AI in Finance

AI in Finance

By Afshin Doust, CEO, Advanced Intelligent Systems

Technology has become a part of our everyday lives and its role continues to grow inevitably.

We are glued to our devices and are becoming ever more dependent on them to manage our daily routines. We expect to receive notifications for our appointments. We expect maps to guide us to the location we are seeking. Google’s “near me” searches are becoming the most popular search criteria to help us find places within our proximity.

A pattern is emerging in our interactions with our devices. The pattern of predictability of our habits and needs. The culprit to create this pattern is artificial intelligence or AI. Yes, inadvertently, we have grown to expect AI and appreciate it when we see its by-product, which could range from traffic predictions to efficient map routing to suggesting who to add to our meetings.

There are unlimited streams of data that can be drawn from our daily lives and our interactions with each other and our environment. When this data is compiled and used by machines to draw intelligent conclusions and convey that to us in an actionable manner while learning from it and adapting to it, it is called Artificial Intelligence.  AI can be used in business as well as in our personal lives. One area of business that has grown a big affinity to the use of AI is finance. Banks and financial institutions have embraced AI and are using it extensively.

Assessing credit worthiness

From the use of credit card to pay for purchases, to overdraft protections on our bank accounts, car loans and leases, mortgages and personal lines of credit, we have all been exposed to some form of credit worthiness assessment in our lives.

We have come to rely on credit in every aspect of our lives. Every time we want to get credit from our financial institutions, a credit worthiness assessment process takes place. Bankers have traditionally used a simple method to gauge our credit worthiness. That method relied on the 5 Cs of credit which consisted of assessing the request against the five criteria of character, capacity, capital, conditions and collateral. Obviously, this created many inconsistencies because personal bias and relationships played a key role in the assessments.

Enter the age of AI. We now often hear advertisements prompting us to apply for a credit card or even a mortgage over the internet with the possibility of instant approval. AI is being used progressively more to eliminate human error in decision making. Baidu, a Chinese conglomerate, has spent $1.9B in creating an AI enabled lending and investment platform. AI has been creating consistencies and predictability on credit applications. AI has also expedited the speed by which decisions are made.

Financial Advice

There are numerous designations that financial advisors can obtain to be qualified to tell us what the best way is to invest our hard-earned cash. The fact that this variety of qualifications exists is a testament to the complexity of a financial advisor’s job. Another great opportunity to deploy artificial intelligence to make sense of this complexity. A 2019 study on the role of AI in financial advising found that by using AI, financial advisors become much more effective in conducting their jobs because they could focus on building relationships with their clients rather than spend time in crunching numbers and making complex calculations. This also ensures that the human error aspect of handling such complex transactions is removed.

Financial advising, like every other task that has deployed AI, is becoming more automated. We can now assess our retirement needs and determine what our saving and investments patterns and options should be to be able to achieve the retirement of our choice. All of this can be achieved from a screen in the comfort of our home.

Audit and Bankruptcy

Audits are designed to ensure the accuracy of the financial status of an entity and bankruptcy, or solvency predictions are conducted by using various financial ratios derived from the audited financial statements. There are now more factors considered in both procedures, which are qualitative rather than quantitative ones, such as include employee engagement and satisfaction, which adds to the complexity of the analysis. Long laborious days are spent on audits and bankruptcy projections by those who stick to the traditional methods of conducting these tasks. However, AI has been introduced into these tasks to make them faster, easier, and more accurate.

A recent study on the use of AI to predict the likelihood of specific businesses declaring bankruptcy. They concluded that AI was able to predict with very high accuracy the chances of a business going bankruptcy. Now that we can predict a bankruptcy using AI, would we be able to use the same technique to find ways to prevent bankruptcies?

Conclusion

Artificial intelligence has come to the rescue to remove human error and simplify complex procedures and calculations. It has also been claimed to remove human bias in decision making in the financial services industry and to expedite decision timelines.

The consensus is that AI is helping improve our lives. To the untrained eye, AI could be one of the most valuable technological tools ever invented. Invented by humans. Since artificial intelligence is invented by humans, could there not exist grave errors and biases in the creation and application of the artificial intelligence protocols? Since AI acts within the boundaries of inputs and process paths defined by us, our biases and certain errors could exist in the AI infrastructure.

Every tool ever created by humans is prone to human error and bias. As we evolve and grow, so do our inventions and the tools we use for helping to make life simpler and better for everyone. So far, AI seems to have done just that, help. Yet, we have a long way to go to make it more humane and less human.

Author Bio:

Afshin Doust is the CEO of Advanced Intelligent Systems, an autonomous robotics company in Burnaby, BC, and teaches MBA courses at University Canada West.