Why now is the right time for AI in financial services

After being a topic of great interest for years since John McCarthy first coined the term in 1956, artificial intelligence is finally out of the lab. Industry leaders are increasingly integrating AI into their value propositions. 

Ford, the iconic car maker that pioneered the moving assembly line to bring the first common man’s car on the roads a hundred years ago, is making investments in artificial intelligence (AI) firms, such as Argo to repeat history with its first autonomous vehicle.

AT&T and Bell Laboratories revolutionised telecommunication with the telephone system in 1915. A hundred years on, the company is working towards employing AI for automated breakpoint repair, eliminating the need for human intervention.

Meanwhile, much has been written about the success of AI in retail. And, Google's Home and Amazon's Echo are household names in online shopping.

Financial services and the adoption of AI

Like in other industries, AI has made significant inroads in financial services with banks and fintechs launching pilots across the front, middle and back offices, with applications for customer service, credit scoring, and fraud management, among others. Having said that, studies show that the financial services industry is catching up when it comes to maturity in adoption of AI. Research by Infosys measured the maturity of AI adoption in various vertical groups. According to the findings, the pharmaceutical/life sciences vertical ranks highest on the AI maturity index (MI) followed by automotive and aerospace. Financial services scored a modest 47 percent and ranked eighth on the MI among other industry verticals.

Although research findings suggest that the financial services industry is not currently the most mature in AI adoption, a look at investments made in the technology suggests that it is raring to go. The financial services industry has invested a whopping $14,631,260 on an average in AI, more than double the average of $6,722,534 invested across other verticals. Also, about 56 percent of the financial services respondents surveyed claimed to have been using AI for the past 1-3 years, indicating a fair amount of familiarity and experience with the technology

Why now is the right time for AI in financial services

A look beyond the numbers tells us why the industry is well-poised for a bright AI future.

At the heart of any technology or business that helps personalise a service is ‘data'. The heaps of data that reside with financial institutions (FIs), provides these establishments a clear advantage over their peers in other verticals. AI is taking up where big data left off to give financial institutions a real opportunity to extract value from their data resources. This will be a huge factor in its adoption.

U.K.’s Open Banking programme, the E.U. Payments Services Directive (PSD2), and India’s Unified Payment Interface (UPI) are heralding an era of open banking. Armed with more comprehensive customer data, banks can build better models, and more intelligent apps and services, but so can their rivals now. In this race to converting data into competitive advantage, AI technology can give banks a head start.

Decreasing cost of computation has made it viable for large organisations to invest in their own computing resources. Meanwhile, for small enterprises and startups, the cloud provides affordable computers. Companies of all sizes now have access to the computing power required to build and run intelligent applications

Averaging eight to nine percent, banking profitability is now reset to about half its pre-crisis levels, and that is where it will stay. Banks are continually looking for opportunities to peg back costs and improve efficiencies. Extensive robotic automation of operations is inevitable for banks to stay competitive, and is a precursor to the deployment of artificial intelligence in financial institutions.

Finally, we are more connected than ever. Be it to data or applications anywhere, anytime. As a result, more is known about customers and companies are more able to reach customers in context. AI has proven critical to creating value within this dynamic.

AI is no more a caterpillar in its cocoon. The technology is witnessing real action with a myriad commercially viable real-world applications transforming entire industries. And although the financial services industry is playing catch up in AI adoption today, it is only a matter of time before that changes.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)