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The impact of Artificial Intelligence on Financial Inclusion

Artificial Intelligence on Financial Inclusion

How AI assists banks and financial institutions in enhancing financial inclusivity

The advancement of technology has paved the way for banks and financial institutions to reach out to all corners of the Earth. However, according to the World Bank report, around 20% of the world’s population is unbanked, and most of the unbanked are women with less access to education, from poorer and rural areas. Even though many banks and financial institutions are trying to close the inequality gaps and provide services to many communities, a rooted systematic bias is still present: racial and gender issues, low wages, and mortgage credit and lending inequality have cramped economic growth.

Financial inclusion is of utmost importance to reduce poverty and boost the world’s economy. An unbiased system is required for financial inclusion, which can be achieved by utilizing Artificial Intelligence.

Artificial Intelligence is already making huge strides in the banking and financial sectors, as the market value of Artificial Intelligence in banking is expected to exceed $130 billion by 2027. Currently, Artificial Intelligence is used in many use cases of banking: detecting fraudulent transactions, customer management, enhancing privacy and security, understanding documents, etc. If you would like an overview of how Artificial Intelligence is transforming the banking industry, please refer to this article.

In this article, we’ll look at how Artificial Intelligence can enhance financial inclusion and provide unbiased methods for banks to evaluate customers and reach out to the unbanked population.

 

Bringing Fairness to Lending Services

Loans and mortgages are significant services that banks and financial institutions provide. However, a major issue is faced by the people who require loans. A study in the USA has stated that African-American loan applicants are nearly twice as likely to have their loan applications rejected, despite having similar financial characteristics as White applicants, and other communities (Asians, Latinx, and Native Americans) face this same issue. Racial and income bias in filtering loan applicants are glaring problems that need to be addressed, and Artificial Intelligence provides a solution to this problem.

Artificial Intelligence ensures a fair analysis of potential customers, based only on their digital and financial footprint, allowing banks to provide loan facilities to a broader spectrum of customers, and expand to cover various demographics. Artificial Intelligence utilizes data from multiple sources (payment activities, credit history, social media presence, etc.) to analyze and provide scores for potential customers. The standard credit scoring system (FICO and VantageScore) fails to represent a majority of customers who don’t possess a credit history, and this issue is mitigated with the help of AI, as LenddoEFL, a Singaporean company, analyzes a person’s behavioral traits and smartphone habits to generate a score to represent credit-worthiness. And tech conglomerate, Amazon, uses machine learning to process small business loan applications, issuing loans to more than 20,000 businesses.

 

Artificial Intelligence can enhance financial inclusion

 

With the current economic crisis instigated by the Coronavirus pandemic, AI is crucial for banks and financial institutions to stabilize the world economy, starting with lending. The impact of AI in offering loans is visible, as Artificial Intelligence is expected to generate over $100 billion by 2023 for the banks and financial institutions that provide loans.

Removing Bias in Customer Engagement

No matter the measures taken by banks to curb bias when dealing with customers, there are unpleasant situations minorities face when communicating with bank officials: one famous example that happened very recently was that a famous African-American movie director, Ryan Coogler, was harassed and arrested, as he was wrongly accused for a robber. These issues are critical for banks and financial institutions to enhance financial inclusion. Artificial Intelligence comes to the rescue, again: smart assistants (simply known as chatbots).

Many leading financial institutions are adopting chatbots to handle their customers, as chatbots can manage standard and repetitive operations that the banking customers would require: transferring money, checking accounts’ balances, opening fixed deposit accounts, etc. Besides being able to access the chat assistants at any time and place. The most important part is chatbots can help significantly in removing bias when communicating with their customers, as a well-engineered chatbot can provide answers to the customers without judging customers based on their gender, race, and other demographical factors.

 

The impact of AI in offering loans is visible

 

Erica from Bank of America, Amy from HSBC, and Eva from HDFC Bank are a few famous implementations of chatbots from leading banks. The value of chatbots in banking is expected to top $7 billion, and this indicates that many customers prefer to converse with chatbots to access banking services while being cost-effective and an efficient method for the banks to reduce bias.

 

Minimizing Fraudulent Transactions

Fraud and Scams are becoming one of the most significant issues in making financial services inclusive. As banking opens up to expand across various territories and communities, the opportunities for fraudsters to exploit and scam grow proportionately. A study conducted in Africa states that an increase in fraudulent transactions can severely dent the government’s plan in bringing financial inclusion to all communities. In 2021, a loss of $5.9 billion due to fraudulent transactions is reported and nearly doubled from the previous year. Therefore, combating fraudulent transactions and scammers is of utmost importance to enhance financial inclusion, and Artificial Intelligence helps immensely in tackling fraud.

One of the earliest use of Artificial Intelligence in banking is detecting fraud. Artificial Intelligence can track all the transactions, monitor any abnormalities, flag suspicious transactions, and alert the customers and the bank to take necessary actions. Artificial Intelligence can verify the Know Your Customer documents of the customers and also analyze the customers’ online activities to identify any potential for fraudulent behaviors.

Fraud detection is a hot topic in the field of Data Science, and the Artificial Intelligence techniques used to build fraud detection systems have significantly outperformed the traditional rule-based methods. Research conducted by Dankse Bank has stated that their AI-infused technique has doubled the accuracy of detecting fraudulent transactions, outperforming the previous traditional methods. And, in the FinTech industry, many banks and financial institutions prefer integrating Artificial Intelligence to combat fraud as more than $217 billion has been spent on AI-based systems.

 

The value of chatbots in banking is expected to top $7 billion

 

Providing Financial Advice

Many minority banking customers face a major problem: a lack of financial advice. Generally, the uber-wealthy and upper-class people have access to many financial advisors, from stock brokers and budget planners. The lower-class and other customers cannot afford to hire such financial advisors, and many are unaware of the benefits of seeking financial advice, therefore, this makes them hesitate to use banks. Artificial Intelligence provides a solution, for low socio-economic customers to access invaluable recommendations.

Artificial Intelligence can monitor and analyze the customer’s expenses, understand transactions over time, and provide insights into their future expenditure. It is highly beneficial for many communities who want to try banking, as Artificial Intelligence can ensure that the customer can save money and reduce overspending. Artificial Intelligence can also assist customers in handling recurring and important payments, such as taxes and bills while providing advice on how to save or where to spend their money.

Artificial Intelligence can recommend various investment avenues to banking customers as well. Just as how Netflix and YouTube utilize Artificial Intelligence to recommend videos and attract users, AI recommends investment opportunities, such as stock market tips and bond funds, and ensures that the customers receive the maximum benefits.

Artificial Intelligence to combat fraud


Currently, there are many research and products in the world that provide financial advice to all people, regardless of their demographics. Halofina, a financial planner assistant from Indonesia, is introduced to enhance financial literacy among the Indonesian communities, and help financial inclusion. There are robotic financial advisors targeted at specific communities as well, such as ALGEBRA’s Robo-Advisor, a Malaysian product, which mainly targets the sharia community. Using Artificial Intelligence in financial advising is highly beneficial for banks as well, as a study confirms that AI reduces the cost of having human advisors by 80%.

 

YData’s Role in Financial Inclusion

YData Fabric is a data-centric platform aimed at extracting the best from any dataset for any scenario. As discussed in the previous sections, Artificial Intelligence can boost financial inclusion and enhance the global economy, and YData plays a big role in achieving financial inclusion by focusing on the data. By generating high-quality datasets, YData Fabric accelerates any Artificial Intelligence project from financial institutions, reducing costs and implementation time.

With Ydata’s Synthesizer, creating a high number of synthetic examples is possible with state-of-the-art deep learning techniques to generate high-quality data, that accurately represents the real data. Synthetic data can be used to solve the unbalanced issue of fraudulent data and enable sharing, as synthetic data does not contain real and sensitive values.

YData has also open-sourced a library for generating synthetic data, which anyone can utilize easily to generate data using powerful deep learning techniques, such as Generative Adversarial Networks. This article provides a step-by-step explanation of leveraging the YData-synthetic library to generate synthetic data.

Final Words

As nearly 1/5th of the world’s population is unbanked, it is of utmost importance for banks and financial institutions to strengthen financial inclusion amidst many crises. Artificial Intelligence significantly assists in improving financial inclusion as AI systems can be trained to eliminate the systemic bias that is present in humans. As discussed in this article, AI can immensely help in impartially analyzing and communicating with customers, combating fraudulent transactions, and providing financial advice to everyone. The use of AI can significantly assist the unbanked population to receive quality and unbiased financial services.

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