How AI is transforming the financial services industry

Digital transformation is remaking the world around us, and artificial intelligence (AI) is a frontrunner. No industry will be left untouched by this digital journey, but one sector that is seeing the fastest and most fundamental effects is the financial services industry (FSI).

FSI players are geared to be dramatically disrupted by the power of AI – both internally (in the ways they operate) and externally (in terms of dealing with clients and customers). 

A 2018 report from the World Economic Forum (WEF) on The New Physics of Financial Servicesunpacks this phenomenon at length, but one high-level take-away is that the AI changes here cannot be overstated. The long-term impacts of AI are radical and transformative, putting the FSI ecosystem into a period of reorganisation.

Competition from the underdogs

FSI has traditionally been dominated by large and established corporations, often with extensive heritage and market dominance. Through this, many FSI companies have enjoyed relatively low competition for customers, and have been slow to innovate and change ‘with the times’. Enter the leveling power of the cloud, accessible analytics and machine learning, and we see how a scrappy, determined fintech startup can disrupt a whole market or sector. 

Many of these startups offer alternatives for banking, payments, transfers, payroll, credit, and other financial services. These digital-first businesses are highly agile, and are creating a whole new customer base that was underserved by established FSI companies – putting the pressure on older firms.

As a result, many FSIs have started embracing cloud technology and artificial intelligence (AI) to improve their own agility, their array of service offerings, and their customer experiences. Recent studies suggest that approximately 40 percentof African banking customers prefer to use digital channels for transactions over branch channels.

Added competition is good for the entire industry, and customers will benefit from new and improved technologies that change the way the industry interacts with them and meets their expectations.

AI at the core of digital transformation

But just what form do these advances take?AI lies at the heart of things like chatbots, advanced customer credit assessment, relationship management, security, anti-money laundering and fraud detection.

Chatbots draw from big data and machine learning to respond to customer queries and concerns. They can streamline customer support on routine services like banking transactions, and make product recommendations. This is customer-facing AI that helps FSI companies be ever-present for their clients, while reducing the resources required to do so.

For fraud detection, AI-powered technology enables computers to mimic, extend and amplify the thought process of a human analyst, at a pace and scale unmatched by humans. It can review trillions of transactions in every possible portfolio in the organisation. Because of this, banks, fintechs and payment facilitators are able to detect or be alerted to potential fraud – receiving fast, efficient and accurate alerts of the likelihood of an individual’s card or account being compromised, for example.  

Foresight beats hindsight

AI and analytics can draw inference from vast stores of data and spot trends that are often beyond the possible scope of human sight, driving insight to analysts, investors and the like. AI is also able to evaluate an organisation’s public remarks and documents, bundle that up with sentiment analysis, and cross-correlate this with historical data to predict the performance of upcoming stocks, in literal split seconds. 

These functions provide agility and resilience in an increasingly risky global market. In short, they inject a new level of intelligence into our organisations. Pairing this with our unique human capabilities of relationship management and creativity, and we unlock huge potential for our FSI companies.

Safe as houses, and more democratic

Through Microsoft’s security solutions (in which we have invested more than $1 billion year-on-year), we are working with FSI organisations to improve their security standards globally. Solutions such as the Customer Lockbox for Microsoft Azure, for example, assists customers with controlling and auditing support engineers’ access to compute workloads on Azure that may contain data while resolving the support issue. 

These solutions have a proven success record, evidenced by our work with Interswitch, a payments and fintech innovator in Africa. Through partnering with large banks and corporates in Nigeria, Interswitch has been able to build a bank-guarantee service on Azure that extends the reach of banking systems to non-traditional players, corporate suppliers and borrowers – allowing them to manage their supply chain financing under objective terms and transparency. 

Within the next decade, Africa’s objective is to ensure that the next 100 million Africans are financially included. AI has the potential to achieve this. As AI adoption increases, we’re constantly thinking about how we can help institutions make the transition to modern innovations, while still taking advantage of legacy investments.

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