Application of AI in Finance

liu, tempo Date: 2021-09-18 11:18:33 From:jelvix
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Artificial intelligence is a unique technology that can be used in different industries, and finance is no exception. Given that AI’s main advantage is its ability to work with massive amounts of data, finance can benefit from using AI even more than other areas. AI is already being used by many companies that work in such areas as insurance, banking, and asset management.


A great thing about AI is that it can be used in different ways. For instance, AI-driven chatbots can help financial organizations communicate with their customers. AI also serves as the basis for virtual assistants. Machine learning algorithms also enable algorithmic trading and can be used for risk management, fraud detection, and relationship management.


AI in finance offers numerous benefits. Perhaps, the main advantage of AI is that it gives countless automation opportunities. In turn, automation can help financial organizations increase the productivity and efficiency of many processes. Besides, given that AI can replace humans in certain situations, it helps eliminate human biases and various errors caused by emotional or psychological factors.


Obviously, AI is also better at analyzing data. Machine learning enables computers to identify patterns in data, providing decision-makers with valuable insights, and helping organizations get more precise reports.


So, how is artificial intelligence used in finance?


AI Today: Where It Works and What It’s For


Automation is more than just a cross-industry trend. It’s so popular because it enables organizations to boost productivity and cut operational costs. Tasks that used to take a lot of time and required organizations to hire teams of low-skilled employees now can be completed much quicker and easier. For instance, AI can use character recognition to verify data automatically and generate reports according to certain parameters.


Automation helps companies eliminate human errors and enables employees to focus their efforts on more important tasks that a machine cannot complete. According to statistics, AI helps companies save up to 70% of the costs associated with data entry and other repetitive tasks.


Many big companies realize the advantages of AI, so they develop their own AI-driven solutions or use existing automation solutions that enable you to adapt and use them for your specific objectives. For instance, JP Morgan Chase uses Robotic Process Automation (RPA) to comply with the necessary regulations, extract data, and capture documents.


Credit Decisions

AI also helps banks assess potential borrowers much faster and more accurately, while also saving costs. AI-based solutions can immediately analyze countless factors that can have an impact on a bank’s decision. AI uses more complex credit scoring approaches than traditional systems so banks can understand whether somebody is a high-risk applicant or simply doesn’t have enough credit history.


AI-powered software offers a higher degree of objectivity. Machines are not biased, which is a critical factor, especially in financial app development. Loan-issuing applications and digital banks allow banks to provide various personalized options and integrate alternative data, including smartphone data, into the decision-making process.


AI is beneficial not only for banks but also for many other companies. For instance, automobile lending companies report that the use of AI enabled them to cut their losses by up to 23% annually.



The trend of data-driven investments has been demonstrating steady growth during the last decade. Two years ago, data-driven investments closed on a trillion dollars. AI and machine learning are used in so-called high-frequency trading, also called quantitative or algorithmic trading. This type of trading becomes more and more popular because it offers numerous benefits.


AI in Finance


AI-driven trading systems can analyze massive amounts of data much quicker than people would do it. They can work with both unstructured and structured data. The fast speed of data processing leads to fast decisions and transactions, enabling traders to get more profit within the same period of time.


Besides, predictions made by AI algorithms are more accurate because they can analyze a lot of historical data. AI algorithms can test different trading systems, offering a new level of validation effectiveness so that traders can evaluate all the pros and cons before using a certain system.


AI can analyze a specific investor’s long-term and short-term goals to provide recommendations on the strongest portfolios. Financial institutions often use AI to manage their entire portfolios. The forecasting capabilities of AI have also been appreciated by numerous companies.


For instance, Bloomberg launched its AlpacaForecast prediction matrix that helps investors by combining real-time market data from Bloomberg with a sophisticated learning algorithm that identifies patterns in price dynamics for the most accurate predictions.


Sentiment and News Analysis

Hedge funds don’t like to share information about the way they operate, so it can be difficult to understand how exactly they may use sentiment analysis. However, AI has already demonstrated its capabilities in digital marketing, and its ability to work with data from social media can be used in the financial industry, as well.


It makes sense to expect machine learning to be used not only for various automation and customization tasks but also to news trends, social media, and other sources of data that have nothing to do with trades and stock prices.


The stock market reacts to hundreds of different factors, not only to the ticker symbols. Artificial intelligence can be used to mimic and enhance our intuition when it comes to searching for new trends and getting signals. However, to perform such tasks, AI needs not only to process data but also to understand its context better, which is still a challenge.


For instance, AI-based chatbots can provide concise answers to questions; however, AI is still far from writing comprehensive articles or ad copy because it cannot understand the context of the information it works with.


Risk Management

Risk management is another area of application of machine learning in finance. Given that AI offers incredible processing power and can handle massive amounts of both structured and unstructured data, it can handle risk management tasks much more efficiently than humans. Machine learning algorithms can also analyze the history of risks and detect any signs of potential problems before they occur.


One of the main advantages of AI in finance is that it enables organizations to analyze various financial activities in real-time, regardless of the market environment. Organizations can choose any important variables for their business planning and use them to get detailed forecasts and accurate predictions.


Crest Financial is one of the leasing companies that started to use artificial intelligence. This company employed Amazon Web Services AI for risk analysis and reported significant improvements. For instance, it managed to eliminate deployment delays that occur when using traditional data science approaches.


Fraud Prevention

AI has also proven to be very effective in preventing and fighting fraud. Cybercriminals constantly develop new, more effective tactics, but AI-based solutions can use machine learning and quickly adapt to the hackers’ strategies.


Such solutions are especially effective when it comes to fighting credit card fraud. This type of fraud has become more and more common during the last few years because of the growing popularity of online transactions and eCommerce.


AI-driven fraud detection tools can analyze clients’ behavior, track their locations, and determine their purchasing habits. Therefore, they can quickly detect any unusual activities that diverge from the regular spending pattern of a certain client.


Banks can also use artificial intelligence to deal with other types of financial crime. For instance, AI can be used to fight money laundering. Machine learning algorithms can quickly detect suspicious activity and minimize the costs of investigating money-laundering schemes. According to research, AI can decrease the cost of investigations by 20%.


Personalized Banking

The advantages of AI become obvious when it comes to personalization and providing additional benefits for users. For instance, banks use AI-powered chatbots to offer timely help while also minimizing the workload of their call centers. Financial organizations can also use various voice-controlled virtual assistants.


Such solutions are self-learning so they become more and more effective as you use them. Both virtual assistants and chatbots can also be integrated with other software. For instance, they can schedule payments, monitor account activity, and check balances.


There are also many apps that offer personalized financial advice so that users can achieve their financial goals. These smart systems can track regular expenses, income, and purchasing habits to provide the necessary financial suggestions and optimized plans.


Many well-known banks, including Bank of America, Wells Fargo, and Chase, already offer convenient mobile apps that remind users about bills, ensure timely and effective communication between banks and their customers, and help users plan expenses. Both transactions and interactions are much more convenient and streamlined.

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