The Impact Of AI On Finance Industry

Artificial intelligence (AI) is the reproduction or mimicking of human-level intelligence, self-awareness, knowledge, conscience, and thought in computer programs. AI entails the use of rule-based systems or neural networks to enable computerized systems to carry out tasks like or beyond people’s computational abilities. We are living in a time where artificial intelligence (AI) now permeates every facet of the human existence. One of those facets is the financial markets. 

The finance industry entails financial markets whichrefer to the markets for or where the selling and buying of stocks, bonds, commodities, and so on, is done. Artificial Intelligence has had such a notable impact on the dynamics pertaining to financial markets, especially now. It is obviously a mix of both the good and the bad. In this blog post let us explore some of the core impacts AI is exerting on financial markets. 

Streamlined Operations

Artificial intelligence entails substantial automation. This has brought about computational capabilities that literally feel like magic. Financial institutions typically handle huge and complex datasets. With AI such data, big data, can now be processed in mere seconds. This is done with piercing precision as well. This is resultingin financial institutions being able to conduct their operations faster, more productively, and more accurately. Recent studies actually indicate that, on average, 6 in every 10 businesses believe that to be the case. 

Artificial intelligence is enabling predictive analytics or modelling which are central to risk management. AI is also making fraud detection a breeze. Moreover, artificial intelligence exponentially reduces operating costs leading to more profitability. By the end of 2024, it is projected that almost US$450 billion in costs would have been saved. One of the ways this is achieved is via the fact that artificial intelligence reduces human labour needs. For instance, where 500 traders used to be needed can now be handled by just 2 traders or even none at all. 

More Opportunities For Personalization In Product Or Service Development

The proliferation of artificial intelligence has opened doors for unlimited opportunities on what to offer consumers. One of the areas AI is impacting is personalization. Financial institutions or service providers can now come up with new and unique products or services. This is especially fuelled by the growing competition amongst players. This is causing them to think creatively in order to differentiate their products and services. This personalization also spans to marketing approaches and overall customer experiences. 

Given the nature of artificial intelligence, the possible applications are limitless. That is why there is now an ever-growing range of personalized financial products or services. This means consumers no longer just get access to just generic things. Ultimately this is creating richer datasets and in turn, insights. That is why now we can enjoy more comprehensive insights into financial markets like never before. 

Increased Crosscutting Collaboration

The adoption of artificial intelligence in the financial industry has had a unifying effect in most regards. This is because wide-ranging parties now have to collaborate in some way. Implementing AI in the financial industry is not your everyday basic routine. It is sophisticated and cuts across a number of domains; there are 3 core domains. There are those who develop AI-based systems, products, services, and so on. 

Then we have those who use them and lastly, those who exercise oversight over them. These 3 do branch out into several other sub-categories. For everything to be in perfect order, all 3 have to collaborate in varying degrees. This is leading to exponentially more collaboration than ever before. This collaborative network is also giving birth to more enterprising opportunities in finance. 

There are great impacts, no doubt. However, there are some notable negative impacts. One of them isincreased security risks. 

Increased Security Risks

The financial industry has always been riddled with security concerns since time immemorial. The increased use of AI in the industry is posing more concerns regarding security of both data and funds. AI-based applications in finance entail automation, internet usage, global networking, and so on. This means financial markets are now more prone to cyber-attacks. Instead of attacks being confined to say, one individual, or one bank, they can be targeted at entire financial markets. 

This is exacerbated by the fact that AI is already complex as it is. Thus many consumers active in financial markets may not comprehensively know the risks and how to protect themselves. There are of course robust ways being implemented to detect, avoid, or curtail security breaches. However, the overall security concerns are also affecting confidence as some consumers and institutions are hesitant to adopt AI.

Market Distortions

This is another negative impact of AI on the financial industry. Bear in mind that AI-based systems run on various possible models which differ depending on the provider or use case. An ideal scenario would be to have standardized models used globally. However, that is seldom the case. This means, depending on context or location, financial data may be processed and interpreted differently. This then creates a systematic distortion of key metrics e.g. prices. This ends up compromising the accuracy and integrity of data availed on the financial markets activities. AI already inherently has biases and that further compounds the problem. 

These are some of the major impacts of AI on financial markets. It is abundantly clear that there is lots of value artificial intelligence is unlocking in the finance industry. However, the negative impacts cannot be ignored because they are equally as if not more important. A healthy balance has to be struck between the two in order to get the best of AI applications in finance.