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How Financial Institutions Are Adopting Artificial Intelligence Technology
How Financial Institutions Are Adopting Artificial Intelligence Technology
Artificial intelligence is already becoming an integral part of many financial institutions and has made tremendous progress.
It is believed that no technology has had a greater impact on the world over the past decade than artificial intelligence. Artificial intelligence gives robots the ability to learn based on data, and it is being integrated into people's daily work and life.
As AI automates time-consuming tasks, takes efficiency to new heights, and maintains strict safety and security standards, it plays an important role in improving existing industries, from healthcare to Health care, transportation, education, management, marketing and more. So, how big is the artificial intelligence industry, and how many places around the world have integrated this technology into their workflows?
According to a study conducted by research firm Gartner, 37% of companies around the world are working in some way. already incorporate artificial intelligence into their workflows. The global market value of artificial intelligence is estimated to be US$87 billion by 2021, and by 2030, its market value is expected to be US$1,597.1 billion.
Having said that, artificial intelligence plays a particularly important role in the financial industry. This article will focus specifically on artificial intelligence in finance. We will review the many ways in which artificial intelligence (AI) has changed the financial game in recent years, from providing superior fraud detection and financial risk management to revolutionizing the banking industry.
Benefits of Artificial Intelligence in Banking
Given the success of artificial intelligence over the past few decades, it is no surprise that banks are trying to integrate artificial intelligence into every aspect of their business. This gives them an edge over their competitors and streamlines various processes.
By integrating artificial intelligence into banking, they are not only eliminating tedious tasks and saving time and money, but also by providing service chatbots, 24-hour access to financial advisors, superior security and fraud detection, etc. , improving customer experience.
Make highly informed decisions
One of the major benefits of artificial intelligence in the banking industry is its ability to suggest decisions based on extensive data analysis. The idea behind such applications is that AI models are better at analyzing massive data sets, including previous loan figures and customers’ financial assets, to predict future loan options, whereas bank managers may rely primarily on personal biases and human insights force.
Artificial intelligence algorithms can analyze a wide range of data, including credit history, income and spending patterns, to produce a more accurate assessment of an individual’s credit risk given specific parameters. Financial institutions can use this information to make more informed lending decisions and reduce risk.
Discover new revenue streams
Similar to loan financing, artificial intelligence can provide banks with new revenue streams. The AI model takes a similar step by scouring millions of historical revenue streams to find the most reliable and rewarding ones. For example, AI can be used to analyze customer data to identify patterns and predict behavior. This information can be used to make informed decisions about product development, marketing strategy and risk management. Artificial intelligence can also be used to analyze market trends and identify investment opportunities, helping organizations make data-driven investment decisions.
Reduce Business Costs
A key benefit of artificial intelligence is the potential cost savings from the automation of time-consuming processes such as customer service and back-office operations. Banks are expected to save $447 billion in costs over the next year, according to an analysis by Insider Intelligence. This is because more and more banks are applying artificial intelligence into their workflows and even inventing new and unique ways to use this technology in their services.
Benefits of Artificial Intelligence in Fraud Detection
Another way artificial intelligence can help risk management is by improving fraud detection. Fraud has been around since the invention of money, so it's important to maintain a solid defense against it. Bank credit cards can be used by the cardholder or can be stolen or guessed by criminals, posing a threat to both the account holder and the banking institution.
Banks are responsible for fraud that occurs to individuals to incentivize the safety and security of funds. No one wants to stumble upon a transaction worth thousands of dollars, and banks don’t want to be responsible for the loss from theft. By deploying fraud detection, illegal transactions can be canceled, saving both parties valuable time and expense.
Fraud detection has improved dramatically over the past few decades, sparking a protracted war between businesses and scammers. With every step businesses take to secure their financial access, fraudsters are coming up with new and increasingly creative ways to get their hands on financial transactions. Having said that, it is no surprise that banking institutions and financial institutions are leveraging artificial intelligence, with 58% of the financial sector using it as their latest line of defense against fraud.
According to a study conducted by Statista Research, in 2021, online fraud caused losses of $756 million in the United States alone; all financial sectors spend significant amounts of money every year upgrading fraud detection systems.
How can artificial intelligence help prevent financial fraud?
Previous fraud detection by artificial intelligence was performed manually by teams of investigators. A common technique is to compare user data to multiple databases and look for potential matches, which can be very time-consuming.
This method is not only slow, but also prone to human error. To solve this problem, enterprise solutions were created to speed up processes by gathering more information from a wider range of sources and processing it faster than any human team could hope to manage.
Real-time Fraud Detection
By integrating artificial intelligence into the fraud detection system, we can quickly detect and block any fraudulent transactions. Prevent fraudulent transactions from occurring in the first place to eliminate any serious harm from occurring. The model is then able to study different patterns and insights to differentiate between what is considered normal customer purchasing behavior and what is considered suspicious.
Transaction location, purchasing habits, sudden large transactions, etc. are all factors that prevent fraud. Banks will send automated text messages to cardholders trying to purchase credit cards in various geographical locations. For example, it is impossible for a cardholder to make a normal purchase at a local grocery store while making a transaction on the other side of the world during the same hour.
Processing Exponential Data
With artificial intelligence, we can process more transactions in less time. This allows institutions to check for fraud in millions of daily transactions with less human intervention. As artificial intelligence enters the financial field, especially fraud detection, banks can use artificial intelligence algorithms to detect any suspicious financial transfers among millions of transfers every day. AI can even spot tiny details that human operators would normally mess up. Fraudulent transfers are then completely eliminated or filtered and passed to a human operator or incorporated with 2-factor authentication to check the validity of the transaction. So how exactly are fraud detection algorithms built in the first place?
Fraud detection is built using machine learning, a subfield of artificial intelligence that allows computers to perform tasks by leveraging large amounts of organized and labeled data study. In the case of fraud detection, machine learning models are trained by absorbing large amounts of previous financial transactions. These datasets include both fraudulent and non-fraudulent transactions, with many edge cases in between. In the case of supervised machine learning, each transaction will be labeled as true (fraudulent transaction) or false (non-fraudulent transaction), sometimes with human intervention.
The Future of Artificial Intelligence in Fraud Detection
As with any machine learning model, the more data you feed it, the better it will perform at its task. In the case of fraud detection, the model can continue to learn from the thousands of new transactions received every day, allowing the fraud detection model to continue to improve over time. The model then saves what is considered normal behavior and compares all customer transactions against them. If a request is abnormal, the model will directly mark it as suspicious, thus preventing such transactions from happening.
Fraud detection has become a critical part of any financial institution’s strategy. The explosion of data makes fighting fraud more challenging than ever. However, simply having new tools and technical capabilities is not enough – agencies need to know how to best apply them to detect the latest threats from the most effective vantage point. It is predicted that artificial intelligence will soon be able to detect financial scams before they occur.
Disadvantages of Artificial Intelligence in Finance
Artificial intelligence can help companies leverage data, manage risks and make better decisions. Although artificial intelligence has many prospects, it also has certain limitations and shortcomings that must be acknowledged. All in all, every industry is different, so there is no one-size-fits-all solution that will work for everyone. A company's decision to implement AI will depend on its key objectives, strategy, and capabilities.
Data Quality
Data is one of the most important components of a machine learning model because the performance of the model is directly related to the quality of the input data. When it comes to the application of artificial intelligence in finance, it is crucial to improve the confidence factor in model performance by ensuring that the data used is large, diverse and updated frequently. The process of data collection should not be taken lightly, as building a high-quality dataset requires a lot of time and effort.
Data Security
One of the biggest challenges faced by artificial intelligence in the financial field is data security. This is because the large amounts of data used in these models can be considered highly sensitive. Customers' names, ages, addresses, credit card numbers, bank account and other information may be included in this data. In this case, a data breach would compromise customers' personal privacy while also enabling attackers to access their financial assets. To address this issue, further security precautions must be taken to prevent sensitive data from falling into the wrong hands.
The Impact of Artificial Intelligence on Financial Services
Looking at artificial intelligence in the financial field from a historical perspective, it is obvious that artificial intelligence and machine learning have been widely used since the 1980s. Artificial intelligence in finance began as highly theoretical research, but has made tremendous progress in recent years and has become an integral part of many financial institutions.
Artificial intelligence opens up a world of possibilities, from providing banks and financial institutions with the ability to maximize services in an ever-changing and ambiguous environment, giving them a significant competitive advantage over their competitors, to providing fully automated services such as chatbots and personal financial advisors, drastically reducing the number of fraud traces in all financial transactions and providing better insights into upcoming lending and financial risks.
Without the contribution of artificial intelligence, the financial world would be very different from what it is today. The limits of artificial intelligence are not yet known, but conversely, the capabilities of artificial intelligence are yet to be realized. However, one thing is clear, the world has been fundamentally changed by artificial intelligence.
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