The banking industry is one of the many that are looking to machine learning in order to stay competitive. This technology is still in its early developmental stages, but it has already shown a lot of promise in being able to assist financial institutions with a variety of tasks.
Here is a look at how machine learning is being used in the banking industry and what benefits it could bring.
Top Machine Learning Use Cases In Banking
By 2030, banks all around the world will be able to cut expenses by 22% by utilising artificial intelligence technology, predicts research firm Autonomous Next. Savings may amount to $1 trillion.
There are many machine learning applications that can be used to improve customer experience and risk management. Machine learning techniques can be used to predict customer behavior, identify risk factors, and prevent credit card fraud.
By using these techniques, businesses can provide a better experience for their customers and reduce the risk of fraud.
1. Fraud Detection
Banks look at fraud detection as one of the top use cases for machine learning in the banking industry. Fraudulent transactions happen all too frequently and the fact that banks are able to spot these fraudulent transactions so quickly is quite valuable.
Banks are able to scan through a large number of transactions to identify fraudulent ones and prevent fraud from happening in the first place.
2. Customer Data Analysis
Another high-value use case for machine learning in banking is customer data analysis. Many banks do not know who their customers are and some have a hard time keeping track of those individuals, but that doesn’t have to be an issue with machine learning if it is properly programmed.
This will allow banks to better understand their customers and make business decisions based on that data.
3. Efficiency And Effectiveness
Another top use case for machine learning in banking is efficiency and effectiveness. With the right algorithm, machines can do a much better job than humans when it comes to making businesses run more efficiently and effectively.
This is especially true for financial institutions, as the amount of money they handle every year grows every day.
4. Routing Processes
Banks often use computers to help process transactions in their branches, but those computers are not able to fully understand the context in which these transactions are being made.
Machine learning is able to do this and analyze certain aspects of a specific transaction in order to connect it to other transactions, allowing banks to make more accurate routing decisions.
5. Loan Approval
Another high-value use case for machine learning in banking is loan approval. This is one of the most common reasons people decide to invest into a business, but the process can be quite lengthy and complicated.
Machine learning can help banks review and approve these loans much faster than they can with their current process, which could save big money for banks in the long run.
6. Security Protocols
Of course, machine learning cannot prevent all threats, which is why it also needs to be paired with some sort of security protocol. This is especially true for large financial institutions, as the amount of information that is passed between computers and humans over the internet grows every day.
This process can be quite vulnerable to hackers, so understanding and implementing machine learning in banking is a great way to increase security and reduce risk. Banks are constantly looking for ways to stay competitive in a world where technology is changing so quickly, and machine learning will play a big role in the future of finance.
It could help banks save money and make their businesses more efficient at the same time, all while making transactions safer.
Benefits Of Machine Learning In Banking
Banks are increasingly turning to artificial intelligence and machine learning to help with customer data management and fraud detection. By analyzing large amounts of data, AI can help banks better understand their customers and identify potential fraudulent activity.
This can help banks save money and improve customer satisfaction. Fraudulent credit card transactions are a major problem for financial institution.
They can lose a lot of money if they don’t carefully analyze customer data and anticipate customer expectations. Artificial intelligence technologies can help them do this more effectively.
1. Increased Efficiency
One benefit of machine learning in banking is the fact that it will greatly increase efficiency. This is incredibly important for any business, especially one that handles a lot of transactions and money every year.
By automating certain processes and implementing machine learning in these decisions, banks can gain a significant amount of efficiency for their businesses.
2. Reduced Risk
Another benefit of machine learning in banking is that it can reduce the risks associated with financial institutions. Today, hackers are able to break into large companies’ computer systems and steal information from them with relative ease, but machines cannot be hacked because they are not physical objects made of metal and plastic like computers are.
3. Improved Customer Service
60% of all experts with the ability to design AI systems work for financial institutions. One of the best benefits of machine learning in banking is that it can significantly improve customer service.
This is especially true for financial institutions that handle a large number of transactions every day, as their customers are the most important part of their business and keeping them satisfied leads to business growth.
4. Data Analysis
Another benefit of machine learning in banking is that it allows banks to gain a more thorough understanding of their customers and make more accurate decisions based on this data.
Today, banks often have a hard time keeping track of their customers and some don’t even know who all their customers are, but this will not be an issue with machine learning if it is implemented correctly into the financial institution’s systems.
5. Automation Capabilities
It is expected that face recognition technology will be used in the banking sector to prevent credit card fraud. In 2020, face recognition technology’s yearly revenue growth rate will climb by more than 20%.
Another benefit of machine learning in banking is its ability to automate certain processes. Many banks use computers to handle transaction-based work, but those computers are not able to understand the context surrounding these transactions.
Machine learning allows financial institutions to automate more of their business processes so that they can focus on other areas of their work.
6. Business Growth
Finally, one of the most important benefits of machine learning in banking is that it can lead to business growth and improved profits for banks.
The most important aspect of any business is the fact that it provides value for its customers, and machine learning could allow banks to offer more value by automating certain processes and helping customers with their financial decisions.
Risks Of Machine Learning In Banking
The U.S. Federal Trade Commission’s figures show that more than 388,588 incidents of fraud were reported in 2019, causing losses of $1.9 billion. Banks and other financial companies are turning to machine learning algorithms to help them automate various tasks.
These algorithms are able to learn from data and improve their performance over time. This is benefiting the banking sector as a whole, as well as individual companies within it.
1. Security Concerns
One of the biggest risks of machine learning in banking is the fact that it increases the security risk of financial institutions. Today, hackers are able to break into computer systems and use them to steal information from companies all over the internet, but machines cannot be hacked because they are not physical objects made of metal and plastic like computers are.
This means that banks will face greater security concerns as their data is being passed through more and more machines, which increases risk for both machines and humans. According to the Consumer Network Sentinel Data Book 2019, credit or debit card fraud is the biggest danger to banks.
2. Lack Of Control
This is another major risk that comes along with machine learning in banking is the fact that banks will have less control over what happens with their data when it’s being used to make business decisions.
Machines can analyze certain aspects of customers’ data in order to make more accurate decisions, but they do not understand the context surrounding these decisions and will not always make them in the best interests of banks.
3. System Errors
Another risk related to machine learning in banking comes when the machines make an error, which is sometimes unavoidable. Machines process data differently than humans and often have trouble understanding certain nuances in that data, which means there are bound to be some system errors with any machine learning implementation.
This can be detrimental for banks that rely heavily on their computer systems to handle transactions because these errors could lead to decreased customer satisfaction and larger financial losses for financial institutions.
4. Technical Issues
Finally, one of the biggest risks related to machine learning in banking is that it can cause technical issues with financial institutions.
Machines are not as vulnerable to glitches and errors as humans are, which means that programmers need to be completely aware of all the different variables at play when they’re working with machine learning systems in order to ensure that these systems work properly.
This can lead to stress-related health issues for employees who have been given too much responsibility because they are unable to handle these technical issues on their own.
5. Increased Risk
Statistics indicate that younger individuals are more vulnerable to fraud than those aged 30 and older, with the median loss for an individual out of the $224M in annual fraud losses being roughly $320. Another risk that comes along with machine learning in banking is the fact that it increases the risks associated with financial institutions.
Machines are not as vulnerable to hackers as humans are, which means a hacker could potentially use information coming out of machines to break into more secure systems and steal sensitive information that can be used to make much more money than he or she ever intended.
This is especially true for banks who handle large amounts of money and need safe and secure systems in place in order to do so.
6. Lack Of Training And Monitoring
Finally, one of the biggest risks related to machine learning in banking is the lack of training and monitoring necessary to ensure that these machines work properly.
Many of the machines being used today do not have enough training or monitoring in place to make sure that they’re working properly, which means that there is a good chance for something to go wrong with these machines.
7. Lower Productivity
Another risk related to machine learning in banking is the fact that it can decrease banks’ employees’ productivity.
Machines are not as human-like as humans are and therefore they are unable to understand a wide range of nuances in customers’ data, which means that workers will spend less time processing transactions and more time on other tasks. This can lead to lower customer service and therefore lower profits for banks.
8. Lack Of Focus
Finally, one of the biggest risks related to machine learning in banking is the fact that it can cause banks to lose their focus on other important aspects of their business.
By focusing so much on machine learning, banks will lose important skills and experience that they would have gained from dealing with other, less complicated tasks. This could make it difficult for banks to provide value for their customers and ultimately lead to poorer financial results for these institutions.
The Future Of Machine Learning In Banking
There are a lot of things to consider when it comes to machine learning in banking and data science in general, which is why the banking world is adopting these technologies more and more. The future of machine learning in banking is bright, but we will have to face many risks before that future can come true.
For anyone looking to get into financial technology or banking, they should be aware of the risks that come along with it so they can make informed decisions about what path they want their career to take. If a person wants an exciting career that will help them gain valuable skills and knowledge about finance, then a tech-heavy path might be best for them.
In conclusion, machine learning in banking has a lot of benefits, but there are some risks that come along with it as well. These risks can be detrimental for financial institutions because they can cut into profits and decrease customer satisfaction.