The impact of AI on the development of financial sector 
Artificial intelligence (AI) is changing the way we live. These changes are expected to occur at all levels, social and economic, and their impact will affect households, investors and policymakers. AI is inherently difficult to define since its quick evolution means that its definition depends on its benefit, threat and impact on society. According to the Financial Stability Board, AI can be defined as the theory and development of computer systems able to perform tasks that have traditionally required human intelligence.
The traditional financial sector was one of the first to realize the potential of the data revolution and disruptive technologies. Traditional financial services are in the early phases of adopting and deploying AI technologies, and this is expected to have a large positive impact on the growth of the sector. Financial services firms are at the stage of understanding how AI may fit into their strategy, since some of them still fear deployment failure, as AI applications can be subject to legal action in areas such banking, insurance and asset management. Even capital markets authorities and central banks, however, can gain significant benefits from AI adoption in the financial sector.
The most common application of AI in financial services is fraud detection. Banks have used AI technologies to detect and prevent fraudulent transactions for the last few decades. The main AI technologies used to detect fraud are machine learning (ML) and natural language processing (NLP). According to the Association of Certified Fraud Examiners, 13 percent of companies used AI to detect and deter fraud in 2019. Moreover, 25 percent more companies planned to adopt these technologies in 2020.
Then came chatbots. The increased pace of augmentation and automation in transactions and processes in financial institutions such as banks make chatbots and virtual assistants among the main applications of AI to help customers perform transactions and solve problems. Chatbots use NLP and learning processes supported by ML algorithms to improve the quality of services. They communicate so perfectly that most clients find it hard to distinguish whether they are dealing with a machine or a human. Access to chatbots has become ubiquitous through the use of mobile apps and social media. Their role has grown in banks to include giving clients advice and guiding them through multiple alternatives and scenarios to reach rational financial decisions.
AI will create new consumer choices that will, in turn, boost demand and generate more job opportunities.
Dr. Hussain Abusaaq
The third application is the robo-adviser, used in financial services for wealth and asset management and powered by ML algorithms. A robo-adviser can provide more customized advice to individuals by collecting information from users online about their goals and risk tolerance and constructing the most appropriate portfolio for each one. The whole process is automated with minimal human intervention. The cost is usually very low compared to that of traditional physical advisers.
Despite the challenges that financial institutions face in adopting AI in their operating models, the added value of such an adaptation is still vast in the medium and long term. Deploying AI will have the potential to increase the productivity and profitability of financial institutions by reducing cost and risk. Another benefit is enhancing customer engagement by improving customer experience and designing customized services to better fit each client profile. Adopting AI in financial services can also reduce financial inclusion barriers and help more individuals to have access to such services.
Finally, it is important to discuss what AI means for jobs. Many studies have shown that AI will have a significant impact on the labor market. Some emphasize that AI will eliminate jobs and increase the inequality gap. Other studies discuss a broader view, combining the impact on both productivity and jobs, which will eventually be positive for GDP growth. Since there will be productivity gains due to the use of AI for automation, many of the processes in industries will be performed at lower costs. A study by Accenture shows that AI will increase labor productivity by 40 percent in 2035, with most of the increase attributed to innovative technologies. While this may lead to the elimination of some human jobs, by using AI, firms will decrease their costs and generate more money that can be used to create more economic activity and opportunities. In addition, AI will create new consumer choices that will, in turn, boost demand and generate more job opportunities.
• Dr. Hussain Abusaaq is a future-focused macroeconomic forecaster. He is chief economist and head of economic research at the Saudi Data and Artificial Intelligence Authority.
