How is Artificial Intelligence Transforming Financial Institutions to Gain ROI

How Artificial Intelligence is changing Banking Sector

In the last few years, a lot of financial institutions have turned to technologies to help do the jobs humans were initially employed to do. Artificial Intelligence in financial institutions does not only improve customers experience, but it also helps to optimize processes, boost revenue, reduce operating cost, and reduce fraud.

Already, over $4billion has been invested on startups focused on AI implementations in financial institutions; this amount is expected to increase with time as more firms take advantage of this technology and embark on a digital transformation journey.

Also Read this blog: How AI Can Improve Your B2B Sales And Marketing in 2019

Importance of Artificial Intelligence in Financial Institutions

Some of the importance of Artificial intelligence technology in the financial institution includes the following

  • Data mining: AI systems are essential in financial institutions because they are built to make insights based on existing information. Decisions in financial institutions, from credit card companies to banks, are made based on insights generated from existing data and information. Already, AI modules have been developed for mining data routinely collected by financial institutions for different purposes; these modules which are cost-effective have proven to be efficient in cases where they have been applied. 
  • Develop an effective credit system: In the past, financial institutions found it difficult to determine whether a creditor could default a loan or not. However, AI technologies now help financial institutions to determine the tendency of a creditor defaulting a loan and ensuring that loans are given proper guidance before disbursement. 
  • Track the use of consumer information: Customer data protection rights have been a significant challenge in the financial sector. Regulations have been placed on streamlining the use of consumer data for other purposes than it was intended. Compliance to these regulations has, however, been a struggle for institutions in the financial sector because of the lack of measures for ensuring compliance. AI technologies have now been developed to track the use and share of consumer information towards ensuring proper compliance with the existing regulations.

AI Benefits for Financial Institutions

Some of the benefits of AI in financial institutions include: 

  • Fraud prevention: Over the years, the application of AI technologies has prevented fraudulent activities in financial institutions. This is because there are so many AI models established for vast mining quantities of data and determining irregularities that would otherwise be missed. Usually, fraudulent activities in the financial sector are carried out based on the ability to mask irregularities; with existing models for detecting these irregularities at a highly microscopic level, fraudulent activities and false positives can be flagged and addressed quickly.
  • Trading insights: Financial institutions also stand to gain a lot of insights from the application of AI technologies since they spot developing trends much more effectively than previously existing systems. Excellent trading decisions are made based on the ability to spot developing trends and act fast based on these trends. With AI technologies, financial institutions are equipped with better insights for trading decisions.
  • Customer satisfaction: AI systems are specially adapted for ensuring the highest level of customer satisfaction. The application of AI-based systems such as Chatbots, for example, allows the automation of processes as well as improved customer satisfaction. Chatbots are adapted to provide financial guidance, and they do so based on insights gotten from proper analysis of information available on the customer. By combining the speed of a machine and the intelligence of a human, these Chat bots guide customers towards appropriate financial products. Chatbots are also able to attend to customers just like the human customer service agent after spent is spent shadowing customer service agents.
  • Resources management: AI systems are some of the best ways of applying technology in resource management, and this applies to financial institutions due to the scope of transactions that occur in the finance sector. The application of AI systems saves time, money, and other forms of resources. Financial institutions that apply AI systems are thus better poised for growth. 

Ways Artificial Intelligence is Transforming the Finance Industry 

The application of AI leads to the steady transformation of the basic processes in the finance industry. Here are a few ways in which AI is transforming the finance industry. 

  • Risk assessment: Risk assessment is a significant aspect of finance, which AI systems are transforming effectively. AI technologies can determine a customer’s eligibility for the card based on insights gotten from large quantities of data on their financial habits. In addition, information generated from a customer’s spending habits, loan repayment habit as well as other available information, can help a financial firm gain more insights about a customer’s credit habit. Since AI systems are learned systems based on human intelligence, they can carry out the duties of a human analyst more effectively while guaranteeing smooth operations and customer satisfaction.
  • Fraud detection: AI systems are also transforming the way fraud is detected in the financial sector because they are poised to detect irregularities. These irregularities include spending irregularities that could be an indication of a stolen card or hacked account. Since AI systems are trained to detect irregularities, unusual spending habits will alert the system of possible fraud, and proper actions will be taken in the right direction.  
  • Trading decisions: Learned machines are also transforming the way trading decisions are made in the financial sector. Financial institutions have always relied on insights from human data scientists as well as other sources in making trading decisions. However, this trend has changed as financial institutions are relying increasingly on learned machines because of the ability to these machines to detect trends based on available data. The ways portfolios are designed in the financial industry are thus increasingly dependent on the learned machines. Learned machines can provide insights for the different categories of investors based on their risk appetites as well as developing market trends. Investors are thus relying more on AI systems for making investment decisions.

Generally, AI is transforming service delivery in the finance industry through its numerous applications.

Applications that Artificial Intelligence has in the banking sector

Although AI is still considered an emerging technology, it is currently used in almost all financial institutions in one way or the other. Reports have shown that Artificial Intelligence is applied in the banking sector because of the personalized touch which it gives. Learned machines also guarantee improved customer service, and this is another reason why Artificial Intelligence is attractive to banks.

Here are a few ways in which artificial intelligence technologies are applied in the banking sector today: 

  • Chatbots: A major application of AI in the banking sector is in the form of Chatbots. Chatbots guarantee active customer service because these machines are trained to attend to queries with efficiency while still maintaining the human touch.  There is also the rise of the application of AI as virtual assistants in attending to the queries of clients as well as in carrying out business communication.
  • Mobile banking: Mobile banking has been generally accepted by customers, and banks have started applying Artificial Intelligence in improving mobile banking, especially in creating the personalized touch that is bound to improve customer satisfaction. Artificial Intelligence is thus applied in banking apps in ensuing predictive services. Based on the pattern created by a user, tips on financial decisions as well as products and services could be offered by incorporating AI systems into banking apps. Banking apps which are currently quite essential could be made super intelligent by incorporating AI into the apps. Banks have found that AI is strategic to improving customer satisfaction and are introducing AI systems that guarantee enhanced customer satisfaction, from intelligent banking apps to Chatbots. Business communications are also being improved with the application of AI in the banking sector. 

How AI Will Affect Forecasting in Financial Markets

AI technology is primarily known for its ability to predict trends and possible anomalies. It is thus essential to consider how the application of AI will affect forecasting in financial markets. 

Decisions in financial markets are made based on available insights, and AI tools have proven to be effective in providing insights based on patterns developed in relations to human intelligence. Because of the ability of AI to predict possible outcomes, AI technology can be applied in developing tools for processing raw data and establishing trends. 

In this regard, AI can be an asset in making decisions in the financial market because of the insights that can be gained from the use of AI. Organizations are thus increasingly depending on AI for analyzing data and getting insights from large quantities of data within short periods.

However, AI-based systems are not soley relied on in making market decisions. AI tools are bound to affect forecasting in financial markets because of the insights they provide, and organizations, as well as individuals, will be poised towards making better decisions based on the available insights.

6 Examples of AI in Financial Services

AI can be applied in financial services in several ways. Examples of AI in financial services include the following.

  • AI and Credit Decisions: AI helps to provide an accurate assessment of potentials borrowers at a less cost. It also enables financial institutions make informed decisions about their customers. In addition, the credit scoring option provided by AI is more sophisticated than the traditional credit scoring, thereby helping lenders to distinguish between high-risk cases and people who are creditworthy. Already some automobile lending firms in the United States are reporting success with the use of AI technologies. 
  • AI and Risk Management: When it comes it risk management, AI allows a vast amount of data to be handled in a short time, this data includes both structured and unstructured data. AI also identifies high risk areasand shows signs of potential issues in future. It helps organizations get accurate predictions based on multiple variables that are vital to a business. For instance, US leasing firm, Crest financial made use of AI technologies on their Amazon Web Services platform and recorded significant improvement in risk management. Also, Zestfinance is an AI application has been effective in preventing losses in financial institutions and achieving customer satisfaction.
  • AI and Fraud Prevention: AI has also been successful in battling financial fraud. It helps financial firms prevent credit card fraud by analyzing client’s behaviors, location, buying habit, and improves security system. Banks also use AI to prevent money laundering; machines recognize suspicious activities and help to cut cost of investigating alleged money laundering activities. An example of AI in fraud detection is the use of Shape Security, an AI application that helps to prevent fraud in the banking industry. This tool is specially designed to adequately distinguish between transactions initiated by a person and transactions undertaken by a bot. Shape Security detects irregularities and alerts both the customer and the bank. 
  • AI and Trading: AI offers multiple benefits in trading. Intelligent systems can be used to monitor both structured and unstructured data in real time. It also provides an accurate prediction of stock market performance and brings validation process to a whole new level. For instance, Bloomberg recently launched Alpaca Forecast AI Prediction Matrix, which is a price-forecasting application for investors powered by AI, it makes use of real market data provided by the firm with AI technologies to identify patterns in price movement which leads to accurate market predictions. 
  • AI and Personalized Banking: AI helps banks in providing personalized banking experience to its customers. It powers chatbots that helps with self-help solutions for customers. For instance, voice controlled virtual assistant like Amazon Alexa helps customers to check balances, schedule payment, and get all details about their account. There are so many other apps used by banks to provide personalized banking for its customers. 
  • AI and Process Automation: AI also helps financial institutions to boost operational cost and increase productivity.  It works on a repetitive and mundane task while allowing employees to focus on other essential aspect of their job. Also, the use of AI in carrying out repetitive task helps to eliminate human errors


Finally, AI is the future of the financial industry. Even though the use of AI technologies in the financial institutions is still at the planning stage, it offers so many benefits which cannot be ignored.

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