AI in Financial Services: Exploring Use Cases and Applications

Introduction:

The financial services industry is undergoing a digital transformation, driven by the adoption of artificial intelligence (AI). This paper discusses the use cases and applications of AI in financial services, exploring how it is being leveraged by banks and fintechs to enhance customer experience, streamline operations, and drive innovation.

Use Cases and Applications:

Consumer Financial Management:

AI algorithms are used to analyze customer portfolio data and provide personalized financial advice and investment recommendations. Robo-advisors, such as More Wealth and Ellevest, use machine learning to create and manage diversified portfolios based on customer preferences.

Fraud, Risk, and Compliance:

AI-powered systems analyze patterns and detect anomalies in data to identify potential fraudulent activities in real-time. Compliance.ai provides a regulatory compliance solution that monitors the regulatory environment and maps it to bank policies and procedures.

Accounts Receivable/Accounts Payable:

Automated accounts payable and receivable processes are being implemented using AI. Versapay leverages AI to power workflows with machine learning insights, while Bank of America uses AI to improve both processes.

Customer Support:

AI-powered chatbots and virtual assistants are used to answer customer questions, guide them through processes, and handle routine disputes. Bank of America's Erica chatbot has over 1.5 billion lifetime interactions with customers.

Real-Time Decision-Making:

Machine learning models assess credit risk more accurately. Prism Data uses AI to create credit underwriting models for consumer credit, while AI enables real-time payment authorization or declines in transaction flows.

Investing:

AI assists in developing algorithms for proprietary trading and market analysis. Products like Coinrule allow firms to create automated trading strategies, while QuantConnect enables developers to design and deploy algorithmic trading strategies.

E-Commerce Enablement:

AI personalizes the online shopping experience through predictive analytics, automated decision-making, and fraud detection. Amazon incorporates AI across its consumer-facing commerce offering, while platforms like Pinterest and Meta's Facebook and Instagram shops use AI to enhance product listings and provide personalized recommendations.

Employee Financial Services & Benefits:

AI streamlines payroll and benefits management. Symmetrical AI offers payroll platforms that reduce headcount and catch fraud, while Nayya provides personalized benefits recommendations that consider employee life stage and financial status.

Unbanked/Underbanked Financial Services:

AI is being explored to extend products to underbanked customers. Scienaptic Systems provides an AI-powered credit decisioning tool that gives more bank customers access to fair credit, while DubPrime is building an "AI underwriting as a service" platform to assess non-traditional workers.

Internal Process Optimization:

AI is used to automate internal processes, such as compliance and lending workflows. Lucite AI recreates practices like creating investment banking pitch decks, which were previously considered to require creativity beyond AI comprehension.

International Adoption:

AI adoption varies across regions due to different regulatory approaches and focus areas. Virtusa notes that countries have different standards and outcomes for AI adoption regionally.

Regulatory Response:

Different countries have taken varying regulatory approaches to AI. In the US, the OCC has provided supervisory principles for banks' use of AI, while the CFPB monitors AI's use in financial services and plans to take enforcement actions for violations.

Conclusion:

AI is transforming the financial services industry, enabling banks and fintechs to deliver more efficient and effective products and services. As the regulatory landscape evolves and AI capabilities continue to advance, the full potential of AI in financial services remains to be explored, holding significant opportunities for innovation and customer-centric solutions.

Source: VISA This Week in Fintech & Visa Whitepaper, Q2 2024