Artificial Intelligence has made an impact on the global financial services ecosystem and has reshaped the building blocks of success.
The finance sector has been the pioneer to understand the importance of AI and gainfully use it to enhance numerous capabilities, improving recommendations, customer experiences, and efficiencies through automation. From handling risk management to credits & trading decisions, AI has accelerated the growth of leading financial verticals. The demand for to an extent that an artificial intelligence course is high in demand in the current fintech market.
A recent Power Ahead Series webinar on “Trends in AI for Financial Services” shares insights on the latest AI trends and how the Finance industry is at the forefront of scaling the adoption of AI.
The webinar is a conversation between Apoorv Saxena (Global Head of AI, JP Morgan) and Milind Kopikare (President – North America, Great Learning).
Talking a bit more about the speaker, Apoorva Saxena, he studied in IIT-Bombay, completed his masters from Purdue University, and MBA at Wharton Business School. He has an illustrious professional career of working with companies like CISCO, McKinsey, Google, and of course, JP Morgan. Before his latest stint at JP Morgan, Apoorva was the Product Head at Google for the GCP Google Cloud Platform – a USD12 billion, fastest-growing cloud-based company.
Let’s now bring some snippets from their detailed conversation:
Can you help walk us through the history of using technology in financial services and how AI is changing that landscape?
That’s a great question! See, financial services and technology have been deeply intertwined not just in the recent past but for the last one or two centuries as the financial industry has been in play ever since the evolution of mankind began. Coming back to the present times, the best example is ATMs where financial services adopted significantly were run on mainframes at the back end. It was no surprise that the biggest customers of IBM mainframe belonged to the financial services industry. So, it is a cycle that began almost a decade ago and is now repeating itself.
I can go into the details of what’s triggering this name wave of transformation by citing an example from the recent past. Everyone here must’ve heard of the term ‘trading’. So, 20-25 years back, the trading in stock exchanges was carried out manually but today 76-78% of trading that happens on a stock exchange is not only completely electronic in nature but also 70% of those trades are executed by algorithms! This is remarkable as in just a span of 2 decades, the trading side of the business has invested tremendously in automating themselves. They’ve gone a step ahead and used AI, data analytics, business intelligence, and more.
Wow! I love the fact that 70% of trades are being done by algorithms. This pops up another question in my head and I want to talk to you about it. Our attendees here are looking at various career opportunities but as you mentioned that a large percentage of trade is being automated by machines, what do you see as the impact on the job landscape? Would you still advise people to become a trader?
Definitely yes! I agree that even though automation is picking up and has picked up a lot in the last decade, the requirement of the human workforce to make sound decisions by drawing on insights is higher than ever. I strongly believe that the nature of one’s job will change tremendously in the coming few years but the job functions of a trader or analyst will remain the same. Humans will always be required so yes if you are looking from a job perspective, there is a lot of scope for professionals who offer a combination of technology with a sound understanding of business.
Furthermore, I wanted to ask you: Keeping in mind today’s landscape, what are the applications of how AI is being used across different aspects of the financial services business?
So, financial services are using AI in the same way how other industries are using AI. I have this point of view because when I was running cloud AI verticals at Google, I was building solutions for the financial industry, healthcare, manufacturing and so forth. Thus, I had a pretty broad understanding of each industry and I realized that a lot of use cases are common and then there’s a whole class of use cases or applications which is very specific to the financial industry. From where I see it, in terms of application areas, AI is applied across the front office, back office, and the middle office.
For example, a very classic case is fraud. As the number of transactions are increasing, with card-less transactions coming into the picture, there is no human involvement to cross-examine and thus there is a tremendous rise in online fraudulent activities. Here, you cannot use a traditional approach of tracking as everything is very sophisticated. This is where AI comes into the picture with the use of knowledge graphs that give an insight into where the transaction is originating, who is originating it, the entities involved and so on.
You explained this exceptionally well. My brain, however, keeps going back to the comment you made that only 15-20% of the potential of AI has really been utilized and there is still 80% of innovation that can be brought into financial services. Can you walk us through that? Also, enlighten us on where that 80% work is going to happen.
I’d like to view it through the lens of an entrepreneur. Having started a company myself, I believe one is always looking for that edge against competitors which can be attained when the industry is undergoing a transitory phase, which, let me tell you, is not an overnight process! It happens once in a span of 15-20 years and in my view, financial services are going through an early stage of the transformation wherein it is driven by cloud adoption of AI and making use of AI in building the overall tech stack of a bank. So, I am of the opinion that almost every part of the financial services stack is in the process of being unbundled and rewritten, which again is part of the cyclic process of renewal and growth.
It happened in the PC era, followed by the era of the internet and mobiles. Thus, the same thing is now expected to occur in the cloud and AI era in a parallel way. And I do tie these two together because these waves are happening in parallel with nuanced versions so that’s a lucrative opportunity for entrepreneurs. I can give you an example here: traditionally, how payment services were being provided earlier is being reimagined completely now with the entry on mobile payments, with the valuation of these platforms crossing $200-300 billion, which is bigger than most banks in the world! So you see, what started as a payment service has now evolved into this multi-billion dollar business in just a few years. That’s just one aspect of looking at it as an entrepreneur, but the way I see it is as a contribution of financial services to the overall economy of a developed country especially like in the US where it stands at 10-12 %, second largest only to healthcare.
In my view, that’s the reason I say that 15-20% of opportunities have been explored yet as everything is interlinked. So, if you are to see if from banking, savings account, loan mortgage, B2B payment, or B2C payment, to asset and wealth management or even trading – everything is going to get reinvented using the cloud and AI. The interesting part is, they are just enabling technology. The amount of money being invested in AI and cloud is very small as compared to the conversations around these technologies and that’s why I think that there is a lot of scope here.
I had a question from one of our viewers: He says that he understands there is a lot of scope for AI in financial services. However, is it restricted to the big players or applicable to the entrepreneurs who are beginning from the scratch?
It is an interesting question but also very difficult to predict who’ll be the winner in this case. There have been cases in the past where these technological transitions have been well-adapted by the incumbents and where they have not received the same response. What I think is important is that as an entrepreneur, you begin with a clear head, no assumptions involved as there is enough opportunity in the market to build a fairly good business as a startup. Being an entrepreneur in the financial services, I also want to stress on the pivotal role that regulation and compliance play. If you understand it well, it is going to be a huge differentiator in your business.
This was quite insightful. Another question I have with respect to the online payment space we spoke about earlier. What are your thoughts on technology companies entering this zone? Also, who would be the winner in the market of financial services – the tech giants(Alipay, Amazon, Google Cloud, Azure) or the financial giants (Goldman Sachs, JP Morgan) of the world? How do you see the entry of these players in the market of financial services?
So I think it’s a difficult question to answer who will play into this space and then who will be the winner. Traditionally, financial services were offered by financial institutions but that is not going to be the case going forward, especially when there exists a strong relationship between the customer and the company. In such cases, the customer has his trust in the company and its offerings.
Take the example of a tech giant like Apple. When it offers the Apple Card in the payment industry, it is bound to have a positive impact on the company as it has a loyal customer base, where trust is paramount. I strongly feel that companies like Apple are open to offering financial services directly to the customer because they own the customer relationship and the customer trusts them. I see that happening more and more.
These were some of the highlights from the webinar, you can watch the detailed conversation here.
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