new to financial services and more about changing the way it was done.”
• Accelerate services. “As applications have not fully scaled with new age technologies, many processes are still being performed manually as seamlessly automating them is a challenge for most of these institutions,” says Khurjekar. For example, “Loan processing, customer onboarding or check depositing processes are not very well integrated by most banking systems. If you’re trying to get a mortgage loan, it can still take a long time to complete all the steps, which can be drastically reduced if banks have less technical debt and can adopt new-age cloud solutions more quickly.”
• Take advantage of human-AI partnerships. While AI solves many problems facing financial institutions, successful banks have developed processes that keep humans in the loop. “Deploying AI to democratize the financial system requires bold, human-centered leadership willing to invest in technology and talent,” says Coleman. “Credit underwriting decisions made solely by an algorithm designed without humans in the loop will increase the risk of prioritizing profit while ignoring social impact,” Coleman points out. “The algorithm can then learn to discriminate against specific population segments, resulting in unfair decisions.”

The rise of AI in financial services is raising expectations for banks and fintechs alike. Banks “are fundamentally rethinking all of their net new investments in their technology stack,” says Khurjekar. “If data center leases are expiring, there is a very active effort to assess which parts of those applications need to be rewritten or moved to the cloud for better scalability. Banks are using AI and machine learning to predict consumer behavior, understand their purchasing preference and even detect atypical fraud to improve card and transaction management.”