Artificial Intelligence, as many consider, is a backbone of FinTech. Artificial Intelligence has a notable history in the area of science and economics. Artificial intelligence at its core is all about dimension reduction, seeing patterns in date, efficiency, information structured or unstructured that creates value in financial services. Many identify Alan Turing, a famous scientist, to have developed the first theory to define Artificial Intelligence. Turing Test, a famous test created by Alan Turning, is a baseline idea of self recognizing machine intelligence. Finance and Financial firms have always been at the forefront of computer technology. That said, there are a lot of areas of finance that are, till this date, human-centric and dependent on trust relationships. Computers can simulate humanity in various tasks, especially the routine tasks but the humans have not lost their role yet.
Now, coming to the definition of Artificial Intelligence, the Oxford Living Dictionary defines AI as, “The theory and development of computer systems able to perform tasks normally requiring human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.” Which means understanding images, recognizing speech, text, making decision, translating both human languages and other machine languages. Whereas the Merriam-Webster Dictionary defines AI as, “A branch of computer science dealing with the simulation of intelligent behavior in computers or, the capability of a machine to imitate intelligent human behavior.”
When it comes to the market size of Artificial Intelligence, it is important to understand its market size as it helps us define what exactly Artificial Intelligence is. Forrester Research in 2017 suggests that about 1.2 trillion US dollars worldwide will be invested in “cognitive computing technologies”, not just in FinTech but overall, by 2020. While Tractica Research suggested that the size of AI will be about 36.8 billion US dollars by 2025, again not just in FinTech. Accenture suggested by 2035 the market size of AI will be about 8.3 trillion US dollars. Whereas, Bank of America Merrill Lynch suggested that AI based systems will have a market value of 70 billion US dollars by the year 2025. When defining Artificial Intelligence, we realize that AI can be applied to almost every field including the new concept of IoT, it can affect every aspect of life.
There are different observers analyzing and identifying different areas where revenues and applications of AI are dispersed. This gives us an additional view about specific use cases that may advantage firms, financial service professional, and customers. Analyzing contracts using artificial intelligence harbors a great advantage for regulators and compliance officers. Using algorithms to read contracts and identify risk or commonalities with other contracts is an area of rapid expansion possibility. Object detection, classifying them physically, understanding the motion size, is all part of the future for AI. Coming to imagery, understanding it, identity detection, classification, tracking objects and images in real time or retrospect is a large area of ongoing research. An example of this is, a series of projects at University of Pennsylvania have identified that the images posted on social platforms can be useful to identify the individual personality but also be aggregated to identifying health risks and other aspects as that would require human intervention. The application of AI in understanding geophysical features or questioning of images in efficient way is another potential advancement. Using AI in customizing social media content including the marketing content is something that is highly valuable and will continue to be so for innovators. Identification of normal and abnormal use to predict maintenance requirements of vehicles to smart homes is another area of potential AI application. Healthcare application of AI have been a major change in the area like processing patient information to find potential treatments for various healthcare challenges including outbreaks, these aggregating trends have led to betterment in general healthcare. Another area of application is classification of static images or unstructured data has tremendous potential. And finally, the area identified as the greatest investment in financial industry is the algorithmic trading.
Now, focusing on the applications of Artificial Intelligence in the field of FinTech, it is understood that a lot of companies have focused on B2C market providing financial assistance, financial advice, or wealth management services, while others have directly focused on quantitative asset management at both trading level and general portfolio allocation level. Insures use AI in various area from credit risk management to the claim’s integrity across the value chain. Market research has become a growing area for both product development and investment. Another advancing area for both activity and investment are debt collection and following people with debts across time and geographies. The tasks of tracking business activities and reporting expenses have become AI’s natural arena and has the possibility of evolving and improving user outcomes. Predictive analytics is another broad area that has seen tremendous investment and have many unseen possibilities. AI’s application in the area of fraud detection, regulatory compliance, is a natural focus for it. A very popular application of Artificial Intelligence is scoring credits, understanding risks, making lending decisions while combining data from multiple sources from different formats is a high pay-off area for AI.
There are a number of reasons and arguments on how Artificial intelligence can be valuable in areas traditionally occupied by human intelligence. AI has the ability to lower costs and operate at scale and efficiently. AI is unbiased. For example, humans are biased, the order, the time of the day, the mood, the impact of personal experiences, all of them affect human decision making. Whereas Artificial Intelligence does not make such mistakes as algorithms not only allow speed and scale, but there is also regularity and they are less error prone while still keeping up the speed and scale. Another reason to use AI is that it reduces the cost of customer support with the help of automated customer support. The algorithm allows it to have a personal touch and be relatable while being available 24/7 which significantly lowering the costs. The marginal cost of a customer support algorithm is zero whereas of a person can be in wages. All of these advantages come at a price, rather a huge price. Artificial Intelligence is quite expensive to implement. The cost of installation, repair, and maintenance can all add up to a lot. Another disadvantage of AI is that it increases machine dependency and will probably lead to a point where is becomes difficult for humans to work without a machine’s assistance resulting in decreased mental and thinking abilities of humans. As AI gets popular, low skilled jobs are at risk as machines will replace those jobs and industries will prefer to invest in a machine than hiring humans. Finally, Artificial Intelligence machines are programmed to do a limited number of tasks based on their algorithms, so, they cannot adapt to new environments, think out of the box, or be creative. Their thinking zone is restricted to what the algorithm instructs.
The benefits of Artificial Intelligence overrule its drawbacks. AI has a definitional role to play in the years to come but it is important to recognize that its utility might be mundane. It is challenging to predict to see where all this might go. The possibilities are endless, but it does take a lot of work and money to get there. Artificial Intelligence is hyped, by academics, by tech companies, by FinTech companies, and it might not succeed in every area, there will be some failures like there are with every other technological revolution. Some area AI technology might definitely see some success is in reduction of barriers of entry, increase in cost benefits and advancement of scale. Artificial Intelligence is improving the state of all industries, especially FinTech and it holds a lot of promise for the future.
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