Francis DiAntonio, CEO, Lexington Capital Holdings.
Every industry has seen considerable hype over the implications that artificial intelligence may have in just a few short years. Recent high-profile breakthroughs, such as OpenAI’s suite of generative artificial intelligence tools, have significantly changed the horizon for when we can expect tangible business advantages from commercially available AI systems.
Firms will compete early on to determine which forms of artificial intelligence are best suited to their market or service, with successful firms poised to see significant gains in growth and efficiency.
The financial services sector has historically resisted large-scale change until new offerings were sufficiently vetted, easily deployable and standardized. Innovations such as credit cards, electronic payment systems, blockchains and peer-to-peer lending took several years to be embraced in the banking and finance industries.
This tendency to shy away from risks and unknown commodities is natural for an industry that deals with money and legal obligations and relies on trust as the foundation of the market.
The advent of alternative financing in the past 20 years, however, has created a subset of the finance industry that embraces new technology and fosters innovation, qualities that will help in driving innovative AI integration. My firm, for example, has already taken steps to integrate AI into our CRM structure to drive client progression and tailor our offerings based on past behavior and predictive analytics. Soon, I anticipate trialing AI bots for real-time customer service, assistants for salespeople and eventually moving to automated outbound calling.
Surely, there will be ingenious ways this technology is trialed in financing; however, several areas of alternative financing are prime for AI to revolutionize.
Improved Risk Assessment And Credit Scoring
The first areas of financing that will likely be revolutionized by artificial intelligence are the risk assessments and credit scoring that form the foundation of every loan agreement. Credit scoring has remained relatively the same over the past 40 years as different credit services compare a client’s credit utilization, payment practices and other metrics to gauge their risk of defaulting. This system has succeeded in underpinning financing for the modern banking system; however, AI will allow for even more complex analyses of larger data sets.
Whichever financial firms have the most comprehensive and accurate representation of risk will have a competitive advantage over their competitors. Inevitably, financial service providers will look to leverage AI tools to spot trends, provide insights and use data to provide risk assessments that existing systems fail to capture.
For example, AI could be used to assess a loan applicant’s exposure to climate change risks or politically unstable industries and recommend leveraging a higher interest rate to offset those typically hidden risks.
The core of machine learning technology is the ability to identify patterns and flag them earlier than humans can. The financial industry benefits from decades of bookkeeping rules and digitization that I believe can make the quick adoption and deployment of AI tools easier.
Reduced Fraud
Just as AI can be used to better understand a loan applicant or potential business agent, it can also be used to verify financial transactions and cut down on fraud. AI systems could be trained on existing data and mobilized to empower lenders and loan applicants to identify fraudulent activity sooner and reduce waste tied to fraud.
More Time For Staff To Focus On Value-Added Work
One of the most talked-about aspects of AI adoption in business is the expectation that it will replace humans and lead to widespread job losses. The lending industry has always been people-driven; however, it would be naive to think that this will make it immune to automation.
Instead, this should be seen as an opportunity to automate the least value-added tasks so loan managers, salespeople and critical personnel can focus on their functions that drive growth and efficiency. Tasks such as customer support, document verification, data entries and marketing communications can all be automated with relatively minimal risk over time.
Regulatory compliance, one of the most important aspects of lending, could see significant improvement from the adoption of AI systems. Freeing employees from this work will allow them to focus on more complex tasks and decision making, which may improve efficiency and job satisfaction.
Artificial intelligence technology may reinvent several areas of financial services in the coming years, so understanding AI’s capabilities and opportunities will be critical to remaining competitive over the long term. Currently, AI systems still struggle with producing accurate, verifiable results in a way that can be validated and deemed compliant. I believe, however, that long-term investments and innovations will work to eliminate these concerns and potentially upend the finance industry.
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