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Artificial Intelligence in Banking: Using AI to Make the Most of Your Money

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After a career spent in banking, I’d be the first to admit this is not the most popular profession when it comes to public trust. Surveys usually list us alongside politicians, advertising executives and journalists in the trust stakes. Need I say more?

This is perhaps why advances in Artificial Intelligence (AI) in banking, and indeed in the entire field of fintech, should be highly welcomed all round. You may not have noticed how much AI is changing this sector, but it is already markedly improving the customer experience.

AI and fintech are the perfect match. AI guarantees quick and objective decision-making and, since the best financial decisions are taken objectively, this can only be a good thing. Although customers claim to enjoy human-human interaction, they seem to be less inclined to accept that human-human interaction is often not perfect. Humans can be slow, and however hard we try, or well we are trained, we are fallible too. We do get things wrong now and again.

AI, on the other hand, has the capability to quickly crunch through vast swathes of data, automating many of the elements of decision making that humans face, and thus reducing the risk that the wrong decision is made. This makes for increasingly personalised and intelligent recommendations that can help us manage and build our wealth.

Why now? Recent advances in AI

The reason why AI has been able to take such a dramatic shift forward today is thanks to the huge amount of data now available. Thanks to a wealth of behavioural data gleaned from apps, as well as our willingness to share so much on social media, more is known about our habits than ever before. Add to this the benefits of Open Banking, which provides a broad range of data that banks previously did not have access to, and the environment is ripe for advances in AI.

AI can only ever be as intelligent as the data it is given. In other words, the more high-quality data it receives, the more intelligent it will be.

Although much has already changed, it’s still comparatively early days in exploring how far AI will go in having an impact on banking. As far as fintech is concerned, the machines haven’t yet reached a level of ‘general’ intelligence on a par with the human brain: this branch of AI is known as super intelligent AI.

However, when it comes to making numerical calculations, predictions and recommendations, the machines can’t be beaten.

Using AI to make the most of your money

Investments

One of the real bonuses of AI in fintech is it makes savings and investments so much more accessible to everyone.

In the past, if you wanted to build up any sort of investment portfolio, you’d need a hefty sum just to get started. An initial review with an Independent Financial Advisor can cost as much as £500 and the majority have minimum entry requirements for investments after that.

AI paves the way for people to invest small amounts of money on a regular basis and to cut out all the hours of research and paperwork that might usually go with picking strong investments. Thanks to the new generation of automated portfolio management, investors can set their options and then let robots do the rest. If you want to invest (even a small amount), go right ahead. It makes little to no difference if apps are handling thousands of small transactions, rather than a few big ones. Moving money from one account to another is ridiculously simple.

To understand just how effective this sort of digital strategy can be for investments both big and small, all you need to know is that major City firms are taking it very seriously indeed, and have been for some time. Money management giants like Goldman Sachs and New York hedge fund Two Sigma now use artificial intelligence and machine learning for their trading strategies.

It’s expected that over the next 25 years, 99% of investment management will be done in this way. And why not? Computers have repeatedly proved themselves adept at spotting investment opportunities earlier than humans can, or that humans have missed, using pattern recognition techniques on vast quantities of financial data. They can dig far deeper into the data, hypotheses and test them and all at a rate that far exceeds that that can be achieved by any City trader.

Credit scores

Another bonus in terms of the accessibility offered by AI is that it is on track to shake-up credit scores.

Credit scores are crucial because, sooner or later, most of us do rely on credit in some shape or form. Without borrowings, most people wouldn’t be able to buy a house or even a car. Credit reference agencies hold enormous amounts of data on us and errors can (and do) creep into the records, although we often don’t find this out until right when we most need them to be OK. It can happen surprisingly easily too. Say, for example, someone fills in an application form and accidentally marks their salary as £3,500 instead of £35,000. It’s an innocent mistake but will play havoc with credit files, particularly if that salary has been noted correctly elsewhere on other forms.

AI can help here - automated fraud scoring mechanisms use machine learning for anomaly detection and can recognise inconsistencies like this in order to provide timely alerts of a problem to the customer and to the credit issuers. In many cases, data discrepancies like this can be rectified at the source with a simple ‘Did you mean…?’ message to the customer.

AI can and will solve a lot of these problems.

It is already being increasingly used in the developing world, where many people have no credit history at all. Potential borrowers can sign up and allow apps to mine their lifestyle data from social media, online search history and geolocations, to build a picture and show they are creditworthy. Some car loan companies are even using LinkedIn profiles to verify that an applicant’s work history tallies with what has been put on forms.

Insurance

AI is also having an impact in the previously sleepy and rather dull world of insurance, or 'insurtech' to use the moniker the new breed of digital insurers prefer.

A growing number of insurers are using AI to streamline the quotation process, craft more personalized offers and speed-up claims handling. From a customer experience point of view, AI is expected to play a pivotal role in accident/incident prevention; a personal assistant on your smartphone could issue a warning whenever you are about to engage in any activity that could have an unwanted impact on premiums. The lingo for this is ‘predict and prevent’ rather than the traditional ‘repair and replace’ model.

From an insurer’s point of view, another big plus is the fact that AI is pretty good at spotting potentially fraudulent activity via unusual patterns of behaviour, or by sifting through our social media accounts. By implication, this is pretty good for customers, since annual insurance fraud tops £1.3 billion in the UK according to the Association of British Insurers, and that cost is reflected in everyone’s premiums.

Can AI restore trust in banks?

AI’s ability to spot potentially fraudulent activity has wider applications in the rest of the fintech sector too. This has to be a positive step, since anything to do with money is always vulnerable to those with criminal intent. While most people wouldn’t argue against the ease and simplicity of making our purchases with a click or two, it does present an opportunity for fraudsters. AI now works away in the background, spotting any payments that fall outside normal usage patterns.

Interestingly, the rise of the machines does not necessarily mean less human interaction when it comes to all things AI and fintech. Another of AI’s expanding roles is to spot ‘churn’. This is when a customer decides to switch from one provider to another and cancel their account. AI will spot that you, the customer, are displaying behaviour connected with cancelling an account. You may have stopped downloading statements, or unsubscribed from newsletters and mailings, or any other of a number of useful indicators. Rather than ignoring you as might have happened in the past (and how frustrating is that if you have been a loyal customer for years?), expect your financial institutions to suddenly become very attentive indeed.

Without a doubt, AI is already changing the face of the financial services industry and many of the innovations are becoming the norm in our day-to-day lives.

While there might be understandable fears regarding the lack of personal, human touch, I believe the opposite is true. These advances represent an opportunity for intelligent products that are geared to who we are and how we spend our money. AI is helping to open up the market so that everyone can save and invest, regardless of how small their budget, and that can only ever be a good thing.

This might just be the turning point in the public trust with banking and financial services.