The consequences of AI and the opportunities it provides are completely changing how the financial system operates. While it creates opportunities, there is much more to worry about. The future of investing, lending, and risk management systems will turn out to be completely different as AI will take over tasks ranging from simple job executions to complex prediction models.
Opportunities
- Beta Generation: AI powered algorithms have the potential to go through and understand massive amounts of unstructured data from a discontinuity of sources which makes forecasting more dependable and investment easier. Such approaches may help in better portfolio diversification and returns with selective and calculated investments.
- Customized AI Experience: Robo-Advisors containing AI are capable of creating tailored recommendations for investors considering their demographics, risk appetite, investment objectives, etc. Value can be provided by automated portfolio rebalancing, tax loss harvesting, and unique algorithmically generated recommendations without heavy advisor fees.
- Countering Fraud: AI has the capacity of combating criminal activity such as money laundering, identity fraud and card scams on a large scale. In view of the colossal algorithms, by looking at the transacting figures, knowing the trends, highlighting the concerns, AI can save a significant amount from frauds and also ensure a secure environment for people.
- Improved Credit Risks Assessment: AI-based credit scoring models are likely to widen the horizon in determining the creditworthiness of borrowers since more variables would be considered such as social media, and online usage among other things. This can result in more lending opportunities without increasing the credit risk as credit can be extended to previously unserved segments of the population.
- Operational Efficiency: The financial industry is also given the benefit of AI since there are undoubtedly many robot impartial repetitive and time waged tasks such as data input, paper works, and answers to customer care. The fulfillment of these robots allows the employment to focus on strategic and value added works leading to more efficiency and lower operational cost.
Challenges:
- Data Privacy and Security: Application of AI in finance on the other hand appears to be accompanied with serious concerns in regards to data privacy and security. Financial bodies need to ensure that where necessary and critical customer data is linked, such data needs to be able to be stored and used without fear and in accordance with the law.
- Bias and Fairness: Artificial intelligence systems are trained on historical data and such data can have bias that could be perpetuated and even worsen the prevailing disparities. There is for instance the sins of biased credit scoring models that deny credit to certain demography. It is important that AI systems are fair and do not discriminate and unequal treatment.
- Job Dismantlement: There is a fear of AI taking over and wiping human intervention in sectors rendering certain jobs obsolete. While that may seem to be the narrative, it also has the counterpoint of opening doors to creators and workers in AI and Data, which renders the problem hypothetic rather than practical.
- Clarification and Opacity: The lines above touch the surface of a deeper societal question-Are you comfortable with AI making your decisions and understanding your motives? Many people aren’t because with wide complexity comes inexpressible layers underneath it, especially the deep learning models that are being used.
- Leadership and Regulation: Suffering from a bad experience with a flight or a general interaction with an airline? Now Imagine if AI filtered the complaints and only paid attention to the severe issues and after that stayed constantly aware of not repeating mistakes. Wouldn’t that be a great experience? The current regulatory environment is unable to meet such unique standards, all thanks to the globalization of AI.
The Future of AI in Finance
Problems don’t seem to end however, Incorporating AI into finance does sound like a failure waiting to happen considering the countless challenges related to it, But if there ever was a positive outlook, this would be it as most financial institutions wouldn’t need to take on the mountain of risk and the reachable loss.
A customer or a society would have only two words on their lips with the successful implementation and widespread use of AI on their devices-Ethical and Humanized, This mission is however easier said than done as there are many people involved, this will require a collaborative effort between financial institutions, regulators, and the broader AI community to ensure that AI is used to benefit society and drive sustainable economic growth. Bet Smart Be Smart.
