When AI was first conceptualised, none could have predicted the extent of its impact. Across all industries and sectors, AI is making its presence felt. In financial field, AI has achieved a roaring success. Every aspect of financial sector is being disrupted by AI exponentially.
Finance sector was usually riddled with experts who took lending, trading and investing decisions according to their expertise. However, off-late, start-ups in this industry are replacing these experts with machines using Artificial Intelligence. This has resulted in an enhanced, efficient, error-free and secured financial decisions. For ex- before lending decisions were typically taken by either a loan-officer or underwriters. This sometimes had resulted in delay, inefficiency and wrong-decisions that didn’t account for the risk factors and other contributing factors which a human mind couldn’t process. Thus in-turn it led to huge financial loss and public unrest in general. However now, for the same scenario, algorithms are developed that provides an optimal decision-making capacity by considering all parameters that have contributed in the past, without any human bias.
The advantages of AI driven lending are two-fold- it reduces the possibility of fraud and improves the efficiency of lending. This trend of AI driven lending emerged around Silicon Valley companies, but it had spread rapidly across wall street firms and Indian entities.
When it comes to investments, it has always been ruled by powerful and popular fund-managers. Though AI hasn’t had that profound effect on investment sector like it had on lending, its still a happening factor here. AI driven funds and several beta funds are slowly replacing human fund managers through their indigenous rules and algorithms.
Now one may wonder at the reason behind such onslaught of AI in finance. There are various contributing factors that brought forth this change, like
- Availability of cheap and efficient computing resources
- Digitization of financial services
- Explosion of data
These factors coupled with the ease of executing digital services makes implementation of AI- an easy solution.
However, looking closely at these scenarios, one may develop caution for AI and Machine thinking, on grounds like machines aren’t humans and they cannot adopt for businesses that’s had a human effect for a longer time-period. Well the difference is simple. Human trading is influxed with numerous biases and irrational behaviour. Yet, machine trading provides for a consistent and superior-return financial services and products for a longer period of time. This is the pitch point that is revolutionising the financial sector in a rapid rate than expected. Investment banks and start-ups are adopting machine driven trading for high volatile returns which an AI-led trading strategy provides. One might fear machines are not as adaptable as humans, however they can learn over-time and can take rational decisions that are optimal for all parties involved. Though even a small start-up can access computer power and data that were previously available only to elite businesses, mass adoption of AI technology in financial sector is still at its nascent stage. Nevertheless, its arrival is not so far and can’t be ignored either.