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(GIST OF YOJANA) Artificial Intelligence in Financial Sector

[April-2022]

Artificial Intelligence in Financial Sector

Context:

The system encompasses everything from Unified Payments Interface (UPI) to dozens of digital payment applications and cards like RuPay to micro-banking.
Conduct money transactions using APIs even in the applications used for chat, which is considered the next big revolution in the financial sector. Apart from all this, another area of blockchain technologies is opening up, which has the potential of new possibilities.

Two questions naturally arise in the wake of such prolific advancement.

First, what comes next; and
second, what are the challenges emerging within it.

Key challenges:

There are many challenges today that have not been seen before. Something needs to be done to keep these systems impenetrable.
What can be said about a country’s criminal disappearing in the internet universe after committing a crime in another country?
We have also seen that an SMS becomes a means to access a person’s bank account and steal his savings.
Human beings have a role in finding their solution, but results cannot be achieved solely based on human capabilities.
The answer to the challenges emerging from technology should be equally fast-paced, and this solution can also be achieved with the aid of technology.
Digital security systems are still in place at several stages in the financial system, and the consumer has also become more vigilant than before.
Still, the new-age challenges continue to confront the capabilities of the existing security system. Perhaps we need to find a safe haven in artificial intelligence, quantum computing, and blockchain.

Applications of AI:

The procedures related to KYC (Know Your Customer) have become more effective even after becoming more effortless than before. With the use of mobile and Aadhaar, it has become possible to authenticate the identity of the actual account holder on the spot. There has been a widespread expansion of internet and mobile technologies in India, which has helped create the right ecosystem and background for all this.
Today, the One Time Password (OTP) that we have come to use frequently, many experts consider it a gift of the Indian financial sector to the world, as cheap, effective, and robust method of a person’s identity verification.
The impact of all the changes is also visible in financial digitisation. There is a flood of mobile applications used for money transactions. More than 60 per cent of transactions are covered under the UPI, and more than 250 banks are members of it. Within no time, the scope of some of these has become even more extensive than many banks.
Now RBI has started providing money transactions even on ordinary mobile phones without the internet facility, indicating the magnitude and totality of the whole development.
The concept called Big Data which implies that today, information is being generated in infinite sizes based on the activities of people on digital mediums.
In the light of these changes, technologies such as Artificial Intelligence, data analytics, cyber security, and quantum computing need to take the driving scat to focus on both the opportunities and challenges of the modern era.

Significance:

AI plays a vital role in the technologies that monitor and analyse customer behaviour and activities. If it is analysed properly, it can be used to get the best results in economic, political, defence, and other such areas. It also applies to the financial sector, where banks can grow their business and reach good and safe customers by analysing such data. Predictive analysis is often mentioned in the field of data analysis.
It can be predicted who may need a loan, who will want to transfer the loan taken from
another location, and who will face this kind of need in the coming years. Similarly, it can identify people facing adverse circumstances, and giving them loans can prove to be a loss-making deal.
These technologies can also be of excellent use in fraud prevention. First, AI can recognise similar patterns, and secondly, it can indicate what methods can prove effective to solve them. If a criminal ever repeats a fraudulent pattern, this technology can alert security systems and block payment systems.
AI and data analytics can emerge as the backbone of our security solution systems. Quantum computers can play an important role in these works in the coming days.
Criminals who commit crimes— like money laundering are considered very cunning and technically capable.
Traditional methods and existing techniques arc ineffective in identifying their activities. AI can ‘sniff the suspicious activities of such people. The same applies to identity theft, misuse of credit cards, etc.
Nowadays, the role of Chatbots equipped with AI is increasing in providing services to customers. These are software capable of analysing the pre-existing data and the questions asked by the customer and answering them at the same time.

Way forward:

In the coming years, the first of the five critical areas in which we will witness constant change and innovation driven by technology is-

To making the functioning of the financial sector fast-paced, safer, and more organised.
To seek, identify and convert new possibilities into opportunities.
To interaction with customers, where the remaining barriers and limits will also be knocked down in the days to come.
The ability to relate financial processes to people’s backgrounds and behaviours, which can bring about a paradigm shift in the sector.
The cyber security, which will ensure that our financial infrastructure remains secure, despite the enormous increase in the scope and volume of transactions, and variations in the financial sector.