5 reasons that AI and Finance are a Match Made in Heaven
A discussion with Nadia Abouayoub, founder of AIFINAI and digital member of the World Economic Forum
Artificial Intelligence (AI)is set to impact a multitude of sectors and industries. The finance sector has proven itself an early adopter of AI in comparison to other industries. Therefore, the applications of AI and machine learning in finance are myriad. Traders, wealth managers, insurers, and bankers are likely well aware of this in some form.
Since the very basis of AI is learning from data, it is a natural fit for the financial sector where records are imperative to the business. It has also established automation in the areas which require intelligent, analytical and clear-thinking. Applications like financial services chatbots have indeed proven themselves to be a powerful tool to customer satisfaction, and an unmatched resource for the enterprises, helping them save a lot of time and money.
According to a study done by the World Economic Forum, AI is changing how financial institutions generate and use insights from data. In turn, this propels new forms of business model innovation, reshapes competitive environments and the workforce, engenders new risk dynamics, and poses novel challenges to firms and policy-makers alike.
Our digital member, Nadia Abouayoub is a leading expert in the AI and finance space, and is currently developing an educational platform to elaborate on how AI can be integrated into the financial sector. I talked to her about how the field is evolving, as well as some misconceptions and limitations we need to keep in mind.
1. AI will be a pivotal part of the future of finance.
In the Fourth Industrial Revolution, AI is one of the key technologies which will disrupt and shape our industries and society. Our society is facing unprecedented challenges which affect our economy, environment, and our welfare. To resolve these issues, we need to process and analyse the data related to them. Turning towards new technologies to understand the data, identify patterns, and predict potential outcomes can equip us to face difficult challenges.
The financial and monetary ecosystem, like other industries, is adopting new technologies. The regulatory bodies have recognized the impact of such disruption and have published their recommendations for financial institutions, specifically regarding how AI and other new technologies will affect the governance in our industry. We see many initiatives in established banks about the usage of AI to help them analyse and understand the markets, make decisions, and extract information from a constantly increasing volume of data. Another phenomenon is the increasing numbers of startups in financial services where AI is part of their business models.
2. We need to be prepared for the disruption this will cause.
From a macro-level, the first advancement to focus on is the disruption in companies and integrating new digital technologies. As mentioned previously, companies must adapt, and many of them are going through a digital transformation. The success of the transformation will depend on how companies are incorporating AI and new technologies within their business strategy and business model.
Companies have a different level of technical maturity, and each adaptation should be in line with the company business model. Apart from the adaptation, we need to look at preparing the workforce for current and upcoming developments.
On a micro-level, Natural Language Processing and algorithmic computation will be key in data management. The validity and accuracy of data can not be overlooked, and valid processes need to be put in place to ensure efficiency in the procurement and maintenance of data sets, while optimizing the quality of data. Additionally, the impact of new scenarios on an algorithm, causality of an event and its efforts on predictive models will have a huge impact on the financial sector.
3. Limitation, both technical and ethical, will dictate how fast the field evolves.
Most misconceptions around AI stem from a lack of education and awareness. By understanding AI and its limitations, organizations will be able to design a more realistic implementation plan and ensure the success of their projects. Unfortunately, at the moment, many statistics show that AI projects have a high rate of failure. These not only have a significant financial impact on companies, but also have a negative impact on future potential implementations.
Additionally, incorporating AI models relies on a high volume of data. To ensure accuracy of the results, the models must address the limitation on volume, velocity, and variety. Data Limitation is a key concern. Missing data, poor data quality, and lack of data will limit machine learning development standard, as specified by the Bank of England.
Alongside the technical limitation, there are other potential issues that need to be considered. There are a variety of principles that have been established, to aid in the usage of AI. Companies could either create their own set of rules or reference some pre-defined rules by organizations such as the OECD, the EU, or other bodies. Within the internal governance, it is crucial to ensure that AI projects are ethically implemented.
4. Credibility of models is imperative.
One issue of importance in relation to AI and finance is the robustness of AI models. This needs to apply to the the nature of the algorithms used, as well as the deep understanding of the data. It is also important to ensure a safe and explainable implementation, especially in relation to the financial sector, in order to ensure transparency.
The lack of robustness on AI models limits the adaptability and scalability of the algorithms, being a parameter of project failures. To implement robust solutions, we should focus on successfully implementing resilient, scalable, and adaptable models. All these parameters combined will help us improve the credibility of models and develop trustworthy AI.
5. Information will provide a competitive edge.
In an era of information and data in which the volume of data is exponentially increasing, knowledge and insights are crucial for all industries. In financial services, information can help build an understanding of all the parameters influencing the industry, alongside with the capacity to manage, understand and process the data.
To stay competitive and manage their risks efficiently, companies are looking at technologies which will help them build a deep understanding of the data by identifying patterns.
AI models are being used to help data tell its story. Based on the information and AI solutions, the aim is to ensure that the decision process is fair and accurate. Extracting data from the information is not sufficient; we also need to ensure that we can guarantee the accuracy of the data, as well as transparency of models.
Tools like Strategic Intelligence will be the key to gaining a competitive advantage.
The Strategic platform helps reduce the time to insight by gathering key influencing parameters across industries and social phenomenon. Through bringing together the different elements into a transformation map, it helps us understand the relations between the parameters and their impact on our industry. For example, we can see how changes in governance, specific disruption in an industry, could affect the market.
Another feature that Nadia found beneficial is the possibility to visualize the interaction between industries through transformation map. It allows us to analyse the risk and challenges which could disrupt an industry. Through the transformation map, the gathering of the information can facilitate decision-making.
Strategic Intelligence is an online digital platform that helps individuals and organizations decipher the potential impacts of accelerating global complexity, while counteracting the misleading and unreliable information that is circulating. The Strategic Intelligence tool helps you understand the global forces at play and make more informed decisions.
To explore Strategic Intelligence, visit intelligence.weforum.org or search Strategic IQ in the iOS, Play or Huawei stores.
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