‘AI’ and the Personal Finance Revolution

The Fintech sector has already transformed so much in the arena of personal finance.

23:44 10 June 2024

The Fintech sector has already transformed so much in the arena of personal finance. Most of us today (except the occasional hermit) have online banking and are familiar with applying for insurance or a loan online. In many cases, this is actually the only way we can easily access money since so many traditional high street banks and building society offices have closed down. 

It was only a matter of time before Artificial Intelligence (AI) entered the financial fold with gusto, its algorithms intent on making further improvements and efficiencies. AI’s ability to analyse complex data in super-fast time, streamline processes to make them work better, and to personalise services to such an extent, makes it an ideal candidate for finance institutions everywhere to embrace with open arms.

In practical aspects, the fact AI can analyse such vast amounts of data so quickly makes it a great decision-making tool when it comes to offering credit, insurance or even investment advice. Via machine learning, AI builds knowledge on individuals every time they use the technology. This means, for instance, that it can instantly detect an unusual pattern and flag up potential fraud. For financial institutions this proves an excellent risk management solution.

Democratizing credit access leading to financial inclusion

But it’s not only the large financial institutions that AI can help. One of the more exciting aspects of Artificial Intelligence’s influence in personal finance is the scope it offers to widen the breadth of financial literacy and credit access for previously under-represented and under-educated demographics. 

This ambition is one of the defining strategies behind South African fintech Wonga’s service. It seeks to use financial technology to help protect the security of the average credit customer while ultimately enhancing their financial capacity. The personal loan provider has published free advice here, offering guidance on how individuals can best utilise a range of free AI tools to improve their financial skills in areas such as:

• Goal setting
• Budgeting
• Expense tracking
• Saving and investing
• Debt management
• Financial education
• Goal progress tracking
• Review and Adjustment

AI can enhance financial inclusion, particularly regarding risk assessment by looking beyond an individual’s credit score to build a more complete picture. There are publications confirming that loan providers are utilising AI to consume a prospect’s social media profile, behavioural patterns and transaction history. In other words, taking in to account far more data and then analysing it to see how much a credit risk – or not – that individual would be. 

Of course there’s a (very valid) argument for the potentially dystopian path this level of data mining and machine learning will have on society over time. However it’s made slightly more palatable if it results in economic empowerment for those previously denied access to financial services. That is a big ‘IF’. 

Using AI algorithms, Chat bots are able to supply customers with financial and budgeting advice, doing away with the need for face-to-face meetings with a human advisor. Some AI bots are so advanced that they are able to manage an individual’s investment portfolio simply by taking in to account their risk preferences and preferred finance strategy.

Using AI is far less costly for finance companies than employing staff, so in theory these savings can pass on to customers. In the end, AI’s merging into the Fintech sphere enhances the ability for more people to access credit and investment tools that empower them to manage their own financial future. And that surely can’t be a bad thing? Ultimately time will tell if these advancements and the caveats they come with are worth it, watch this space for an update!