Stunning new developments in technology — specifically, artificial intelligence (AI) — have the potential to change the financial services industry radically over the coming years. As a financial professional, you will no longer need to manage every facet of business operations. Instead, you can leverage AI's capabilities for everything from financial planning to portfolio management.
While AI poses significant potential to streamline organizational processes, enhance financial returns, and improve the client experience for the financial sector, it also has risks. Financial service providers must understand AI's possibilities while recognizing potential pitfalls. Fully grasping AI technology can help you make informed decisions that positively impact your business while mitigating operational risks.
The Rise of AI Technology in Finance
Just ten or fifteen years ago, AI was merely a plot point in science fiction movies — something relegated strictly to the imagination. That's no longer the case. Today, businesses and consumers can access all kinds of AI tools, including AI-powered chatbots, data extraction software, and generative AI platforms.
AI technology can be particularly useful to the finance industry. Most finance professionals rely heavily on data to perform their jobs. Some positions, particularly in financial services, are customer-facing and require lots of client interaction. Financial organizations seeking to optimize business performance and customer experiences turn to AI to assist in data analysis and client management processes.
As AI technology advances, financial professionals will find other AI use cases in financial services.
Advantages of AI in Financial Services
Incorporating artificial intelligence in finance organizations can significantly benefit your business operations and customers. Here's a look at some of the advantages that AI finance tools offer.
Enhance Accuracy and Efficiency
Financial service professionals work with extensive amounts of data that can be next to impossible to assess manually. While non-AI tools like spreadsheets, programming languages, and machine learning make it easier to scrape and evaluate data, they're not perfect. They can easily lead to data analysis errors that adversely impact business decisions and customer recommendations.
Conversational AI in financial services makes it easier to analyze data with less risk of mistakes. It's also much faster. An AI-powered data analytics tool can assess millions of data points in real time far quicker than any human can. Since there's less human intervention when designing the analytical framework of AI, there are fewer opportunities for major errors.
Improve Decision-Making and Risk Management
Financial service professionals frequently make investment recommendations based on historical data and financial market trends. However, analyzing troves of information to arrive at a single investment suggestion isn't a straightforward process, nor is investment recommendation advice always sound. Missing and incomplete data and errors during the analysis procedure can easily lead to faulty financial guidance, negatively impacting an investor's returns and tarnishing the investment firm's reputation.
AI tools simplify decision-making, reducing risk for financial service companies and their clients. AI's ability to analyze and interpret vast amounts of data makes it an attractive resource to leverage. You can lean on predictive models for enhanced recommendations and insights that positively impact customer returns.
Personalize Customer Experiences
According to a 2021 survey of financial service providers, 64% indicated that improving customer service ranks among their top priorities. After all, satisfied customers are less likely to jump ship for a competitor or complain about the service they receive. However, providing stellar customer service all the time can be challenging since client expectations and the service provider's capabilities don't always match.
Incorporating AI-powered tools such as robo advisors and chatbots can elevate your customers' experience in the banking sector, resulting in personalized customer service accessible at any time and from anywhere. Clients can interact directly with robo advisors and AI-powered chatbots to explain what they need help with, and the AI tool will generate answers based on the vast amounts of data available to it. Since an AI tool relies on a common source of knowledge and doesn't follow a set work schedule, it's better able to accommodate customers' needs.
Challenges and Concerns With AI in Financial Services
While there are significant advantages to incorporating AI into a financial service organization's tech stack, some drawbacks exist.
Ethical and Privacy Issues
AI and finance tools rely on enormous amounts of training data to generate recommendations and inquiry responses. Some of that data may contain inherent biases that discriminate against people based on their race, gender, or socioeconomic status. Since AI tools don't possess a human's ability to separate biased information from non-biased data, their recommendations may fall short of ethical or legal guidelines. Financial service organizations must carefully monitor and test their AI tools for bias to avoid potential issues.
Another potential drawback to be aware of is customer privacy. Clients expect that financial service providers will protect their personal information. However, any software system — including AI — carries a cybersecurity risk. It's vital to secure all AI tools from threats that undermine customer safety.
Regulatory and Compliance Risks
As using AI in banking and finance is relatively new, governments are figuring out how to regulate it. Over the next few years, governments will likely implement laws and guidelines concerning AI and its usage in the financial industry. As a financial service provider, you should pay attention to regulatory updates that impact the use of AI tools in business operations.
Once AI regulations are in place, failing to adhere to them may lead to costly fines and penalties — something investment firms don't want. Remember that laws can vary from jurisdiction to jurisdiction, so it's essential to maintain awareness of any regulations that may apply to your organization.
Embrace AI With Confidence
As the finance and banking industry grapples with AI's potential while balancing the challenges, you can benefit from learning more about the technology. Knowledge is king, and understanding where your organization and customers can benefit from AI in finance can help you determine where to fit it into your current tech stack.
Terzo is at the forefront of the AI revolution for financial service providers. Our AI-powered contract analysis tools can help you extract critical data from lengthy documents and categorize it logically. To learn more about our platform and how it can benefit your organization, contact us today.
