How AI is Used in the Financial Industry
In recent years, various processes in the financial sector, such as data entry, data verification, and various financial reports, were mostly done manually.
This made financial processes quite costly and time-consuming.
Naturally, the human factor always involves a margin of error.
With the emergence of artificial intelligence and automation, the financial sector has undergone a radical transformation and modernization.
Thus, In today's article, we will explore:
What is artificial intelligence in finance, and why is it important?
How is artificial intelligence used in finance?
Some key examples
Let's start with the basics.
What is Artificial Intelligence in Finance and Why is it Important?
Artificial Intelligence (AI) in finance refers to the application of various AI techniques in aspects of the financial industry, using machine learning and data analysis to automate processes, optimize decision-making, and gain insights from financial data.
AI is particularly important in finance as it enhances productivity, reduces errors, and improves the accuracy of forecasting, planning, and modeling.
Additionally, AI holds significant business value by boosting profitability, identifying areas for improvement, and creating a strong competitive advantage.
According to research by Oracle, 33% of those using AI in financial systems reported increased productivity, while 37% of users reported a decrease in errors.
Moreover, organizations that integrated artificial intelligence into their financial systems managed to reduce the time required to complete their monthly financial close process by approximately 4 days!
Note: The financial close process is where financial teams reconcile and reduce account balances before the accounting cycle closes.
Next, let's see how artificial intelligence is used in finance.
How is Artificial Intelligence Used in Finance?
Artificial intelligence has fundamentally transformed and modernized the operations of businesses, especially in finance.
Let's explore some ways it can be applied:
Let's dive deeper.
Credit assessment is a fundamental area where artificial intelligence is extensively used.
Machine learning algorithms can analyze vast amounts of data from various sources, such as credit bureaus and social media profiles, to identify patterns that may indicate whether someone is likely to default on a loan or not.
Fraud Detection and Risk Management
Fraud detection is another area where artificial intelligence is particularly useful.
Machine learning algorithms can analyze large volumes of data and transaction histories from credit cards and bank accounts to detect patterns that may indicate fraudulent activity. Examples include credit card fraud and money laundering detection.
A notable example is PayPal's fraud detection system.
Specifically, PayPal uses machine learning algorithms and rule-based systems to monitor transactions in real-time.
The system examines factors such as the user's location, transaction history, and device information to detect anomalies and suspicious behavior.
Often, investment management firms use machine learning algorithms to identify market trends and patterns that can help them make better investment decisions.
For example, Aladdin, an integrated investment management and operations platform by BlackRock, is frequently used by investors, asset managers, and pension funds.
Furthermore, AI-powered chatbots have the ability to provide personalized financial advice and investment strategies, respond to customer inquiries instantly around the clock, and automate daily tasks such as opening a new account.
An example is Bank of America's AI chatbot, Erica, which offers personalized financial advice, answers questions, and assists customers with various tasks, including checking their account balances, making transfers, and disputing charges.
So, we discussed artificial intelligence in finance, how it's used, and provided some key examples for better understanding.
The field of artificial intelligence and data science, in general, has a significant presence and is constantly evolving at a rapid pace. This is why an increasing number of businesses are turning to AI to stand out from the competition and stay ahead.
Thus, if you are enthusiastic and want to learn more information, follow us and we will keep you updated!