Finance Business

Impact of Artificial Intelligence (AI) on Financial Service Landscape

Artificial Importance

Artificial Intelligence (AI) has become an integral part of the finance industry as it gives a competitive edge to the industry and helps in preventing fraudulent transactions. Not only this, it reduces the cost of human resources from analysis to monitoring. Here in this article, we will talk about the impact of AI on fintech services in detail.

Importance of Artificial Intelligence (AI) for Financial Institutions (FIs)

Financial institutions like banks and NBFCs generate revenue through lending, which involves risk as these financial institutions can not sanction loans to anyone. Therefore, such financial institutions provide credit by verifying the creditworthiness of prospective borrowers, which depends upon the CIBIL score.

There are large numbers of potential buyers in the market who are deprived of loans due to bad credit history, but it doesn’t mean that they are defaulters. If financial institutions ignore such types of borrowers, it affects their business.

In all, we can say that the CIBIL score should not be the only way of judging the Creditworthiness of the borrower, and to overcome this, a vital role is played by Artificial Intelligence (AI) by verifying the re-payment capabilities of the borrower. In the financial sector, the digital credit evaluation system is undoubtedly a twist.

How do Financial Institutions work?

Lending institutions such as banks or NBFCs use credit scores before deciding on lending to the borrower. Usually, lenders use different types of models to check the borrower’s transaction history with other financial institutions, and the credit score is calculated using such models based on the structured data which is provided by the statistical analysis.

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Now, banks & NBFCs are using a more holistic approach before sanctioning loans. They are using data from different sources like social media activity, phone usage, and text message activity to ascertain repayment capability.

Nowadays, there are numerous tools which help in deriving credit scores on the basis of various qualitative factors such as consumer behaviour and willingness to pay. In this way, lenders can now take a credit decision in a much quicker and more accurate way.

What are the benefits of Artificial Intelligence (AI) for Financial Institutions?

There are numerous benefits of Artificial Intelligence (AI) for Financial Institutions; some of them are as follows:

  • Easier Credit Access

Machine learning has enabled greater access to credit history as it has made it easy for the lender to access creditworthiness. While the traditional credit scoring model uses the historical credit information available of the potential borrower, because of which sometimes potentially creditworthy borrowers are rejected by the lenders. But things have changed because of Artificial Intelligence (AI); now lenders can take better decisions on loan sanctioning by recognizing the potential borrower.

  • Powerful Credit Scoring Model

Lending companies are fulfilling the need of their clients by sanctioning loans to those who fail to get the loan from traditional financial institutions such as banks. Artificial Intelligence (AI) has brought a new credit scoring model for lenders.

Artificial Intelligence (AI) has enabled financial institutions to analyze credit scores quickly with the help of analyzing massive data, and it involves the low cost of credit risk assessment. Also, the process involves the assessment of non-credit bill payments like payment of cell phone and other utility bills timely.

  • Risk Minimization
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Machine Learning helps lenders by minimizing risk as it analyses an enormous amount of data in a real-time manner. Hence we can say that AI helps FIs in reducing credit risk.

  • Fraud Prevention

It has been proved that artificial intelligence is very compelling in battling financial fraud. In the past few years, we have observed that credit card fraud is growing exponentially due to online transactions, which can be prevented by Artificial Intelligence (AI). Now with a fraud detection system, borrowers’ behaviour can be analyzed.

Financial institutions employ AI to prevent financial crimes such as money laundering by deploying machines as they suspect such money laundering activities.

  • Personalized Banking

When it comes to providing additional benefits to the users, Artificial Intelligence (AI) is truly beneficial. Smart Chatbots offer solutions to clients, which reduces the workload of call centres. We can also expect tremendous growth in future as Amazon’s Alexa gained much popularity because of its self-education feature. There are various apps which offer personalized financial advice, track income, recurring expenses, and spending habits.

  • Process Automation

For reducing the operational cost and for enhancing the boost productivity, robotic process automation is necessary. Robotic process automation (RPA) helps in eliminating human error and complying with KYC regulations.

With emerging Artificial Intelligence-enabled software, data is verified, and reports are generated based on the given parameters, documents, and information obtained from the applications, agreements, etc.

Present Vs. Future of Artificial Intelligence

Artificial Intelligence (AI) helps financial institutions with automated reporting and portfolio monitoring. It also helps in recommending financial institutions on possible actions. Thus, it emerges as the most instant, accurate and practical method to verify the repayment capability of borrowers.

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In the financial industry, AI is increasingly reshaping the business landscape. AI will help financial institutions in planning or executing short-term/long-term tasks like payment of bills or tax filing.

In future, it will help eliminate human error and maintain a high level of transparency in terms of knowing your client reporting and due diligence checks.

Takeaway

As there are multiple benefits of Artificial Intelligence (AI) in the finance industry, we can expect positive changes from AI in the future. It is exciting to know that in the upcoming years, AI will save huge costs for the banking industry. Currently, banks & NBFCs are using AI with the intent to increase client satisfaction, maintain customer loyalty and improve efficiency in many ways.

AI has enabled a tool to provide financial guidance to borrowers through voice & text messages, and it helps financial institutions in reducing the workload of maintaining client information, which results in the reallocation of human resources to perform revenue-generating tasks.

However, we think that AI can be explored in the finance industry in many ways, which require proper planning and infrastructure to collect and merge data.

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