One of the industries that is greatly affected by the Artificial Intelligence (AI) technology is the financial industry. A great number of the customers of the finance and banking industry are the millennials and gen-x population who are more inclined into the use of automated and self-help services. The demand for automated services magnified with the current pandemic situation for which not only the millennials but majority of the consumers prefer to stay at home and need more self-service options.

AI addresses this concern of the finance industry to be able to meet the growing demand of its customers for smarter, more convenient and safer ways to access, spend, save and invest their money. AI is becoming a necessity for any financial institution if it wants to be a top player in the industry.

 

AI for Global Finance

According to studies made by Business Insider Intelligence, digital banking will reach between 75-78% by the year 2023 and the use of AI applications could cut the costs of financial institutions by an estimated $447B which is why banks are finding new ways to incorporate AI tech into their services. Studies also show that 80% of the finance and banking institutions are highly aware of the potential benefits of the use of AI.

 

AI for the Philippines Finance Industry

In countries like the Philippines, where financial inclusion is still low, (as of the 2nd quarter of 2019, 32.2% of the total cities and municipalities in the Philippines have no banks), the use of AI technology can help reach the underbanked and financially excluded population.

It could empower them to manage their finances and thus alleviate poverty. It will also help on the growth of micro, small and medium enterprises leading to the country’s economic development and inclusive growth.

Based on a research headed by Christine J.S. Castaneda (Businessworl, Feb 2019), Bangko Sentral ng Pilipinas (BSP) has noted that while some of the BSP-supervised financial institutions (BSFIs) are taking a conservative approach in assessing the pros and cons of the AI tech, the level of immersion differs for each BSFI. There are some who have started to apply the available technology to their operations such as customer acquisition, digital Know-Your-Customer and marketing, as they are aware of the potential benefits that can be derives from AI tech.

 

AI addresses this concern of the finance industry to be able to meet the growing demand of its customers for smarter, more convenient and safer ways to access, spend, save and invest their money. AI is becoming a necessity for any financial institution if it wants to be a top player in the industry.

 

Benefits of AI Applications

A great number of AI applications are available for the finance industry. For personal finance, there are 24/7 chatbots that can provide wealth management advisory services and can help in budgeting, meeting savings goals and expense tracking. For consumer finance, there are AI applications that can help prevent fraud and cyber attacks. It can identify irregular patterns such as compromised login credentials that would not be detected by human beings and can alert in real time both the customer and the company of the security breach. Executives at the corporate finance will benefit a lot from AI tech as it could enable them to predict and assess credit risks. It could help improve the loan underwriting process and reduce financial risks.

With a 24/7 customer interaction possible with the use of AI, clients will be served faster improving customer experience, translating into higher profit for the financial institution. Since most work will be automated, the need for repetitive work is reduced leading to more efficient operations and reduced labor cost. Early detection of fraud and projection of risks will result to lower false positives and human error.

 

Threats of AI in Finance

With the automation of tasks, the use of AI technology in finance, just like in any other industry, could result to job loss or job reassignment for those whose functions will be automated and replaced by AI. This could affect not just the lower level employees, but also all levels, from the tellers and verifiers, customer service representatives, billings, new accounts, loan officers, compliance officers and even the finance managers.

Decisions and results generated from AI such as credit scoring are opaque and not verifiable. It will be difficult for the bank manager to explain to the client the basis for which the latter’s bank loan application was denied and this could affect the financial institution’s reputation risk.

There will be no more dinner meeting with wealth managers and financial advisers. Most transactions are done through portals, online messages, webchats, virtual meetings, and digital online banking. There will be less customer contact and lack of human touch that could likely affect a person’s interpersonal and social skills. This may likewise reduce customer loyalty as rapport and follow through with the customers would be minimal.

 

What Needs to be Done?

AI is most likely to be the future for the finance industry. Firms who are using this as a long-term cost-cutting investment are making massive investments. It helps the companies in saving money by avoiding human errors in the process. But for the finance industry to be fully ready, the government must make necessary steps so that it will not negative affect the society, both those in the finance industry and its consumers.

With the pros and cons of AI technology for the finance industry, there is a need to regulate its implementation to balance the convenience that is brought about by innovation with security and client protection.

Massive data infrastructure is required in order to come up with a more accurate AI generated financial decisions. There must be a proper inspection and checking of the accuracy of the data and likewise a safe storage to prevent leaking of confidential customer’s data. Results and basis of results must be completely transparent to avoid reputation risk.

Employees in the finance industry should be equipped with proper training of the new skills that are needed to be able to adopt to the changing environment in finance as a result of adaptation of AI technology. These employees, on the other hand, must have the willingness to change and learn new skills in order to be retained or employed.

 

So how ready is the Philippines finance industry for AI?

 

References

BSP and Financial Inclusion (n.d.). Retrieved from http://www.bsp.gov.ph/about/microfinance_FI.asp

Castaneda, C.J.S. (2019, February 28). Are PhL banks ready to play with FIRe? Retrieved from https://www.bworldonline.com/are-phl-banks-ready-to-play-with-fire/

Padhi, U. (2019, August 21). AI in banks: risks and opportunities. Retrieved from https://www.fintechnews.org/ai-in-banks-risks-and-opportunities/

Phaneuf, A. (2020, September 10). Artificial intelligence in financial services: applications and benefits of      AI in finance. Retrieved from https://www.businessinsider.com/ai-in-finance

Schroer, A. (2020, March 25). AI and the bottomline: 15 examples of artificial intelligence in finance.  Retrieved from https://builtin.com/artificial-intelligence/ai-finance-banking-applications-companies