Artificial Intelligence in Financial Services: Resistance is Futile

Great guest post by Theodora Lau for Irish Tech News, see more by her here.

Much has been written about the advancement of Artificial Intelligence (AI). Unless you have been living in a remote island cut off from the real world, you’d likely have come across at least some applications of the technology:

• Digital assistants such as Siri, Google Home, and Alexa
• Recommendation engines such as those via Amazon and Netflix
• Robo advisors such as Betterment or Wealthfront
• Banking chatbots such as Erica from Bank of America
• Smart homes equipped with sensors, smart appliances, and thermostats

Not surprisingly, in all of the startup pitch events I have attended this year, most presentations include mentions of “artificial intelligence”, “machine learning”, “deep learning”, or “natural language processing”. According to Crunchbase data, venture, corporate and seed investors have put an estimated $3.6 billion into AI and machine learning companies this year so far, which is more than the entire year of 2016.

It would appear that we are all caught up in the AI fever.

Voice Technology is exploding

Nothing else illustrates this trend more so than the digital assistants in the consumer space. MIDiA Research revealed recently that 3.3 million Amazon Echo were sold on Prime Day, July 11, 2017. They also suggested that more than 13 million have been sold since the product was launched in late 2014.

If you think chatting with AI is just for the younger generation, think again. As companies work to improve their technology, some of the older demographics are beginning to adopt and rely on their voice assistants. According to a study by Verto Analytics, the people who spend the most time talking to their AI are 52-year old women; and they spend up to 1.5 hours per month on it. We already use Amazon Echo Show to do a number of amazing things, from placing orders online to connecting with our loved ones using voice commands. Think of all the expanded capabilities the technology can enable to help seniors age independently and safely in their homes, where they can manage all aspects of their lives from healthcare to finance.

Here is an interesting diagram that shows the voice revolution this year alone. The full infographic can be found here.

Upping the game in financial services

Apart from voice technology, artificial intelligence also holds great promise in retirement planning. Imagine the data sets that we need to crunch through when we try to figure out impacts of life events on our retirement planning. What would happen in the event of a divorce or the birth of a child? Can we afford to support our parents in the nursing home? What about the tuition for private education? Technology can help us navigate through the sea of data and provide us with actionable insights on how to make the necessary adjustments along the way. This can be extremely useful especially for the sandwiched generation who are maintaining the financial lives and wellbeing for multiple households.

Another interesting area is around decumulation. It is no secret that we are all living longer healthier lives. With that, we likely are working longer and have children later in life. In fact, recent studies indicate that nearly a third of Americans between the ages of 65 and 69 are still working, and nearly 20% of those between the ages of 70 and 74 are working at least part-time. Trying to figure out the best drawdown strategy has become much more challenging compared to before. AI can provide guidance on when to claim Social Security and other benefits, anticipate potential future spending needs, and ensure we stay on track with our finances, while taking into consideration our assets, liabilities, and various regulatory and minimum distribution requirements.

When it comes to personal finances, AI can be leveraged to better understand the consumer’s spending pattern and income stream via data collected from difference sources, allowing the consumer to save more or pay down debt. It is important that the data be synthesized to show us not only how much we spend on avocado toasts or latte via pretty pie charts, but to help us make smarter choices with regards to money. In other words, we expect these tools to provide us with both insights and actions.

Of course, human financial advisors can and have been able to perform a lot of the above for a while now. But technology will redefine work as it is done today, freeing up the human advisors from mundane tasks, allowing them to spend more time to better understand their clients’ needs and circumstances, thus deepening their connection. They will be able to leverage technology to construct a more holistic view of their clients, enabling them to provide more timely and personalized advice while taking into account their clients’ retirement goals and aspirations.

A recent study published by Accenture showed that investors are becoming more receptive to hybrid model of machine/human than before.

In addition to helping us become better decision makers, AI and machine learning can also democratize investment by reducing the cost of delivering services, allowing more people to participate in opportunities previously not accessible. New business models may also propagate as a result.

Meet them where they are

But while technology is important and a key to financial life of the future, maintaining human element is crucial for success. Human touch cannot simply be replaced by a set of algorithms reduced to 1’s and 0’s, especially when we are dealing with money, which is intrinsically emotional to begin with.  The focus should be on how to leverage technology to augment or amplify human intelligence, not to replace it. To be successful, financial institutions should make use of artificial intelligence and machine learning to better anticipate their customers’ needs, be more responsive, and provide more targeted guidance, especially around life events (e.g. when purchasing a car or a house).

Are we ready for robotic revolution?

Elon Musk passionately addressed an audience of governors recently at the National Governors Association Summer Meeting in Rhode Island, urging regulation and oversight around artificial intelligence to ensure survival of humanity. He called AI a “fundamental existential risk for human civilization”.

Should we open our hearts to technology, knowing that we might expose ourselves and get hurt in the end? Would we place our faith in humanity and trust that we would prevail and stay on the right side of history? Afterall, isn’t this what we do in human-to-human relationships? Time and again, we take the plunge, hoping for fairy tale ending. Why can’t we treat AI as catalyst for innovation, instead of terminator for humankind?

As Garry Kasparov wrote in his latest book “Deep Thinking: Where Machine Intelligence Ends and Human Creativity Begins”:

“The same smartphone that brings people together all over the world can be used to connect with family or plan a terrorist attack. The ethics are in how we humans use it, not whether or not we should build it.”

I’d like to believe that there is more good in the world than bad.

Only time will tell.

Sparking innovation for the benefit of the older demographics, Theodora Lau interviewed

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