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The Role of AI and Automation in the Financial Services Industry

Just when you thought the internet and mobile technology had fully transformed the financial industry to a degree we would never again see in our lifetimes, an even greater revolution is now underway. A combination of technologies including artificial intelligence (AI), process automation, data analytics and blockchain are poised to take the financial industry into the future.

Artificial Intelligence Innovations in Finance

According to Techopedia, "Artificial intelligence (AI) is an area of computer science that emphasizes the creation of intelligent machines that work and react like humans. Some of the activities computers with artificial intelligence are designed for include speech recognition, learning, planning and problem solving."

These activities describe much of the work that front-line finance professionals have always done, which makes the industry ripe for AI innovation. Consider, for example, AI in financial advising online. Such services are currently offered through major brokerage firms' online investment platforms. They enable consumers to enter information, including investment objectives and expected age of retirement, so that technology can make cost-effective asset allocation decisions – or provide alerts. This enables valuable financial planning services for more customers, including those who formerly had been identified as not being wealthy enough to afford help with financial planning.

A developing trend toward "augmented intelligence" or "bionic" advisors is driving changes to the role financial advisors play, enabling them to spend more time in face-to-face contact, understanding their clients' needs, while state-of-the-art artificial intelligence (AI) tools and computer algorithms provide clients with more consistently reliable asset allocation and investment guidance than would be possible otherwise.

One of the ways in which assets are increasingly allocated is through exchange traded funds (ETFs) that use artificial intelligence methodologies to select individual securities for inclusion. The industry is moving toward computers to actively manage funds — often with better results — for much lower management fees. AI is already dramatically lowering the costs of investing and helping investors make smarter and more nimble decisions.

AI is popular among consumers of financial services. An Accenture study found that 54% of bank customers wanted tools to help monitor their budgets and make real-time adjustments, with 41% indicating they were "very willing" to take financial advice from AI.

Deploying AI in this manner is not unique to investing; consumers also gain access to vital financial services such as mortgages, insurance, credit cards with better rewards and lower interest rates, auto loans, and more thorough financial portals that "learn" their needs and proactively send out alerts and offers. The services double as an intermediary between the consumers and the banking institutions so that consumers benefit from the competition for their dollars.

Automation Innovations in Finance

Techopedia defines automation as "the creation of technology and its application in order to control and monitor the production and delivery of various goods and services. It performs tasks that were previously performed by humans."

Automated financial advice is increasingly being provided by institutions to consumers through AI chatbots programmed to undertake the same processes as their human predecessors. Chatbots can engage consumers online, take financial information and objectives, evaluate that data and available options, and provide financial advice.

Through natural language processing (NLP), chatbots provide a way for consumers to have what feels like an informal conversation with a human being. Consumers provide chatbots with information that is then used to determine the most appropriate financial solutions. Unlike their human predecessors, these chatbots are doing a much better job of capturing data, dispersing it to databases, and developing consumer profiles that can be used to proactively identify future financial needs.

Process automation also considerably reduces costs for financial institutions. The Australia and New Zealand Banking Group deployed it and saw a 30% cost savings in some functions. The group automated more than 40 different functions, freeing up staff to take on more complex tasks. One of the results of allocating functions to AI and automated technologies is that qualified, intelligent humans are now freed up to use their brains in advanced ways that AI cannot.

Based on findings from a Capgemini survey of 1,500 senior executives from 750 global financial organizations TechRepublic revealed that more than 35% of financial services firms have already seen a 2 to 5% increase in revenue from automation, with quicker time to market and better cross-selling of financial services as additional benefits.

Consequences

All technologies require forethought to avoid unintended consequences, and AI is no different. What happens when the systems make mistakes? Who should be held accountable? Who will explain how set algorithms reached certain decisions, and what kind of industry oversight and regulations are needed?

Another consequence is to the future of the professionals in the industry. What steps can they take to shore up or boost their careers as AI starts to perform functions once reserved for people? One way to stay relevant in the field of finance is to gain the strategic thinking and managerial skills required to innovate and lead the way. A finance-intensive MBA, with coursework on the practical aspects of management, leadership and strategy, can provide the required preparation.

University of Wisconsin-Parkside's finance-focused MBA program includes a course on Creative and Innovative Management. Course takeaways include preparation for increasingly competitive business environments and workplace disruptions. AI in finance is an example of a workplace disruption that managers will need to gear up for.

UW-Parkside's MBA curriculum undergoes periodic revisions to reflect industry trends, and students enrolled in the program can expect the coursework to deliver relevant, practical knowledge. The finance electives arm students with niche expertise in investments and financial management.

Human brains will have to be deployed in the most innovative ways possible — to anticipate and prevent negative fallout while maximizing the benefits for everyone involved.

Learn more about UW-Parkside's online MBA program with a Concentration in Finance.



Sources:

BizTech: 5 Financial Services Tech Trends to Watch in 2020

PWC: Artificial Intelligence and Digital Labor in Financial Services

PWC: Intelligent Automation in Capital Markets Operations

TechRepublic: How Automation in Financial Services Could Boost Revenue by $512B

Techopedia: Artificial Intelligence (AI)

Techopedia: Automation

The Kinlin Company: Are "Bionic" Advisors the Future of Financial Advice?

Accenture: 2017 Global Distribution & Marketing Consumer Study

McKinsey & Company: The Transformative Power of Automation in Banking

Bunch Digital: How ANZ Has Rapidly Adopted a Robotics Process Automation Program (RPA)

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