A recent study conducted by Oracle, financial services company Savanta Inc. and personal finance expert and author Farnoosh Torabi found that 83% of Indian fintech users and business leaders trust AI more than humans to manage their finances. The study was conducted during the global pandemic and shows how much COVID-19 has exacerbated financial insecurity across the world.
Financial Insecurity In Times of Uncertainty
2020 has had a drastic effect on our relationship with money, the study states. Financial anxiety and sadness among business leaders and consumers more than doubled last year, which may provide a clue as to why people are turning towards robots for financial assistance. In fact, 41% of global consumers said they were losing sleep thinking about their personal finances. At the same time, trust in new technology being used in financial services – like AI, digital assistants, digital lending, blockchain, and analytics – is rapidly growing.
The study surveyed more than 9,000 consumers and business leaders across 14 countries including India. It demonstrated that during this time of uncertainty, people are losing faith in so-called financial “experts”. After all, the experts are only human and are, therefore, fallible. Who and what we can trust with our hard-earned money is slowly changing.
Unbiased Financial Management Across All Asset Classes
On a good day, most people feel overwhelmed when they think about managing their finances. It can involve planning your retirement, paying off debt, making an investment portfolio, and knowing how much to save and how much to spend. For business leaders, financial management can involve planning, budgeting, and analytical reporting. Most humans tend to be either insecure about their financial knowledge or overconfident. Both impulses lead to their own set of problems.
On the other hand, AI provides us unbiased data with efficiency and efficacy for our personal and professional lives. It can speed up processes and reduce costs. According to the study, most business leaders believe that AI can help them manage their finances by detecting fraud, creating invoices, and conducting a cost-benefit analysis. Most consumers believe that AI can help them manage their finances by detecting fraud, helping them to reduce spending, and making stock market investments on their behalf.
The following are some of the ways in which AI is being used to manage finance:
- Managing Risk – Accurate and timely forecasts and predictions are crucial for many businesses that deal with the financial markets. Machine learning, a subset of AI, is helping businesses create nimble forecasting models that help financial experts utilize existing data to pinpoint trends, identify risks and ensure better future planning.
- Personalized Banking – Traditional banking is generally seen as inconvenient and sluggish to customers, especially younger people. People want tools that can help them manage their budgets and make spending adjustments in real-time. Digital banking assistants such as chatbots use computer-generated banking advice and natural language processing to provide instant self-help customer service.
- Investment Portfolio – AI can also help customers decide their investment strategy by asking them a series of questions online and then creating an optimal portfolio personalized to their needs. Depending on your risk appetite, these programs can suggest which stocks or mutual funds you should put your money in and how you should diversify your portfolio.
- Filing Taxes – Most Chartered Accountants are already using AI extensively to help them to calculate taxes and returns. Modern financial software comes equipped with programs that can perform tax calculations in half the time and at a consistent efficiency unmatched by humans. This results in a speedy and accurate filing process.
- Credit Decisions – AI solutions are helping banks make smarter underwriting decisions by using a variety of factors to more accurately assess traditionally underserved borrowers, like young people, in the credit decision-making process.
- Fraud Detection – AI plays a key role in helping banks and financial institutions ramp up cybersecurity and fraud detection efforts in online transactions. This helps both the businesses and the consumers feel safe.
- Insurance Claims – Data science is being used to file insurance claims, like auto insurance, by simply uploading photographs from your smartphone to an app. The app will then assess the damage, crosscheck your historical records and offer you a quote without you having to dial a single number.
The Future Is Cashless
Another way the pandemic affected our finances is by moving us further towards going cashless. 88% of Indian consumers surveyed said that the pandemic has changed the way they buy goods and services. Most consumers were not enthusiastic about using cash at all and more than half said that cash-only is a deal-breaker for them for doing business. Businesses have been quick to respond to these changes. 93% of Indian business leaders surveyed have invested in digital payment capabilities and 81% have created new forms of customer engagement or changed their business models completely.
A whopping 94% of Indian business leaders think that organizations that do not rethink their financial processes in the wake of the pandemic will face the risk of falling behind competitors, having more stressed workers, increased inaccurate reporting, and reduced employee productivity.
Disruption In The Financial Services Industry
As for the finance industry, 85% of people surveyed in the study believe that AI will replace financial professionals and almost half (46%) believe that it will happen in the next five years. This is certainly surprising, but there are several reasons for these predictions. One is that, as stated, during the pandemic, our dependency on physical cash has reduced greatly. Adoption of digital business platforms and payments technologies grew by a large amount during 2020. Just like it had during demonetization in India in 2016. The other reason is that each financial advisor has a varying degree of expertise and competence. Which means that their advice is not consistent. They are emotional and think intuitively, make mistakes, have bad days, or take time off from work. On the other hand, AI is consistently rational, always available, unbiased, unemotional, and never has a bad day.
As finance becomes increasingly automated and managed by AI, the role of finance professionals in the industry will not disappear. Rather it will morph into something new. The new role of financial managers will involve communicating and forming relationships with customers, negotiating discounts, approving transactions, understanding an individual’s unique goals, and helping them with major financial purchases and life events like buying a house or retiring. Finance professionals who embrace this coming tide early on will benefit greatly. AI should be seen not as something that is making their profession redundant, rather as something they can work with to increase the productivity of both – AI and humans. Using AI to do professional finance work will increase speed and accuracy and lead to better decision-making since it can provide timely data-driven insights and recommendations to improve financial outcomes.
So while humans will still be involved in helping people manage their finances, AI is expected to greatly reduce their presence in various aspects of financial management. Another technological revolution like the IT revolution is coming and humans will have to make their own niche in the industry if they want to survive.