Artificial intelligence, or otherwise known as AI, is a technological innovation that can transform how a wide range of industries are operating. Artificial intelligence is no longer a technological dream of the future. Major advancements in recent years mean that artificial intelligence is already having a big impact on how businesses are operating. One of the industries that are already benefiting from artificial intelligence is the financial sector. This guide focuses on how artificial intelligence is revolutionizing the financial sector.
Infographic created by Donnelley Financial Solutions, an ESG data management company
The Pension Industry
Machine learning is only in its early stages, but it is already having a big effect on the pension industry. Some of the ways in which AI is affecting the pension industry include:
- Combating Fraud
Pension scams are, unfortunately, the third most common financial scam in the United Kingdom in recent years. With the use of artificial intelligence, pension companies are better able to protect their clients. Machine learning enables companies to monitor pension funds in real-time to ensure risks are avoided.
- Improved Saving Plans
Artificial intelligence can utilize the large banks of data available to create more effective saving plans. Machine learning aids the creation of savings plans which help workers in the pension industry to better strategize and implement savings plans.
- Automation
Artificial intelligence can be used to automate routine and time-consuming processes. This means that staff have to spend less time on basic, repetitive tasks. This enables pension companies the ability to operate more effectively as they are better able to use staff.
Consumer Borrowing
Another way in which artificial intelligence is transforming the financial sector is with consumer borrowing, more specifically, credit cards. When a bank looks to provide a consumer with a credit card, they first have to do a lot of research. They have to find out a whole range of information to assess whether a consumer is eligible for a card and what type of tenure would be most appropriate. If this research is conducted poorly or an incorrect judgment is made, a bank can suffer pretty significant losses.
Artificial intelligence can be used by banks to seriously streamline the processes of background checking a potential credit card customer. Artificial intelligence can be used to check a consumer’s earnings, lifestyle expenses, credit history, and all other relevant information. Not only can machine learning help to more quickly and effectively gather relevant data, but it can also be used to make a judgment about this data. Using machine learning to do checks on potential borrowers helps banks to increase their efficiency rates. AI also helps banks to protect themselves against losses that are incurred as a result of human errors.
Personal Finances
Artificial intelligence is not only a useful tool that is being used by big finance corporations; it can also be used by individuals. Artificial intelligence is being used in the world of personal finance to help individuals better track and chart their personal finances. Specifically, there have been many software and applications that have come onto the market in recent years designed to help individuals keep track of their personal finances. These applications gather data regarding your routine spending habits, such as how much you usually spend on travel, groceries, and rent. This information is then used by artificial intelligence to provide individuals with a more informed view of their personal finances. These applications and software empower individuals to have a better understanding of their personal finances.
Algorithmic Trading
Historically, artificial intelligence was used in trading through statistical modeling; however, there was one distinct downside to this approach. Statistical modelling relied on historical data, which meant that it was not in a position to keep up with the market as it evolved. Not only did statistical modeling rely on historical data, but it was also limited because it needed human intervention. While artificial intelligence was used in trading, its effects had always been limited until the invention of algorithmic trading.
Advancements in artificial intelligence have introduced a new role for AI in trading that comes in the form of algorithmic trading. Not only does this model analyze a large bank of data, but it is self-teaching. Algorithmic trading artificial intelligence collects data from around the world and learns from this data. Using machine learning with modeling enables AI to be used more effectively in the financial trading sector. This is because artificial intelligence will have the power to run without any need for human intervention. By compiling a very large amount of data from a range of different sources, artificial intelligence can be used to provide invaluable information that enables traders to decide their financial strategy.