There's no doubt that the finance industry is undergoing a transformational change. The recent years have seen a rapid acceleration in the pace of disruptive technologies such as AI and Machine Learning in Finance due to improved software and hardware. The finance sector, specifically, has seen a steep rise in the use cases of machine learning applications to advance better outcomes for both consumers and businesses. Until recently, only the hedge funds were the primary users of AI and ML in Finance, but the last few years have seen the applications of ML spreading to various other areas, including banks, fintech, regulators, and insurance firms, to name a few. Right from speeding up the underwriting process, portfolio composition and optimization, model validation, Robo-advising, market impact analysis, to offering alternative credit reporting methods, the different use cases of AI and Machine Learning In Finance are having a significant impact on this sector.
The financial services sector is undergoing digital transformation, and the driving force behind it is machine learning (ML). ML provides systems with the ability to automatically learn and improve from experience without being explicitly programmed. As the finance sector operates on tons of personal data and billions of critical transactions every second, it becomes especially vulnerable to fraudulent activities. Scammers are always seeking to crack the servers to get valuable data for blackmailing. According to PwC's Global Economic Crime and Fraud Survey 2020, respondents reported losses of a whopping $42 billion over the past 24 months due to fraudulent activities.
Artificial intelligence (AI) technology has become a critical disruptor in almost every industry and banking is no exception. The introduction of AI in banking apps and services has made the sector more customer-centric and technologically relevant. AI-based systems can help banks reduce costs by increasing productivity and making decisions based on information unfathomable to a human agent. Also, intelligent algorithms are able to spot anomalies and fraudulent information in a matter of seconds. A report by Business Insider suggests that nearly 80% of banks are aware of the potential benefits that AI presents to their sector. Another report suggests that by 2023, banks are projected to save $447 billion by using AI apps.
The value of machine learning in finance is becoming more apparent by the day. As banks and other financial institutions strive to beef up security, streamline processes, and improve financial analysis, ML is becoming the technology of choice. Unlike so many hyped technologies and overrated buzzwords, machine learning is not going away -- probably ever. The ability of computer programs to learn on their own and improve over time creates new opportunities for industries across the board. While it is true that the naturally conservative financial industry was not at the front of the line for ML adoption, machine learning in fintech is now a common phrase.
From screening and approving loans to managing assets and preventing fraud, machine learning plays a crucial role on many levels in financial institutions. In this blog post, we'll explore some ways that machine learning improves business processes in the financial sector. Machine learning algorithms are far more effective for personalizing your customer experience than entire teams of employees. Simple demographics can't fully explain actual consumer behavior, so financial organizations should use machine learning to segment consumers by their level of sophistication and financial acumen, and then customize products and services accordingly. All relevant customer interaction data is used to train these algorithms, which then automatically builds statistical models that help correlate customers' preferences with their demographic, behavioral, and other characteristics.