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AI in finance

4 February 2020

The article at a glance

Artificial Intelligence (AI) will shift from cost reduction to revenue generation in the Financial Services industry, according to a new global study …

Artificial Intelligence (AI) will shift from cost reduction to revenue generation in the Financial Services industry, according to a new global study entitled Transforming Paradigms.

Artificial intelligence concept of a brains made out of linked images relating to finance.

According to a newly released global AI in financial services survey by the Cambridge Centre for Alternative Finance (CCAF) at Cambridge Judge Business School, University of Cambridge and the World Economic Forum, artificial intelligence (AI) is expected to become an essential business driver across the financial services industry in the short run, with 77 per cent of respondents anticipating AI to possess high or very high overall importance to their businesses within two years and 85 per cent of the surveyed financial firms having already implemented AI in some way.

Image from the CCAF launch event of their report: Transforming Paradigms – A Global AI in Financial Services Survey
CCAF launch event for their report: Transforming Paradigms – A Global AI in Financial Services Survey

The study, to be launched 4 February at an event in London, was recently highlighted at the World Economic Forum’s Annual Meeting in Davos and was co-sponsored by EY and Invesco. It also shows financial services organisations will move away from mainly leveraging AI for cost reduction purposes to using it for new revenue streams. Nearly two-thirds (64 per cent) of respondents expect to become AI mass adopters within two years, simultaneously using AI for revenue generation, process automation, risk management, customer service and client acquisition within two years, compared to a current figure of just 16 per cent.

The study is based on 151 responses from 33 countries, with FinTech firms and incumbent financial institutions representing 54 and 46 per cent of the sample, respectively, providing a broad view of how AI will affect financial services in the next two to 10 years. Respondents included C-level executives and other relevant senior management across different financial services sectors. The research was jointly conducted in Q2 and Q3 of 2019 by the CCAF and the World Economic Forum.

The study further discussed perceived hurdles of AI adoption, emerging firm-level and market-level risks, as well as regulatory implications. The study also revealed that surveyed incumbent financial service providers expect AI to replace nearly nine per cent of all jobs in their organisation by 2030 while FinTechs anticipate AI to expand their workforce by 19 per cent during the same period.

Matthew Blake, Head of Financial and Monetary Systems at the World Economic Forum commented, “The comprehensive and global study affirms AI is impacting the financial system at an accelerating pace. With the rising trend of mass adoption of the technologies throughout financial services, there will be a significant gap between firms that quickly implement AI and firms that lag behind.”

Bryan Zhang, Executive Director of the Cambridge Centre for Alternative Finance said: “This empirical research underscores the growing importance of harnessing AI in financial services, which gives new impetus for firms to develop a holistic and future-proof AI strategy.”

Nigel Duffy, EY Global Artificial Intelligence Leader said: “AI is transforming the financial services industry and we can expect widespread adoption to continue. As the technologies give way to new revenue streams and transform business functions, it’s increasingly important for organisations to focus on the long-term implications of AI adoption.”

Donie Lochan, the Chief Technology Officer of Invesco said: “The report highlights the amazing opportunity ahead of us in financial services for using artificial intelligence and machine learning to the benefits of our customers and our organisations. Technological advances such as leveraging intelligence to define investments for customers tied to their personalised goals, improving customer experience through the use of intelligent bots, additional alpha generation via insights from alternative datasets, and operational efficiencies through machine learning automation, will soon become the norm for our industry.”

The report’s other major findings include:

  • Nearly half of all respondents see a major competitive threat in ‘Big Tech’ firms leveraging AI capabilities to enter financial services.
  • FinTechs appear to use AI differently from incumbents, with 40 per cent of FinTechs mainly utilising AI to create new products and services rather than mostly improving existing products, compared to 15 per cent of incumbents.
  • Selling AI-based solutions as a service is becoming a distinctive business model, currently adopted by 45 per cent of FinTechs and 21 per cent of incumbents, which allows firms to capitalise on larger and more diverse datasets through digital platforms.
  • Novel insights are increasingly provided by using AI to analyse new or alternative datasets such as social media and geo-location data, with 60 per cent of respondents making use of such data in their AI applications.
  • Data quality and access to data and talent are seen as major obstacles to implementing AI by more than 80 per cent of respondents.
  • While views of regulatory influence on AI implementation diverge, most firms feel impeded by data-sharing regulations between jurisdictions and entities as well as regulatory uncertainty and complexity.