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AI in Finance: can banks get smarter?

Keyboard and Mouse are the new Bonnie and Clyde: How Can Banks Stop Today’s Cyber Criminals?

By Alexey Kutsenko is the head of digital marketing of DDI Development company. He is experienced in the development of the marketing strategy for companies in different industries. He knows how to do the right marketing and watches all current marketing and industry trends.

Alexey Kutsenko

Alexey Kutsenko

Even though ethical debates around AI are still pretty much alive, the empirical benefits of applying automation to banking processes outweigh the concerns. According to Accenture’s analysis of banks that have used AI to their workflow, an average bank can increase their profits up to 20-25%solely by adding AI. This statistics doesn’t even account for revenue for new product lines and customer retention.

Finance is undoubtedly the industry that experiences one of the gravest needs of automation. The processes become more complex, and employees can’t keep up. The regulations grow more elaborate, and it’s challenging to keep track of all new requirements. The demand for personalized interaction keeps growing, and banks’ teams don’t have the time and energy to satisfy these expectations.

Luckily, there is a solution.

The most efficient AI applications in finance

Artificial Intelligence can be applied to all fields of financial activities. AI can be used to increase the overall institution’s efficiency –  reforming account management, automating security, and supporting AI-based collaboration between team members and clients.

Also, AI increases the organization’s capacity for innovation. Automated software collects insights that serve as a base for creative solutions, simplifies product creation, and enables smart marketing campaigns.

Lowering costs is another objective of implementing AI. Outsourcing basic transactions to automated solutions, decreasing the use of human resources in consultant services and help desks, and taking care of regulatory compliance (RegTech).

Finally, Artificial Intelligence allows implementing of the expert business model. Machine learning insights collect insights for financial advising, client support (an automated solution can become a client’s manager), and retirement planning.

Primary industries and applications for Artificial Intelligence in the financial sector

Primary industries and applications for Artificial Intelligence in the financial sector

Let’s take a look at the leading areas of AI implementation and see how they are connected to the described objectives.

AI-driven smart user journeys

Using robotic process automation to increase the overall efficiency of an organization is a common practice by now. However, while it may increase the speed of the service, those efforts remain behind the curtain from the customer’s point of view. Automation can and should be used in areas that are visible to the end client.

An example of a smart user journey map

An example of a smart user journey map

  • With dynamic analytics, automated tools can collect in-depth data about their clients. This information will fuel personalized solutions and precisely targeted advertising campaigns.
  • With a voice-recognition-powered AI, banks can outsource simple voice consults to robo-advisors who sound just like humans.
  • If the bank’s support team is overloaded with work, it makes sense to send customers to the chatbot rather than making them wait. Reducing frustrating delays is a simple way to increase customer retention.

A case in point: banks and insurance companies can simplify the process of getting a mortgage. Affordability checks and short consults can be entirely performed by AI. While the human expert will still oversee the process, the simplest procedures can be quickly done by bots.

Preventing cybersecurity risks

AI and machine-learning algorithms are perfectly equipped to analyze systems and detect suspicious patterns. By training AI to analyze the transactions and website access history, bank management can identify shady behavior.

The companies which implement Artificial Intelligence in cybersecurity

The companies which implement Artificial Intelligence in cybersecurity

The main uses of AI in financial security are the following:

  • Detecting fraudulent actions that resemble bot activity or hacking threats.
  • Handling suspicious financial operations.
  • Identifying security vulnerabilities in online systems.
  • Exploring potential safety risks.

As the company scales, so grows the volume of data that needs to be analyzed. Massive amounts of work can’t be performed manually. AI, on the other hand, will handle a broad analysis with no problems.

A case in point: Danske Bank claims that after implementation of an AI-based fraud prevention software, their false positive were reduced up to 60% and the future estimates reached as much as 80%. The efficiency of fraud detention improved by 50%. All this was achieved at a reduced cost, compared to previous spendings. The workload which was before performed by human workers, now ended up fully outsourced to an automated platform.

Fraud detection for call centers

Call center fraud is on the rise. According to Pindrop, call center fraud rates jumped from one in every 2000 calls in 2015 to one in 937 in 2016. That means fraud rates increased by 113% over the previous year. Fraudsters contact a bank’s call center and exploit interactive voice response vulnerabilities and social engineering-related methods to obtain customer data. To reduce fraudulent calls, banks should focus on implementing AI-powered security solutions that detect and prevent fraud. In addition to that, it’s wiser to examine call center fraud separately.

Unfortunately, there is no such alert during the actual call center fraud

Unfortunately, there is no such alert during the actual call center fraud

How does this security threat work?

  • A fraudster pretends to be a customer and requests the essential login information. They change personal information, passwords, edit verified emails, and complete transactions.
  • The call center agent can’t tell the difference between the actual user and the deceiver. A person on the other side of the phone has just enough information to make the request seem legit.
  • The institution is forced to take responsibility for the fraud since they were technically the ones to give away the sensitive data.

AI speech analytics solves this problem quickly. The automated software analyzes the speech pattern of each client and creates a digital profile with recorded habits. This information goes to the searchable database, which gets pulled up whenever there is an incoming call.

AI speech recognition platforms include the following functionality:

  • storage of past fraudulent calls to keep track of typical patterns and help with further investigation;
  • keyword identification – by analyzing previous frauds, the software determines a red flag and watches out for them in all next calls;
  • real-time guidance with smart insights on handling the fraudulent request in real-time – it helps your team to manage such situations quickly and with ease.

Smart systems provide better advice

One of the most rapidly-evolving friends of finance is advisory. By assisting customers in managing their investments, spendings, and income, banks create a personal bond. Wall Street institutions and Silicon Valley companies have already been exploring this trend for a while and made tremendous progress.

The work of automated solution may entirely replace the employment of human assistants or enhance their work. Instead of wasting time on small tips, experts can focus on fundamental questions. This way, the banks reduced the amount of spent time while delivering the same result, or even a better one.

The examples of how AI is used for consulting in business organizations

The examples of how AI is used for consulting in business organizations

AI-based systems analyze the history of a client’s financial activity, detect positive and negative patterns, and compares it to overall economic trends (the stock dynamics, price fluctuation, investment trends). This information is turned into generic advice that, with the help of a human expert, can be personalized further. To add precision to the consult, such systems provide numeric reports and graphs.

A case in point: Morgan Stanley Wealth Management team has created a bot that updates the company’s uses on the latest market changes and provides their experts’ opinions on the topic. It’s an excellent way to promote your expertise and create a personal relationship with the client.

Final words: Embracing intelligence in finance

Artificial Intelligence is a highly-disruptive innovation that is relevant for any modern industry, but especially so in banking. With massive volumes of data processed every day, it becomes impossible for companies to take care of that manually.

Despite its high innovation potential, AI has a relatively low entry barrier. The technology is accessible, and there are a lot of talented developers who can bring this innovation to life, both in house and in outsourcing development.

Artificial Intelligence is already being implemented in multiple fintech startups

Artificial Intelligence is already being implemented in multiple fintech startups

However, implementing artificial intelligence cannot be treated as a cherry on the cake, as a slight addiction to the overall business process. To take the most out of AI’s enormous potential, you need to build solid relationships between your team and clients and use AI as an enabler of that.

Last but not least, AI is by no means a threat to human teams. In fact, the technology has a huge potential of enhancing typical manual work processing by taking the focus away from mundane tasks. Instead, you can use your team’s manager to do rewarding, meaningful jobs that are crucial for the organization. This way, your employees will feel more motivated, and the work will be done much faster.

Artificial Intelligence is a perfect addition to any innovation that you are implementing, be it blockchain, Internet of Things, or big data. When machine learning algorithms power these technologies, they work faster and more precise. So, if your company has been already on the track of implementing disruptive technologies, artificial technology is the next logical choice.


From accountants to advisors: changing roles and expectations

From accountants to advisors: changing roles and expectations 1

By Chris Downing, Director for Accountants & Bookkeepers at Sage

The line between strategic advisor and traditional accountant is blurring. Over the last year, 82% of accountants said their clients were demanding a wider service offering, including business and technology implementation advice. In the current climate this transition has only been accelerated.

Clients increasingly expect their accountants to take a more active role in change management and predicting their cashflow months into an uncertain future. This is enabling businesses to tackle the challenges of day-to-day operations, while keeping an eye on what the post-COVID world will look like, and the support they will need to return to strength.

To solve these new and complex, expectations accountants must develop a different way of working. They will be required to increasingly supplement the traditional, compliance and reporting aspects of their work with business advice and consultancy. To do this, accountants need the ability to move quickly and efficiently, with a firm grounding in technology and data control.

Get straight to the point

The priorities of yesterday are very different to the goals of today. Where businesses once focused on driving growth and efficiency, the objective for many now is continuity – understanding what government support is available and for how long. In the current climate, speed of delivery and client care are top of the agenda.

But the way accountants go about this is very important. Rules are changing every day – the definition of an ‘essential business’, government support and bank loan programmes are constantly in flux. In normal times, an accountant’s role is to ensure their clients are aware of and reactant to these changes. Yet, how much value does this create for them in the ‘now’?

To be valuable, new information must be delivered quickly but it should also be succinct. It isn’t useful for clients to be bombarded with email updates, or reports running into hundreds of pages, trying to explain the week’s changes. With so much present noise, it’s the accountant’s task to break through the information overload and provide the client with crucial resource only.

To understand client pain points and get to the heart of what they really need, a running dialogue is essential. Building individual client relationships will unlock the potential to deliver tailored experiences that meet their business demands. Armed with this insight, accountants can then distil complex information into digestible chunks.

A more entrepreneurial spirit 

Sharing insight is only the start.  The other half of the story relies on consultancy. In the Covid-19 environment, the routine aspects of an accountant’s work are being supplemented with the transformative changes they can make for clients. Cashflow projections for the next six months are crucial, but even more so is the advice an accountant can offer on improving the financial outlook of a business.

Chris Downing

Chris Downing

To provide this balance, accountants should embrace a more entrepreneurial way of thinking. Not only advising on how clients can meet current challenges, but also how they can innovate to drive new revenue streams in the future. Part of this means being willing to step outside of their comfort zone. Many firms are already investing in the skills and technologies they need to service novel demands – like advising on relevant accounting and finance technologies.

While many businesses remain closed to the public, even as lockdown eases, they have increased capacity and flexibility to shift operations towards what will be most effective and profitable. Clients will be open to changing their business focus to meet demand spikes in other areas as they do not have to account for a disruption to customer service. For example, many distillers shifted production from beverages to hand sanitiser while bars and restaurants were closed.

With their contextual understanding of client finances, accountants are uniquely placed to advise their clients on change and guide them through the transformation process. Though this requires a more innovative model of accounting, and one that is willing to embrace the latest technologies.

Truth in the cloud

Business advice needs to be backed by data, especially for accountants engaging directly with the CFO. Scenarios need to be modelled, analysed, tracked and compared over time to arrive at the most effective proposal for the client. This is outside the wheelhouse of traditional accounting, but it’s becoming necessary in an industry heavily disrupted by new technologies.

To keep up with the ever-growing need for rapidly available data and analytics capabilities, more and more accountants are turning to the cloud to consolidate and use their data estate, while automating the time-consuming tasks of data management. Indeed, the majority (91%) of accountants have said new technology has delivered fresh value to their business in the last year, whether it increases productivity or frees up more time to focus on client needs.

Against the backdrop of coronavirus and technological disruption, a new breed of accountant is quickly emerging. Innovation is possible for those who stay ahead of client expectations and are aware of their needs, embrace an entrepreneurial mindset and adopt the latest cloud and automation technologies. In this way, an accountant becomes an integral part of their client’s business.

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Preparing for the new normal and building a financial plan

Preparing for the new normal and building a financial plan 2

By Donna Torres, director of small business at Xero UK

There is some light at the end of the tunnel for small businesses. As the lockdown continues to ease many retailers and hospitality businesses are now opening up again, or preparing to return soon.

Preparing for what’s around the corner has always been key to business success. Whilst there is still much uncertainty, it’s more important than ever that businesses get in control of their finances and create a solid plan.

Having a strong understanding of your cash flow and a plan for the months to come is vital to helping you prepare for what’s ahead. If you’re unsure where to begin, here are five ways to start:

Take stock

Financial experts Lauren Harvey (Founding Director of Full Stop Accounts) and Jonathan Graunt (Founder of accountancy firm FD Works and Xavier Analytics) recently spoke with Xero about the uplift in businesses taking an interest in their finances and understanding their financial position.

Businesses should be using this time to review their processes and really understand their numbers. It can be helpful to reflect on your original statement – what do you really want your business to do? And has the pandemic changed this? Use this as the fuel to drive your business vision forward.

Consider the risks

The government has provided SMEs with a number of support schemes, but the conditions and capital being offered is changing.

For example, the Furlough Scheme will currently only run until the end of October and the deadline to furlough new employees has now passed. The government will also gradually be reducing the amount it pays under this scheme. Make sure you’ve accountanted for this in your financial plan so you have a clear picture of how furlough tapering off will impact your business and any adjustments you might need to make.

If you’ve taken out one of the Government backed loans, now is the time to start building repayments into your financial plan. Building a solid plan will also help to ensure that you use the money in the best way to support your business in the long-term. It can be tempting to fight the most immediate fires with your capital, but try to think about the longer term health of your business – and where the money is going to have the most impact.

Adapting to a change in demand

Covid-19 has forced businesses to adapt to a lot of changes and SMEs should be thinking carefully about how their customer demand has changed. What do customers expect from you now? For example, many are still apprehensive of shopping on the high street. This might mean some of the options you offered during lockdown like deliveries or online services should remain.

Communicate with your customers as much as possible to get an accurate view of what they need from you now and in the future. How can you fulfil this? Then it’s important to look at the numbers and scrutinise which areas are going to provide the most return on investment.

Financial Planning: where to start?

For financial planning to be effective, it’s helpful to get into habits that will provide an accurate snapshot of how your business is performing. Reconciling bank transactions daily, creating a daily simple cash flow check-in habit and examining your profit and loss statements weekly will give you a better understanding of where your business stands.

Apps like Float or Fluidly will help to give you an accurate look at your cash flow in an easy to read visual. And the recently launched Xero Short-term Cash Flow tool can help you project your bank balance 30 days into the future, showing you the impact of existing bills and invoices if they’re paid on time. You can then work out which invoices you should follow up on.

Some people can find this task daunting, but your accounts aren’t just being kept for reporting to HMRC, they are also there to give you invaluable insight into your business and to plan for the future.

Ask for help

Your accountant is there to help you to understand your finances. This is likely to be one of the biggest economic challenges you have ever faced as a small business owner. Now, more than ever, it is time to lean on your accountant to help create a robust plan.

If you do not understand something, or need guidance or clarification, get in touch and ask for their expertise and advice. If their advice doesn’t help, ask them to explain it again.

You can also check out Xero’s online guide to managing cash flow here.

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The impact and implications of Covid-19 on financial reporting

The impact and implications of Covid-19 on financial reporting 3

By Mark Billington, Regional Director, Greater China & South-East Asia, ICAEW

The economic consequences of Covid-19 have been unprecedented, affecting activity in nearly every country in the world. Indeed, the latest forecast from the Institute of Chartered Accountants in England and Wales (ICAEW) projects that most economies in South-East Asia (SEA) would fall into recession in the first half of 2020 and Gross Domestic Product will contract by 1.9 percent over the whole year[1]. Across the region, governments have had to bring in various fiscal stimulus measures to protect the economy.

Exceptional times bring tremendous challenges for businesses and requires leaders to have a clear view on the short- and long-term effects of Covid-19 on their businesses, and to respond accordingly. This starts with taking extra care to recognise the impact of Covid-19 in financial reports, especially of events which have occurred between the balance sheet date and the date when the accounts are authorised for issue.

Distinguishing between adjusting or non-adjusting events

As the coronavirus outbreak continues to evolve and more information comes to light about the nature of the virus and its impact, companies with 2020 year-ends need to consider how it has affected their business and how the effects should be reflected in the accounts at the end of their reporting period. This boils down to distinguishing whether Covid-19 should be accounted as an adjusting or non-adjusting event.

In December last year, China alerted the World Health Organisation (WHO) to several cases of an unusual form of pneumonia in Wuhan, central China’s Hubei Province. But it was only early this year when substantive information on what has now been identified as coronavirus (Covid19) came to light. As a result, for companies with a 31 December 2019 year-end, Covid-19 is generally considered to be a non-adjusting event.

This changes for companies which have early 2020 year-ends, who will need to consider the timelines more carefully to assess the conditions at the end of their relevant reporting period. For companies with 31 March 2020 year-ends, Covid-19 is likely to be considered a current-period event, which means that companies need to assess and record all events and conditions that existed at or before the reporting date. When it is determined to be an adjusting event, a business will need to review all areas of the accounts that might be adversely affected by the COVID-19 virus.

There may be a greater degree of judgement required when identifying the conditions at the end of the reporting period, and a closer assessment needed of whether developments are adjusting or non-adjusting.

Exercising judgement about conditions at the balance sheet date

Companies have to exercise significant judgement to determine the conditions that existed at the balance sheet date. This is heavily dependent on the reporting year end in question, the company’s own individual circumstances and the events which are under consideration.

A number of factors should be considered when making judgements about conditions at the balance sheet date. This includes the timing and impact on stakeholders such as staff, customers, and suppliers, of travel restrictions, quarantines and lockdowns, closure of businesses and schools; and government support initiatives. With each of these events, companies have to determine whether an event shines a brighter light on conditions at the balance sheet date or if conditions changed after the reporting date.

Mark Billington

Mark Billington

This evaluation in financial reporting is important because it affects the forecasting of future income and cash flows, which are based on conditions that existed at the balance sheet date. Estimating recoverable amounts might be very different for the same asset if the calculation was performed for a 2019- or 2020-year end.

Upholding values of corporate transparency and trust

In these times of uncertainty and crisis, it is even more important to be transparent about risks and assumptions used in financial reports, and to make disclosures as specific to the business as possible, to avoid the risk of financial reporting being downplayed. In fact, market regulator Singapore Exchange (SGX) and rating agency Fitch Ratings have recently cautioned companies against using alternative performance measures such as Ebitdac (earnings before interest, taxes, depreciation, amortisation and coronavirus) in their interim financial reports to flatter results, and stressed that “disclosures must be balanced and fair and avoid omission of important unfavourable facts”[2].

More than ever, businesses must continue to diligently uphold values of corporate transparency and trust and continue to disclose transparent and quality information to investors and other stakeholders. In order to do this, directors are tasked with the important responsibility to comply with various reporting standards and understand the circumstances of particular disclosures to provide a fair and balanced assessment of the company’s financial position and performance.

Covid-19 also has significant implications for audit reports on company financial statements. Preparing and auditing financial statements poses tough calls in difficult and unclear circumstances for directors and auditors. It is vital that these uncertainties are interpreted appropriately and in the context of the current unprecedented circumstances

As the business impact of COVID-19 continues to unfold and affect economies and the future of many organisations, businesses should continue to consider both their situation but also the wider economic landscape they operate in and reflect that in their financial reports.

[1] ICAEW, “Coronavirus Global Outlook: after the outbreak”, May 2020

[2] SGX warns against use of ‘earnings before coronavirus’ metric, The Business Times, 27 July 2020

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