Is anyone still doubting that generative artificial intelligence (AI) tools, such as ChatGPT, and machine learning (ML), will play a significant role in the digital transformation of financial services?
I hope not because it's becoming increasingly evident, even to people that know very little about AI and machine learning (ML). The pace of digital transformation that we have seen in finance with fintech in the last decade is about to accelerate further.
The hype is real now when even the World Economic Forum writes that ChatGPT is just the start of the generative AI boom. There's evidence that a whole new wave of startups is beginning to build up. And it's not just in fintech : )
Keeping the focus on financial services here, what are the main applications of artificial intelligence and machine learning?
1. Customer service
By using the model's natural language processing (NLP) capabilities, financial institutions can build chatbots that can assist customers 24/7 with account inquiries, balance checks, and other everyday tasks. Also, with big data and the possibility to analyze customer behaviors, there's the possibility to understand their needs and preferences, providing personalized assistance and recommendations. To be clear, this only has a little to do with the chatbots seen in the last couple of years. As ChatGPT has shown us, we have now reached a whole new level.
2. Fraud detection and prevention
Thanks to AI, we can quickly detect suspicious patterns and behaviors in real-time. By analyzing large amounts of data, such as transaction records and customer behavior patterns, AI algorithms can identify anomalies and flag potential fraud cases for further investigation. The algorithms can also continuously learn and improve over time, allowing financial institutions to stay ahead of emerging fraud trends.
While traditional manual fraud detection processes can be time-consuming and prone to human error, AI can analyze data and provide results much faster. There's an opportunity for financial institutions to enhance customer security and protect their reputation while reducing economic losses.
3. Financial forecasts and scenario generation
"I think, increasingly, we're going to be seeing generative AI used for financial forecasts and scenario generation," said Michael Schrage, a research fellow at the MIT Sloan School Initiative on the Digital Economy. And that makes a lot of sense if you consider the ability to analyze a large amount of historical data, identify patterns and relationships, along the ability to generate multiple scenario simulations, considering different economic and market conditions. This allows financial institutions to evaluate a range of possible outcomes and plan accordingly with more sophisticated and accurate financial forecasts and scenario analysis capabilities.
Furthermore, by using generative AI to make predictions about future market trends and investment opportunities, there's a clear opportunity to improve the overall investment strategy and reduce its risks.
4. AI-supported financial advice for consumers
Financial advisors bring a wealth of knowledge and experience to the table, with the ability to understand clients' financial goals, risk tolerance, and life situations. By combining this human insight and empathy with the data-driven approach of AI algorithms, financial advisors can provide clients with a more comprehensive and customized financial plan.
The future looks hybrid when it comes to financial advice: human expertise + the power of AI technology enable financial institutions to deliver high-quality and personalized financial advice while also driving growth and competitiveness.
Conclusions
What we have seen with fintech is the beginning of a more significant shift.
While empathy and human expertise will remain fundamental and become even more important, it's becoming more and more evident that generative AI and machine learning will play a key role in transforming things further, as we've only just started to tap into their potential.
From customer service to fraud detection and prevention, from financial forecasts and scenario generation to personalized financial advice, AI and machine learning are set to change the financial sector as we know it. In this scenario, the critical challenge for banks and other financial services companies will be to understand this early on and start to plan ahead.