Artificial Intelligence in the financial industry
Artificial Intelligence (AI) generates a collective concern related to the impact of the transformation it produces in many fields. We see how, and for this transformation, there are frantic supporters of the new and passers-by of “how good it was before”. Between these two extremes, there are quite a few balanced positions.
1. Benefits of using AI in the financial industry
It is true that this positioning also differs depending on the industry from which point of view it is being discussed. If we talk from the point of view of the financial industry, the benefits that AI brings are the following:
a. Optimizing operational efficiency
How can this benefit be achieved with AI? By automating data collection processes and improving decision-making capabilities. For example, an AI-based solution can model a company’s credit risk by predicting its performance under different market conditions.
This type of advanced analysis can help a company avoid costly mistakes and make better decisions. Statistics show that in Romania, to date, approximately 30% of financial companies have already adopted AI-based technologies, reporting improved operational efficiency.
b. Faster decision-making
AI-assisted technology systems can help banks make better decisions by predicting which loans to grant, faster than humans predict. These systems allow them to renegotiate or liquidate loans without affecting the overall balance sheet. In Romania, over 35% of banks use AI to speed up their decision-making process, according to recent reports.
c. Improved financial modeling
Artificial intelligence can help investors make informed decisions about a company’s performance and long-term prospects. It can also improve the accuracy of analyzes and provide more options for investors, as well as making these analyzes more accessible to all types of investors. According to recent data, approximately 25% of Romanian investors use artificial intelligence solutions to improve the financial modeling process.
2. The risks of using AI in the financial industry
We all know that any technology comes with a number of limitations and poses certain risks. When we talk about the risks of using AI in the financial industry, they include:
a. Potential data breaches
IBM estimates the average cost of such a data breach at $4.24 million, a 17-year high. The data held by financial institutions is very valuable and any leak could have serious consequences not only for the company but also for its customers. Financial organizations must ensure they have adequate security measures in place before adopting AI-based technologies.
b. Algorithm errors
Algorithm inaccuracy is a major concern for adopters, with 50% prioritizing AI accountability and 32% addressing fairness. Biases or algorithmic errors can creep into the system due to incomplete data or human factors, leading to negative funding decisions. Inadequate algorithm modeling can also lead to the system’s inability to adapt to new inputs, and lack of system maintenance can lead to concept drift.
c. Lack of traceability
Decisions made by AI algorithms can be difficult to understand or follow, which can create problems when it is necessary to explain why certain decisions were made. This can be a significant problem in the financial sector, where strict regulations often require full transparency in decision-making processes. Furthermore, because the strategic implementation of AI-based technologies is granular and targeted, the adoption of intelligent systems requires an understanding of value and a strategy for measuring performance, securing talent and scaling the system.
In conclusion
While there may be apprehensions surrounding the adoption of AI-based technologies, it is clear that they have the ability to add value to the financial sector. However, it is essential to pay close attention to security and implementation aspects to ensure a smooth and efficient transition. Balancing the benefits and risks associated with AI is likely to be a key challenge for the financial industry in the coming years.
Alina Făniță este CEO și Partener al PKF Finconta. A lucrat cu companii multinaționale sau firme antreprenoriale din domenii diverse de activitate, pentru a le oferi servicii de audit financiar, due diligence, restructurări de grupuri, audit intern și alte servicii conexe activității de control intern. Este membră a celor mai prestigioase asociații profesionale din domeniu: ACCA (Association of Chartered Certified Accountants), CECCAR (Corpul Experților Contabili și Contabililior Autorizați din România), CAFR (Camera Auditorilor Financiari) și IIA (Institute of Internal Auditors). A absolvit EMBA Asebuss la Kennesaw State University, a fost trainer pentru cursuri IFRS și este invitată ca expert la numeroase conferințe de business. alina.fanita@pkffinconta.ro
