Artificial Intelligence is at a crucial junction in time. It has come to a point where we are using A.I. without even realizing it, for instance, when YouTube recommends videos to us, it is done using an AI bot.
Fintech stands at the same junction together with AI. As we move more and more towards the complete digitization of markets, AI tools are becoming more commonplace than you think.
The general consensus is that AI is going to take over the world and people are going to lose jobs left and right, well, that’s not entirely true. People thought the same for the internet, but now just take a look at the no. of jobs the internet has created single-handedly.
In this blog, we will look at the use of AI and ML in the financial world, including AI trading to AI fraud detection to the benefits of a machine learning stock market— artificial intelligence helps firms reimagine their operations.
Expansive Use Of AI/ ML in Finance
As time goes by, the reach of what AI and ML can achieve grows bigger. And financial market analysis is definitely one of the topmost factors in this expanding age of technologies.
Here are some the ways in which AI and ML can be used in the financial world:
1. Asset Management
Assets are anything that keeps appreciating in value or/ and pays dividends to you with time. In simple words Asset is anything that makes you money. Typically an Asset can make money via a “Passive” route.
There are various asset classes in the financial world like real estate, cryptocurrencies, stocks, NFTs, etc. All these types of assets can be used in order to create more money from an initial investment.
Asset optimization is a big part of how firms can optimize their finances and generate more revenue. Using AI and ML algorithms, fund managers can easily predict, analyze, and anticipate future trends that help them make decisions that reduce or nullify liquidity. As the algorithm gets better, the optimized portfolio will yield a higher return with time.
2. Marketing Spends, Cross-Selling, And Upselling
The biggest benefit of having a great AI ML tool is its ability to analyze statistics. It can be used to turn the right gears when it comes to marketing and yield a higher R.O.I. at the end of the day. A.I. algorithms can achieve this by analyzing A/B test results of various campaigns; this allows them to increase response rates and thus reduce marketing cost and the C.P.C. (Cost-per-click).
Cross-selling and Upselling:
Cross-selling is nothing but selling to an existing customer. At the same time, upselling is a sales tactic where you invite a customer to buy upgrades or add-ons to a purchase he/ she has already made.
Both artificial intelligence and machine learning will help you achieve higher customer acquisition, and higher customer retention, thus allowing you to ramp up the chances of cross-selling or upselling them.
3. Fraud Prevention
Risk reduction is a crucial part of using machine learning. ML allows a financial advisory firm to launch investigations before the losses are booked. It can detect suspicious activity like account takeover, sudden bulk transfers, etc.
Fraud prevention and prediction cut down the chances of the company suffering an unforeseen loss. It acts as a safety net against crooked people trying to steal or misuse other people’s assets.
The first step to capital management is the security of funds, and A.I. can help you achieve the same.
4. Attrition Management
Attrition is nothing but the chances of someone to bail out. A higher attrition rate means that more people are leaving an organization. This might mean attrition of either employees or clients leaving the firm’s services.
AI can be used to identify client profiles at “high risk” of attrition by analyzing and matching characteristics of previous client profiles who have left the organization. In this way, artificial intelligence can help the firm provide better customer service and reduce its attrition rate. It can also optimize the feedback process in order to make it much more effective for future reference.
Controlling attrition is also a big part of maintaining stability in the financial markets. A consistent cash flow and workforce play a key role in ramping up the profit margins for a firm.
5. Trading Operations
Technical analysis and transaction cost analysis have been used by traders globally for a long time now. The historical data available on charts, trends, and executions are so vast that it becomes pretty easy for an appropriate A.I. algorithm to analyze and predict the upcoming trends.
This analysis is as accurate as any other professional trader with a very small margin or error. Obviously, with time the algorithms are trained better and better, and the accuracy keeps on improving.
ML algorithms train themselves on historical data and learn the fundamentals of trading themselves instead of humans interfering and implementing one of the thousands of trading systems out there. It learns that it is actually better to hold on to trade longer if necessary and cut out of a loss-making deal as fast as possible if there are no signals of price recovery.
Various programming languages like Python are used to design, and develop trading algorithms and systems that use deep learning and data science in order to execute trades properly in real-time.
Concluding Thoughts
AI and ML are the key to financial management and security in the future. It helps primarily in two broad categories:
- Increasing the profits, and
- Reducing the risk.
The increase in revenue can be done either directly by increasing customer acquisition and retention or it can be done indirectly by reducing the amount of money that the company spends over a period of time.
The use of historical data, and trends can be used to figure out the best way to implement these changes and make small changes within a company that help the company create a better brand. It also enables the company to provide better customer service by looking at the data of multiple lost customers in the past.
Reduction of risk also plays a key role as it stops the company from booking potential losses and thus maintains higher profits throughout the year.
