BHAVYA WANI

BANKING AND FINANCE

“IMPACT OF ARTIFICIAL INTELLIGENCE IN REDUCING COSTS

ASSOCIATED WITH FINANCIAL TRANSACTIONS”

The history of artificial intelligence (AI) dates to antiquity – intelligent robots appear in the
myths of many ancient societies, including Greek, Arabic, Egyptian and Chinese. Today, the
field of artificial intelligence is more vibrant than ever and some believe that we're on the
threshold of discoveries that could change human society irreversibly, for better or worse.

Siri, Google Now, and Cortana are obvious examples of artificial intelligence, but AI is
actually all around us. It can be found in vacuum cleaners, cars, lawnmowers, video games,
Hollywood special effects, e-commerce software, medical research and international finance
markets – among many other examples.

AI is changing everything around us i.e. how we work, how we interact and how we share
information with each other. AI in financial services is broad-based addressing the needs of
KYC and anti-money laundering systems, risk management, financial analysis, portfolio
management, etc.

AI can be a leading problem for the bigger firms as well as can create opportunity. A
competitive challenge is that technology firms could expand their reach into financial
services by leveraging their global presence, technical expertise, innovative platforms,
customer data sets, and brand loyalty.

AI IN FINANCE: -
Financial services are an information-intensive industry. Information about money has
become almost as important as money itself.

Leveraging big data and more Information as a strategic tool should drive significant
opportunities for AI adoption within the finance industry.

Opportunities: - In the near term, financial institutions can achieve substantial value by taking
advantage of AI to pursue new competitive strategies across their value chains.

Challenges: - However, successfully executing AI strategies will require significant effort to

address challenges related to data, operations, talent and regulation.

Social Implications: - Stakeholders across the ecosystem will need to be ready to address a
variety of societal implications driven by the increased adoption of AI across the industry.

The entire financial services industry is being inundated with articles and presentations about
the business implications of artificial intelligence (AI). Banks and credit unions are becoming
aware of the potential of these technologies and are beginning to explore how AI could
enable them to streamline operations, improve product offerings and enhance customer
experiences.

The potential of open banking and artificial intelligence are intertwined, making up the
foundation for a new banking ecosystem that will most likely include both financial and non-
financial components. By partnering with fintech providers and data analytic professionals,
the power of organizational data and insights can be realized. The partnerships and structure
decided upon today will determine an organization’s competitive differentiation in the future.

As commerce has become more global and risks have increased, governments have
implemented more Know Your Customer (KYC) and Anti-Money Laundering (AML)
regulations. While some financial organizations exited businesses to avoid the challenges of
KYC/AML compliance, others have adopted new processes while seeking a way to leverage
technology with increasing interest in AI.
The three primary ways in which artificial intelligence will transform the banking industry:

1. AI technology companies such as Google and Amazon will add financial services
skills to their smart home assistants, then leveraging this data interface via
relationships with traditional banking providers.
2. Technology and finance firms merge/collaborate to build full psychographic profiles
of consumers across social, commercial, personal and financial data (e.g., like
Tencent coupling with Ant Financial in China).
3. The crypto community builds decentralized, autonomous organizations using open
source components with the goal of shifting power back to consumers.

AI-enabled devices are already using vision and sound to gather information even more
accurately than humans, and the software continues to get more human-like.

AI’s development is unpredictable, and, through our research, we encountered several future
scenarios that may not be feasible given the technology currently available and the existing
regulatory structures. Nonetheless, these scenarios represent fundamentally different ways of
thinking about financial services that merit consideration in the public and private sectors
alike.

 Customers’ financial health is radically improved through optimized savings rates and
automated loan repayments that minimize interest expenses.
 Deposit accounts are no longer the locus of control for customers as the centre of the
retail customer experience shifts to financial-management platforms, reducing
interaction points between large banks and customers.
 Demand deposits shift further into the capital markets and wealth industry and away
from the balance sheets of retail banks.
 The demarcation between spending, borrowing and wealth management breaks down
as one service-based offering manages the flow of customers’ money across multiple
accounts.
 Current regulatory frameworks, largely focused on liquidity and leverage, need to be
adjusted for a new banking model that is not centred on demand deposits.
For financial institutions, their slice of this massive AI pie represents upwards of $1 trillion in
projected cost savings. By 2030, traditional financial institutions can shave 22% in costs, says
Autonomous in an 84-page report on AI in the financial industry. Here’s how they break
down those cost savings:

 Front Office – $490 billion in savings. Almost half of this ($199 billion) will come
from reductions in the scale of retail branch networks, security, tellers, cashiers and
other distribution staff.
 Middle Office – $350 billion in savings. Just simply applying AI to compliance,
KYC/AML, authentication and other forms of data processing will save banks and
credit unions a staggering $217 billion.
 Back Office – $200 billion in savings. $31 billion of this will be attributed to
underwriting and collections systems.

REFERENCES:

The following documents were referred for preparing this report-

1. Deep Learning for Finance: Deep Portfolios J. B. Heaton ∗ N. G. Polson † J. H. Witte

‡
2. INTELLIGENT AGENTS and Financial Risk Monitoring Systems- Huaiqing Wang,
John Mylopoulos, and Stephen Liao.
3. Artificial Neural Networks in Accounting and Finance: Modeling Issues -James R.
Coakley* and Carol E. Brown.
4. Artificial Intelligence and the Emergent Turbulent Markets: New Challenges to
Corporate Ethics Today - FR. Oswald A. J. Mascarenhas, S.J.
5. The Financial Brand.