For the past two years the word “Artificial Intelligence” has become one of the most discussed topics in the world. Be it a 4-year old kid or a 85-year old grandfather, literally everyone in the world is using it in their day to day life. From helping children to complete their homeworks to predicting structures of millions of protein molecules, AI has been revolutionising the entire globe. However in the recent months AI has started to invade one of the most confidential and fragile sectors. Financial experts say “AI is the future of finance!”. So let’s explore whether AI is a trustworthy advisor or a financial global threat.
Evolution of technology in finance
Before learning about the role of AI in finance, we should know WHY? technology intervened into the sector of finance. Back in the day when technologies such as ATM and net banking was not developed, manual methods of money transfer were happening. Then technologies like Morse code and telegraph were used for electronic funds transfer, followed by the revolutionising invention of Automatic Teller Machine (ATM). Consequently technology began to develop at an exponential rate, leading to the invention of digital banking, cryptocurrency, open banking, UPI, blockchain, and the most recent yet powerful innovation of Artificial Intelligence.
Role of AI in finance
Though Artificial Intelligence is a new invention, it has already commenced to revolutionize a wide range of areas in the realm of financing, extending from fraud detection in banking to providing financial advice and it has started to play a vital role in those territories. Moreover AI is also used for providing customized instantaneous responses to the customer (like individuals and corporations) using AI chat bots. Adding on, governments too have begun to introduce AI in various financial tasks ranging from analyzing data of humongous amounts to detecting risks and possible flaws in the financial decisions made by the financial system of the nation.
Applications of AI in finance
As AI is developing rapidly the use of it in the realm of finance is also expanding swiftly. In the early stage of AI, during the 1990s, AI was first implemented in financial institutions for fraud detection. It initially focused on discovering money laundering, and it was a huge success. Then in the following years as the technology developed AI was integrated with machine learning (ML), making it into a robust fraud detection system, drastically reducing the number of false accusations about money laundering. Moreover this huge breakthrough reduced the need of tweaking the code of the fraud detection system, when new methods of malpractices were introduced to net zero, resulting in a more reliable and self-sustaining fraud detection system.
Then AI started to be used for other purposes too. These include personalized advice giving AI chat bots and expert systems, data analytics, predictive modelling, personal financial planner and much more. Firstly AI is mostly used in data analytics after the use of fraud detection. In this area the AI models train on vast amounts of data, to learn the trends and behaviours among them, via machine learning (ML) and deep learning (DL), permitting these algorithms to predict the value of shares, currency values, and other financial assets. This capability of the AI model helps us to know about the current trend of the public in the market allowing banks to introduce scheme and plans in favor of the current consumer trend or traders to buy the shares of companies or sectors which is predicted to grow win the near future, and sell share of companies for sectors which may lose its value in the future.
On the other hand the use of AI powered chat bots are sky rocketing. Many individuals too have started to use the personalised chat bots to help them budget their earnings and segregate them into the part of spending and saving. This has hugely improved the economical status of many citizens throughout the globe, even reducing poverty in certain circumstances. Though the popularity of financial expert systems has significantly reduced to an alarming state where literally very few are using it, its application has shifted from personalized financial help to a more crucial one in the territory of banking. At present innumerous banks globally are using expert systems for credit scoring, loan approvals, etc. Furthermore many private firms are acquiring help from AI powered financial planners to properly spend their revenue.
Limitations of AI in finance
Although the integration of artificial intelligence in the finance sector might seem like a revolutionary idea, this too has certain limitations. As AI models and algorithms are purely relying on the data used to train it, if the data used is inaccurate or contains any false information the entire AI system might not be reliable, making the entire process meaningless even if a minuscule amount of information is wrong leading to a waste in time and money. Moreover the usage of such a large amount of data by the public is a huge privacy concern, as this data might contain personal information which individuals will not like to be shared. Apart from this a more prominent practical issue of high investment cost is encountered in this process of using AI in the territory of finance. Since artificial intelligence is still in a developing stage, the investments made for these kinds of activities are not guaranteed to be paid back. This severely affects the fund availability for the companies like JPMorgan Chase, Paypal and even Indian banks like HDFC and ICICI, limiting the growth of AI in this sector.
Future of AI in Finance
As the financial sector continues to evolve, AI integration might be the vital pillar of those evolution says many financial experts and surveys. From improving the efficiency of the current sector in various roles like fraud detection and money transferring, to improving the reliability of the future predictions made AI is going to take over the financial industry. Many surveys and case studies have shown that future milestones, even monumental ones like quantum computing, will greatly contribute to this future achievement of AI in finance.
Conclusion
Even though the invasion of AI into one of the confidential sectors of the entire world might seem alarming, it has the potential to improve the finance sector at a rate which might have only been able to be dreamed in the years before this groundbreaking technological innovation. Moreover it’s us the mankind who developed it, so it’s our responsibility to develop this insanely powerful technology for the betterment of the future!
By: S. Paarthivkumar
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