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AI Applications in financial services

  • Manisha Sahu
  • Jun 15, 2021
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Finance is an essential aspect of any organization; it's like a second language for every industry, and Financial analysis is the process of assessing the characteristics of any business or business initiative.


To begin with, it is the study of money management. Second, it is the actual process of raising funds for an individual or business in order to expand their work or business. 


Since the mid-1990s, the financial industry has evolved significantly. Digital technologies have had a significant impact on this industry, and it is now more digitized than ever thanks to digital banks and mobile banking. 


We live in a time when speed and convenience are the most important competitive advantages in any industry. They are accustomed to obtaining all necessary information and making purchases by simply tapping on the screens of their mobile devices.


What is Artificial Intelligence?


Artificial intelligence (AI) is a broad field of computer science that focuses on creating intelligent machines that can accomplish activities that would normally need human intelligence. 


Although AI is an interdisciplinary discipline with many methodologies, advances in machine learning and deep learning are causing a paradigm shift in nearly every sector of the IT industry.


Intelligent assistants (like Siri and Alexa), Tools for disease mapping and prediction, Drone robots and manufacturing, recommendations for tailored healthcare therapy that are optimized, stock trading robot-advisors, email spam filters, tools for monitoring social media for potentially harmful content or fake information, Spotify and Netflix provide song and TV show recommendations.



What are Financial Services?


The word "financial services" refers to the services supplied by the financial market. The phrase is frequently used to denote businesses that deal with money management. For example banks, investment banks, insurance firms, credit card firms, and stock brokerages.


These are the different types of businesses that make up the market, and they offer a wide range of financial and investment services. In terms of earnings, financial services are the world's greatest market resource.


Financial services include insurance, estate, trust, and agency services, securities, and other forms of financial or market intermediation, including the distribution of financial products, and are not restricted to deposit-taking, loan, and investment services.


Recommended Blog: Financial Analysis



Application of AI in Financial Services


Automation of AI in Banking


It is possible to automate processes for jobs such as analyzing new rules and regulations or providing individualized financial reports for individuals using AI technology. 


For example, IBM Watson can comprehend complicated legislation such as the Markets in Financial Directive and the Home Mortgage Disclosure Act's additional reporting obligations. Rather than enlisting the help of financial experts to find answers to problems, which require hours or days, Watson can do it in a matter of seconds.


Similarly, financial managers can utilize AI to provide more detailed status reports for their clients faster, allowing them to deliver more personalized advice to a larger number of clients. 


Not only that, but they can do it more quickly and provide the facts in a more understandable manner. Finally, AI enables bankers to make loan decisions in seconds rather than months, considering risks and spending patterns, as well as looking at alternative data sources such as rent and utility payment history.


Banks can lower their risk of default loans and improve customer experience by reducing the number of abandoned applications from angry borrowers who are tired of the lengthy procedure by automating the decision-making process.


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Chatbots in banking can automate routine processes like creating a new account or transferring money between accounts, saving time and money. Instead of developing a new chatbot software, businesses may simply install Chatbots on their existing websites. 


They're also available at all times, so even a consumer who hits your website at 3 AM, may get answers to their queries and help with their difficulties.


Starting with particular activities that a chatbot can execute, such as paying a bill or processing an account application, is the best way to program a chatbot. 


However, as it matures, it will begin to understand the various languages and words used to describe the same activity. Chatbots will also need to identify vocal pitches, inflections, pronunciations, and accents as more financial institutions build speech apps.

The picture shows AI applications in financial services  namely chatbot,  automation of AI in banking, fraud detection, trading, managing  finance, financial advisory services, take a look at a few applications in financial services in Artificial intelligence

AI applications in financial services

Fraud Detection And Management


Every company strives to lessen the risks that surround it. Even a financial organization is subject to this rule. You get paid interest on deposits and income on investments because the loan you acquire from a bank is effectively someone else's money. This is also why financial organizations and banks take fraud very seriously.


When it comes to security and fraud detection, AI is unrivaled. It can leverage prior spending patterns on several transaction instruments to flag anomalous activity, such as using a card from another nation just a few hours after it was used elsewhere or attempting to withdraw a large sum of money from the account in the issue. 


Another great advantage of AI-based fraud detection is the system's willingness to learn. If it raises a red flag for a routine transaction and a human corrects it, the system can learn from the experience and make ever more complex conclusions about what is and is not a fraud.





Computers and data scientists have been used by investment firms to forecast future market movements. Trading and investing, as a domain, rely on the capacity to effectively forecast the future. 


Machines excel at this because they can process large amounts of data quickly. Machines may also be taught to recognize patterns in historical data and anticipate how they will reoccur in the future.


While abnormalities in data exist, like in the 2008 financial crisis, a computer may be taught to analyze the data in order to uncover ‘triggers' for these anomalies and plan for them in future predictions. Furthermore, based on an individual's risk appetite, AI can provide portfolio solutions to suit that requirement.


As a result, a high-risk investor can rely on AI to make decisions on whether to buy, hold, and sell stock. Those with a lower risk appetite can receive alerts when the market is projected to collapse, allowing them to decide whether to remain involved or exit the market.



Managing finance


Managing funds in today's interconnected and materialistic world can be a difficult undertaking for many of us; however, as we move farther into the future, we can envision AI assisting us in our financial management. 


One of the most recent breakthroughs on the AI-based wallet is PFM (personal financial management). Wallet, a San Francisco-based firm, uses AI to create algorithms that assist people in making wise financial decisions.

The wallet's concept is simple: it just collects all of the data from your online footprint and builds a spending graph. Advocates of internet privacy breaches may find it offensive, but it's possible that this is the way things will go in the future. 


Thus, in order to save time from creating lengthy spreadsheets or writing on a piece of paper, it must be the preferred personal financial management system. From a small-scale investment to a large-scale investment, AI pledges to be the financial watchdog of the future.


AI assists businesses in reducing the cost of recruiting individuals while also minimizing human errors in the process. Though the pace at which the finance sector is evolving is still in its infancy, it is reasonable to expect minor losses, better trading, and, of course, excellent customer service.


Risk Evaluation


It's only natural that AI would succeed in the Financial Services industry, where book-keeping and recordkeeping are second nature. 


Consider credit cards as an example. Credit scores are now used to decide who is and is not eligible for a credit card. However, dividing individuals into "haves" and "have-nots" isn't always the best business strategy. 


Instead, data on each person's loan payback history, the number of active loans, the number of current credit cards, and other characteristics can be used to adjust the interest rate on a card so that it is more profitable for the financial institution issuing the card.


Consider for a moment which system is capable of sifting through thousands of personal financial records to find a solution—a learning machine, of course! This is where AI comes in. Scanning these records also allows AI to create loan and credit recommendations that make historical sense, as it is data-driven and data-dependent. 


AI and machine learning are gradually replacing human analysts since human selection mistakes can cost millions of dollars. AI is built on machine learning, which learns over time and reduces the danger of making a mistake when assessing vast volumes of data. 


AI has automated areas that require cognitive analytical and clear-thinking skills. Chatbots have proven to be a significant help in the financial sector.  


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Financial Advisory Services


We should expect more Robo-advisors, according to the PWC Report. Machines may do what humans do not work for a single down payment-as pressure mounts on financial institutions to slash their commission rates on individual investments. 


Bionic advising is another emerging industry that combines machine calculations and human intelligence to create options that are far more efficient than their individual components.


Collaboration is essential. It's not enough to regard a machine as an afterthought or, on the other hand, as a tyrant. The future of financial decision-making will require a good balance and the ability to see AI as a component in decision-making that is just as significant as the human perspective.



Bottom Line


Artificial intelligence technology can be used in a variety of ways in the financial services industry. All of them are geared toward the automation and improvement of processes, as well as the removal of the need for human actions and efforts. 


The applications listed above demonstrate that AI has the ability to stabilize the whole industry and propel the global economy to new heights.


At the same time, AI is a hot topic these days. There are differing viewpoints on its development and future effects. Some scientists have cautioned that these cutting-edge technologies are not without their drawbacks. Despite this, AI continues to advance.


If the successful coexistence of AI technologies and humankind can be organized, our future will be bright and fruitful. Any potential negative implications must be examined in order to design software solutions that improve rather than destroy the world.


Financial organizations could benefit greatly from AI-based tools. However, the field is as lucrative as it is difficult. The decision to install AI-based financial software necessitates a technically intensive procedure of resolving numerous technological issues.

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