Artificial intelligence
Are algorithms ahead when it comes to financial know-how?
Online shopping and banking only scratch the surface of what artificial intelligence is now contributing to financial issues
© mrmohock / shutterstock.com
Alexa, Chatbots & Co .: Artificial intelligence is often part of our everyday life – and is also playing an increasingly important role in the financial sector.
Today, humans can no longer escape the influence of artificial intelligence (AI). The next time you search Google, algorithms decide who is shown which result. The automatic image recognition in our smartphone also uses AI, as does our navigation system, which brings us safely from A to B and always has the traffic flow in view.
Many people in Germany also think that’s a good thing. According to a survey by the ITK industry association Bitkom, over 60 percent of the Germans surveyed attach great importance to artificial intelligence when it comes to future prosperity in Germany. 75 percent of those surveyed in the same study even want Germany to take on a pioneering role in AI development. Reason enough to look at the possibilities of artificial intelligence in an area that has a huge impact on our prosperity: the financial sector.
The AI-controlled investment: computers beat people
When it comes to investing and building up assets, Germans tend to be more traditional. So trust according to a survey by Statista still more than 40 percent of their savings book as an investment. Equities or equity funds offer far greater returns. And artificial intelligence could help Germans switch to alternative investments. Markus Lehner, Managing Director of Lehner Investments, answered the question of whether AI is better than human investors when it comes to investing shares with a resounding “Yes!”. However, he restricts the fact that the AI cannot yet independently set the parameters for the investment. According to Lehner, these are often very subjective and therefore have nothing to do with the strengths of AI – speed or independent learning.
Robo advisors or AI-powered mutual funds definitely require less human input. For consumers, this can have the advantage of lower fees. But Lehner regards this aspect as secondary. Rather, AI helps to improve the performance of funds – and thus to answer the question: “What is the net gain for the investor with his respective investment?”
In the financial industry in particular, artificial intelligence is often superior to humans. The higher speed of the processes and the lower costs bring many advantages for consumers, retailers and service providers. Ultimately, however, the financial sector will not be about simply replacing people with machines, but rather optimizing people’s work with machine intelligence. Lehner puts it in a very specific way: Even in the age of AI, banks will “still exist for a very long time, but their functions and modes of operation will have to fundamentally change” – Lehner also speaks on this topic at the Eurominds summit next week (5-6.8.) in Hamburg.
Faster service and more security through AI in banking
In classic banking, for example, many processes run in the background that can now be rationalized with AI. Artificial intelligence can process large amounts of data (big data) and evaluate credit default or other risks more quickly. Based on these analyzes, the analysts then make decisions more quickly. If KI analyzes payment processes, it is primarily used for so-called “fraud prevention”, it prevents, for example, credit card or commercial credit fraud and thus makes banking and online shopping safer – for customers as well as for dealers and credit institutions.
The banking association sees the great potential of AI and would like to actively expand this technology. Tobias Tenner, Head of Digitization of the Banking Association, says: “Artificial intelligence will also make processes in the financial industry faster and more effective. The Banking Association wants to help shape this change even more actively by focusing on quantum algorithms.”
How insured people can get their money faster thanks to AI
The situation is similar in the insurance market: It is highly competitive and insurance companies are always looking for ways to save costs and thus lower prices. Artificial intelligence is helping the insurance industry with this. For example, AI can automatically read out reports after a damage event and extract the essential points. In this way, the entire claim settlement can be reduced from several months to a few days. Small damages can even be regulated completely automatically by AI with the help of natural language programming. In this way, insurers save appraisal costs, which ensure cheaper policies for the end customer.
AI can also do valuable work when it comes to classifying insurance rates. Algorithms assess the applicant’s insurance risk and accelerate the entire application process. At the same time, a data-based risk assessment takes place, which takes into account many thousands of data points and is therefore much more accurate than a “human” risk analysis carried out by hand.
AI increases the shopping mood thanks to personalization
A look at the e-commerce industry shows how intelligent AI is now. Because it always shows its strengths when a lot of data is involved. When shopping on the Internet in particular, a lot of data points are created that online retailers can use for a better shopping experience and higher sales. In this way, AI helps visitors in online shops to find the product they want more quickly using the search function. In addition, algorithms can also be used to create tailor-made and personalized offers and recommendations based on user behavior, purchasing history, the products you have searched for and categories you have visited, e.g. in the shop itself or via mailings to customers.
The consumer has the feeling that the provider already knows what he wants or needs before he does. And for the retailer, this increases the chance that the customer will actually buy. Large platforms such as Amazon, Otto or Zalando show the way here. Urs Bergmann, Research Lead at Zalando Research, explains: “Basically, everyone agrees on one thing: In the future, almost no European branch of industry can remain competitive without the use of artificial intelligence.” Online shopping is just the beginning; insurance companies, banks and financial advisors are following suit.