In today’s technology driven world where none of the activity of our day to day life is being untouched by technology, we finance people also need to realign our knowledge and experience with the trending technology to get a better pace and ease in surviving in this new era. We all must have heard about terms like Artificial intelligence (AI), Machine Learning (MI), deep learning etc. but most of us are still not much bothered about this or even few of us still have a thought in our mind that all these AI, ML are the engineer’s stuffs and we being a finance guy (CA, CFA,…..etc.) are least affected by these. So in this article I will be trying to make you aware about role of these new terms (for some of us) in our finance domain, pros and cons on our jobs and how it is so imperative for us to have sound skillset on these technology (AI, machine learning etc.)
The science of today is the technology of tomorrow. – Edward teller
Understanding few terminology
– Facebook uses AI to recognize our face when we upload photos to FB, it puts a box around the faces in the photo and suggest friend’s names to tag. (I assume you all have used this feature, if not try it now)
– Customer support, Remember the online text chat we had with our banks, Mutual fund broker, insurance company. That may have been a chatbot instead of an actual human.
So in simple terms, AI works in combinations of Data and technology to provide a meaningful decision.
– Netflix applies machine learning to your viewing history to personalize the movie TV show recommendations you see.
– Email spam and malware filtering in our regular mail box, Google and other search engines also uses ML to improve our search results.
Looking at the diagram above it seems quite confusing and let’s keep this task of understanding algorithms and programming to engineers only (on a lighter note) and don’t get deeper into these.
Role of AI, ML in finance domain:
There are various application of AL, ML in finance role in current scenario. Few of them are enumerated below:
Source: towards data science
> Process Automation: Process automation is one of the most common applications of machine learning in finance. The technology allows to replace manual work, automate many repetitive tasks, and increase productivity in the workplace. This results into enables companies to optimize costs, scale up services and improve customer experiences.
> Security: With the growing no. of transactions, stakeholders and third party integrations, machine learning algorithms are doing a fantastic job in detecting frauds. So it indeed of a great help to any finance guy doing forensic audits, stress testing or analysisng bulk data to get desired outcome in lesser time and with more reliability.
Adyen, Payoneer, Paypal, Stripe, and Skrill are some notable fintech companies that invest heavily in security machine learning.
> Underwriting and credit scoring: Machine learning algorithms fit perfectly with the underwriting tasksthat are so common in finance and insurance.
Data scientists train models on thousands of customer profiles with hundreds of data entries for each customer. A well-trained system can then perform the same underwriting and credit-scoring tasks in the real-life environments. Such scoring tools help human employees work much faster and more accurately.
> Algo Trading: In algorithm trading, machine learning helps in better trading decision. Various mathematical models monitor news and other results on real time basis and analyse various patterns which can force prices to go up and down, and accordingly it acts proactively to sell, buy, and hold based on its prediction.
> Robo Advisory: Robo advisors are very common in finance domain now a days. They use machine learning in allocating Portfolio (portfolio management) of clients across investment opportunities using various algorithms and statistics.
> Fraud detection: Machine learning has a significant role in in detecting fraud by way of detecting unique activities or behavior, and flag the risks which were never risk at first place. So being an auditor or financial/data analyst it become very robust system and provide fruitful results.
Below are few of the major Pros and Cons of Artificial intelligence. You can have a look on it.
Future Value of Machine Learning in Finance
Some of us who work in banking or finance industry may find it difficult to convince our team members or upper management to consider an AI solution to a current problem within their business. It is important to note that while AI is beginning to create waves of disruption across these industries, not all companies may have the insight required to consider how AI might help them in the future.
Some experts, such as Ian Wilson, former head of AI at HSBC, consider this lack of information to be an important challenge to overcome when trying to find the right AI solution. He considers education and innovation to be the most effective ways of disseminating this information to other members of one’s business.
Innovation becomes a structure through which we can start developing ideas. A lot of people within each business line may have an idea, but because they’re not technical they have no way of knowing how to get the ball rolling to even test that out and see whether it’s feasible. So I think it’s also important to have that structure in place … so if you have an idea you can hand it over to a team that knows how to pick it up and test it out.”
So the application of AI on few below areas are looking promising, some are relatively active application today and others are still relatively nascent.
All being said, the pros and cons of artificial intelligence being evaluated, it is up to the reader, user, and their perspective. AI and robotics will improve the way we think, the way we explore new horizons, whether space or the ocean. As the age-old saying goes, “necessity is the mother of all innovations,” so is the case with AI. Human beings know what they need and are getting increasingly better in defining their wants and quickly transforming this into reality. In the near future, things will happen so rapidly that we will see major changes and innovation. So being a finance person we should also upgrade ourselves with this new technology and align our professional work with them to get most out of the new opportunities in this field.
Hold your breath Mega disruptions have begun!