How AI in Finance Expands Access to Financial Services?

by Technology 29 May 2024

AI in Finance

Today AI (artificial intelligence) is dominating the market with every industry harnessing its power with its service. Be it manufacturing or healthcare, so why should the finance industry be left out. AI in finance can help support a broad range of activities for lenders and credit seekers. 

From loan processing to loan tracking and fraud detection in the finance industry, AI can help immensely in financial services. Many members of the industry also believe AI lending platforms may be key to increasing financial inclusion and solving inequality in access to financial services.

In the present economic environment, millions of people are unable to find the credit they want to meet basic necessities. With rise in inflation, consumers are struggling to deal with basic necessities along with rising interest rates. From paying back student loan payments to house loans, it’s becoming tougher each day. 

Your spending power and savings rates also diminished due to elevated loan balances and a rise in overdue payments. All these can be made easier through including AI in finance. Through incorporating AI with financial services you get to track your loans payments, spendings and get reminders of overdue payments.

How Financial Increase Is Impacting People?

How Financial Increase Is Impacting People

When living cost is on rise automatically lenders tighten their lending standards, thus limiting consumer’s access to credit. Nearly 60% of households are finding securing credit more challenging, while 42% of consumers acknowledged they had been denied full credit they required.

Unfortunately, Black and Hispanic Americans have historically been hit the hardest. According to a survey by Credit Sesame in 2021, more than half (54%) of Black Americans surveyed reported having poor or fair credit (a credit score below 640) or no credit at all. While 41% of Hispanic Americans fell into this category. This compared with 37% of White Americans and 18% of Asian Americans.

This problem hurts families, communities and lenders. Without credit access you miss out on opportunities to improve your life. At the same time your lack of participation in purchases leads to hurting the overall community’s finances. At the same time, lenders are missing out on potential customers and critical business growth. The economy as a whole suffers.

Artificial Intelligence can help lenders access and incorporate big data to provide more loans safely to more customers. Again, they can use AI to provide those customers with responsive and uniquely personalized services.

Artificial Intelligence or AI Applications in Financial Services

AI Applications in Financial Services

AI in finance can help make financial services much less complicated when seeking credit for necessities in our life. Listed below are points that emphasize how AI in finance will benefit us. 

AI-Powered Customer Service and Support

Busy parents, workers with two jobs, shift workers, people with transportation challenges. Many prospective borrowers need a convenient application process that doesn’t require them to be on-site always. 

For some customers, a 24/7 accessible AI-powered digital loan platform can be the difference between being able to apply for a loan or not. 

Once customers access a platform, chatbots with natural language processing are upgrading customer support. Being responsive and relatable helps you engage the customers in conversation and learn its needs.

This can be especially important in helping customers who are new to banking and credit services. They can ask questions, clarify instructions, report problems and get solutions with much more ease than dealing with a human being. 

AI-Based Credit Scoring and Risk Assessment

The biggest advantage of incorporating AI in finance is its ability to access and process huge amounts of credit data. Traditional credit scoring relies on a relatively limited range of information, and applicants are often denied loans because they have a limited credit history or a bad event or two in their past. 

Today, the digital interactions we all participate in provide hundreds of millions of data points. This data could give lenders a more detailed and complete view of an individual’s financial patterns, responsibility level, and potential pitfalls. Assessing risk of default becomes easier than any traditional credit score. AI can access relevant additional data and produce better-informed credit evaluations in as little as milliseconds.

When new technology is incorporated with loan processes, lenders can serve a wider customer base without taking on additional risk. This helps lenders get more credit-worthy consumers, especially those that have been underserved by legacy credit reporting.

Fraud Detection and Prevention

AI systems can quickly analyze massive amounts of data using advanced algorithms. Through these AI systems you can not only analyze your data but find patterns in it. This also enables them to accurately identify data that breaks the patterns and may indicate fraud. 

Like pre-AI fraud software, AI can recognize known threats. But its ability to go further and calibrate its rules as it learns from experience also gives it the potential to stop new as-yet-unidentified threats. 

Automated Financial Advisory Services

To provide truly personalized financial and investment advice, businesses need to know their customers well. Once AI has collected its vast amounts of data, it can analyze that information to provide pertinent advice.

Robo-advisors, for example, are digital platforms that use advanced algorithms to help investors design a portfolio that fits their circumstances. This results in little human input and at a lower cost the service can reach more customers.

Personalized Product Offerings and Recommendations

With AI data on the lifestyle and financial behavior of individuals, lenders are better able to design products with pricing and terms.

These terms and pricing are set to maximize the benefits for both borrowers and the business. It also recommend the best products for each customer. 

Addressing Barriers to Financial Inclusion

Addressing Barriers to Financial Inclusion

In 2022, the Senate Joint Economic Committee released a report that found “nearly one in five U.S. adults are either unbanked or underbanked, … or people of color.”

The two major barriers they found were:

  • A lack of local infrastructure. In many Black and Hispanic communities, check cashers and payday lenders are more common than bank branches and offer more accessible hours. But using these alternative services cost financially underserved Americans an estimated $189 billion in fees and interest. 
  • Credit denials. Black and Hispanic households are more likely than white households to be denied or not receive as much credit as requested when applying. This racial gap in credit access widens for families earning more than $100,000. 

The financial services industry can do much to expand access to underserved populations, with the help of new AI technology. AI lending platforms offer convenient access to customers, no matter where they are or when they need it. And AI can offer lenders a more complete picture of an individual’s financial and lifestyle traits. This allows them to offer appropriate credit to responsible consumers who may have previously been inadequately evaluated and denied. 

Other studies on finserv’s inclusion problem have concluded that one of the most damaging issues can be a simple lack of knowledge. Communities with little cross-generational experience with banking are unfamiliar with available products and services. Their knowledge of new financial benefits and their relative cost are nil, although they have knowledge of credit and investing.

Financial literacy is the stepping stone that can empower you to take better control of your finances and future. AI platforms can be instrumental in personalizing financial education and boosting literacy.

A “Win-Win” for Customers and Lenders

A “Win-Win” for Customers and Lenders

The fact is that, especially in this higher-interest-rate climate, lenders also need to find more high-quality customers and better ways to serve these customers without straining their own resources. 

An AI lending products built specifically for the industry can help  lenders achieve four major goals in customer service that can engage a wider range of customers and help lower barriers to access by underserved communities and groups:

  • Streamlining account opening and “how to get started” procedures.
  • Bringing banking services to people when, where and how they can best use them.
  • Customizing services based on consumer preferences and behavior.
  • Educating consumers and boosting financial literacy.

Conclusion

We live today in a data-rich world transformed by digital communications and interactions. With AI-powered credit modeling and customer service, lenders can adapt more effortlessly and effectively to changes in the economic environment without compromising their own risk profile or denying quality financial services to deserving individuals. The credit gap has, unfortunately, been with us a long time, but the tools to narrow and eventually erase it may now be within our reach.

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Ankita Tripathy loves to write about food and the Hallyu Wave in particular. During her free time, she enjoys looking at the sky or reading books while sipping a cup of hot coffee. Her favourite niches are food, music, lifestyle, travel, and Korean Pop music and drama.

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