The financial and banking industry is using artificial intelligence to improve their business models. There are many ways that AI technology is used by banks and other financial institutions. They are using AI to provide better services and improve profitability.
There are a lot of reasons that AI is important for financial companies. A growing number of banks and credit unions are using AI to help approve and reject loans. They have started using Commercial Loan Underwriting Software that relies on advanced machine learning technology.
Banks are also using AI to be more responsive to new threats that they are facing. They are often targeted by hackers. AI has made it easier to thwart cyberattacks. This was discussed in the article “Advancing the Finance Sector’s Cybersecurity with AI.”
However, the biggest benefit of AI technology has been with consumer and commercial loan underwriting.
AI Technology is Revolutionizing the Financial Sector
One of the biggest benefits of AI is with conducting risk assessments. Industry analysts predict AI technology will help underwrite over $315 billion in loans by 2025. Dependence on AI in loan underwriting is going to become even more important in the future. They can’t ignore its benefits as the technology becomes more widely available.
Countless industries have already started using AI to improve their risk assessment processes. The insurance industry has discovered that AI can help underwrite policies better. They have set much more appropriate premiums for their customers. The banking sector can benefit in the same ways.
The quality of risk assessment algorithms depends on the quality and quantity of data available. The financial sector has tremendous amounts of accessible data. Therefore, it has some of the best risk management technology available.
This technology is even more important in the financial sector than most other industries. The stability of any financial institution depends on conducting sound actuarial analyses. The collapse of countless banks during the Great Recession can be attributed to poor actuarial decisions.
The basis for success depends on the AI algorithms’ access to quality data. This is necessary to help develop reliable models. Financial professionals have seen risk assessment algorithms improve as they share more data. This is a process of trial and error. Many banks are scaling their AI projects to perform more risk assessments.
A recent study from Juniper Research talked about this. It pointed out that the value of unsecured loans issued through AI underwriting platforms is growing rapidly. It will grow from $24 billion to $315 billion between 2020 and 2025. The authors found that lenders using artificial intelligence will significantly improve their profitability and be more responsive to future industry challenges. It will also lower risks caused by actuarial pitfalls like missing important data on customers. Banks that used AI have already reduced the number of borrowers that have defaulted on their loans. They can recognize these risks ahead of time and reject them.
Juniper Research states that AI is essential to the underwriting process of commercial loans. Yet, it also estimates consumer lending will drive demand for AI technology in the banking sector. Lenders will use AI in conjunction with Open Lending. There are numerous benefits of merging these two technologies.
George Crabtree, co-author of this study, states that expanding the use of AI is going to be essential for many financial institutions. He pointed out that it will help banks improve profitability. But, it will also help them be more resilient in the face of growing competition from Fintech companies.
There are other ways that artificial intelligence is valuable to the financial industry. One of the newer applications is with the use of robo-advisors. Robo-advisors allow users to manage their investment portfolios without speaking with a financial professional. This technology is being used by a growing number of large financial firms. According to the authors of this report, large Fintech companies had $500 billion worth of managed investments in 2020. This figure could easily grow to $3 trillion by 2025. These figures are of increasing interest to large firms, as they provide access to large groups of potential users.
AI Technology is Becoming More Widely Used by Financial Institutions
The value of AI technology in the financial industry cannot be ignored. More financial companies are using AI to underwrite loans. They also use it to provide better services to customers and reduce their costs. Artificial intelligence will be essential to banks and Fintech companies in the future.
Smriti Jain is the owner and senior content publisher at Financesmarti. Financesmarti is a website where she shares a lot of useful stuff for the people and business of India. This includes small business ideas and other banking information, as well. Smriti completed her education in science & technology from Delhi University. Smriti usually has interests in digital marketing now, and she has chosen this career for the full-time opportunity. The primary purpose of starting this blog to provide quality information on the banking industry to the people.