How To Improve The Financial Services Industry With Artificial Intelligence And Blockchain
Blockchain and artificial intelligence (AI) solve different tasks, but they can work together to improve many processes in the financial services industry, from customer service to loan application reviews and payment processing.
Adopting AI and blockchain technologies can make your financial sector smarter and help it to perform more effectively. Blockchains can provide transparency and data aggregation; they also enforce contract terms. Meanwhile, AI can automate decision-making and improve internal bank processes.
Here are several ways blockchain and AI technologies can revolutionize the financial industry.
Better Customer Service
Currently, opening an investment account can take several days, because banks need to collect information from various sources about their clients. A blockchain can store all customer information in one place, while AI-driven algorithms can quickly analyze that information and make unbiased decisions. As a result, financial institutions can offer personalized services to more clients faster, more securely and more efficiently.
For instance, the Luvo service chatbot and the KAI-based bot were successfully implemented for reducing customer queries. Using these AI-powered services, bank clients can get answers on their simple questions and can automate daily tasks, like money transfers, account reviews and reporting.
Cheaper And Faster Payments
Time is money. But bank transactions are still slow and costly. In contrast, blockchain-based cross-border payments are inexpensive and fast, because they don’t require third-party authorization.
Just compare the 2% to 3% remittance costs for blockchain transactions with the 5% to 20% withheld by traditional banks. In terms of speed, the number of confirmed Bitcoin transactions per second reached 3.8 in March 2020, while its highest rate was 4.7 in mid-December 2017.
AI technologies can further increase transaction speeds by reducing the need for human input, and banks can automate payment workflows by applying image recognition to financial documents and using natural language processing to support payments via voice assistants.
Less financial crime
According to the United Nations, the amount of money laundered globally varies between $800 billion and $2 trillion per year. However, a combination of blockchains and AI could bring money laundering to an end.
Blockchains ensure data transparency and traceability, giving regulators and law enforcement all the information they need for audits. Additionally, the use of smart contracts can prevent clients from providing false data and banks from changing their contract terms.
AI-based technologies can validate client transactions against payment fraud in real time, and AI-based behavior analytics can enable financial institutions to respond in near real time to insider security incidents.
What to consider when integrating AI and blockchains
When implementing innovative technologies like blockchains and AI systems, the most valuable advice is not to hurry. “Move fast and break things” is not the best option for financial institutions.
Scope creep is another challenge that often comes with blockchain and AI-related projects. Known as a startup killer, scope creep reduces the chance of your project being completed on time. You need to find a balance between the right amount of testing, the scope of your project, and your deadlines. Only thorough planning and project management can help you cope with all these challenges.
If you need to integrate your solution into an existing banking system, you should also consider bank-specific processes before initiating product development.
You should spend the same time and effort testing and analyzing the system as you spend on developing it. Otherwise, you risk suffering huge losses from system defects that could have been detected before the product release.
Recently, my company leveraged AI and blockchain technologies for a loan servicing solution. To issue thousands of loans every day, banks need reliable data storage and systems that can quickly process large numbers of client requests. My team had to make sure our client’s system was efficient and secure to deflect scam attempts.
Using blockchain, our client’s bank can establish loan conditions, set the validity period for loan applications, and process loan requests into smart contracts that are saved on-chain. Using AI, it can improve its loan request analysis processes and make its loan approval system more flexible and less biased.
To build this system, we spent a lot of time planning the application architecture and establishing the principles of component-to-component interactions. These were the biggest challenges of this project.
We chose the Ethereum blockchain because it’s easy to use for developing a proof of concept and because apps built around it can quickly be adjusted for other networks later on. Ethereum can confirm only dozens of transactions per second, while more powerful networks can confirm thousands. But for this stage of the project, speed was not the priority.
The artificial neural network we built achieved 95% accuracy in predicting loan repayment. In 5% of cases, approved lenders didn’t repay their loans. These were false positives. It’s also possible that the AI system produces false negatives, rejecting clients who would have returned the money.
This article originally appeared on forbes.com To read the full article and see the images, click here.
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