The Implications of Artificial Intelligence in Finance
By Dr Uma Murthy
The democratisation of artificial intelligence (AI) like ChatGPT (Generative Pre-trained Transformer) will lead to a proliferation of new startups, services, and products that prospers our economy not just from a consumer perspective, but also for founders, creators, and prosumers.
From a financial perspective, AI is particularly helpful in corporate finance as it can better predict and assess loan risks. For companies looking to increase their value, AI technologies such as machine learning can help improve loan underwriting and reduce financial risks. The use of AI in investment and banking however depends on the availability of large volumes of good-quality and timely data.
Financial institutions are using AI to derive more accurate and granular data insights to analyse large amounts of financial data which include market trends, customer behaviors, and predictions of market conditions. Analysing such data can help financial institutions to make better investment decisions, identify frauds and improve their risk management.
Financial analysts and investors are using GPT-3 to generate financial reports and summaries. Automating such tasks lowers overall costs as it reduces the need for manual labor. AI can also help companies stay more compliant by automatically identifying any data that is not complying with the regulatory standards.
AI can significantly improve the finance sector’s efficiency, accuracy, and compliance. For example, ChatGPT benefits the finance and accounting sector in terms of automating repetitive tasks such as data entry, invoice processing, and report generation. Such automation results in less human errors and more accuracy in data entry and report generation tasks.
As AI continues to be improved, it can now understand and respond to natural language inputs, making it more effective at handling customer inquiries and providing financial advice. ChatGPT for instance is automating routine tasks such as account management and balance inquiries and improving the overall customer experience and satisfaction.
Overall, companies in the financial sector can use AI to improve their operations, gain a competitive advantage, and create new growth opportunities. Incorporating AI in finance allows for handling of routine tasks such as balance inquiries and payment information, reducing the workload of call center staff and allowing them to focus on more complex and specialized tasks and strategies.
However, there are certain hurdles that we must cross if we are to consider the full implementation of AI in financial institutions. With the storage and use of large quantities of sensitive data, data privacy and cybersecurity are of paramount importance. Difficulties in explaining the rationale of AI financial decisions is increasingly an important issue as AI algorithms may uncover unknown correlations in data sets that stakeholders may struggle to understand because the underlying causality is unknown.
These models may perform poorly in the event of major and sudden movements in input data, resulting in the breakdown of established correlations (for example, in response to a crisis), potentially providing inaccurate decisions, with adverse outcomes for financial institutions or their clients.
Another point to note is AI’s ability to replicate what seems like authentic human speech speaks to an innate aspect of the human experience, inciting empathy automatically. When a machine elicits empathy, it raises the question of whether that’s truly a sign of humanity, perhaps lowering our responsiveness to empathy toward real humans.
AI creations blur the boundaries of humanity, distorting perceptions of ourselves. That’s the most dangerous part. As machine learning and the development of artificial general intelligence continue to progress, this is certainly of concern.
As more economic activities become automated, we may be looking at a development of a similar magnitude as the last industrial revolution. The question for humanity is what people will choose to do with our minds once they are liberated from many of the tasks that can now be handed over to an AI.
While it is true that AI could also free us, thus amplifying our capabilities and economy, humanity could be justifiably worried as the rise of AI could result in people facing mass unemployment and a replacement of human tasks that give us meaning.
Though it is important to note that without leveraging the uniquely human factors of empathy and understanding, financial institutions might struggle to build relationships with its customers, which is harmful for retention. In this way, it’s essential to have a significant human component in customer service strategies.
For institutions to succeed, it must establish a balance between human interaction and digital tools. Combining the two will see bigger increases in customer loyalty and retention, rather than focusing on one. What is clear is that people have an opportunity to leverage AI to build a better future if they choose to apply it with ethics, intelligence, and creativity.
Dr Uma Murthy is a lecturer for the School of Accounting & Finance, Faculty of Business and Law, Taylor’s University.