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Tata Capital > Blog > What’s Trending > Reinvention of BFSI Business Model

What's Trending

Reinvention of BFSI Business Model

Reinvention of BFSI Business Model

Artificial Intelligence (AI) is triggering the next wave of digital disruption in investments.  The rapid development of AI technology systems, namely robotics, computer vision, language, virtual agents, and machine learning is changing the world, as software that learns supplements the work done by humans. While computers had for many years been capable of doing billions of calculations in a moment, AI is empowering them to be decision-makers. The decision-making process is totally redefining how investments are seen, sold, bought and managed. Instead of waiting for decisions, usually taken after 2-3 days of intensive calculation, AI-powered systems are instantaneously opening up a world of opportunities to investors.

AI investment is being dominated by digital giants, and globally acclaimed tech corporations such as Amazon, Google, Facebook, Apple and Microsoft are leading the charge. A fully developed and empowered AI not only helps reduce the sales cycle but also takes the place of humans in terms of deciding. To put things in perspective, different studies estimate tech giants spent $20 billion to $30 billion on AI in 2016. A large, i.e. 90 percent of this is being spent on R&D and deployment.

The technology behind voice-activated personal assistants, self-driving features in cars, and websites recommending films is now being leveraged to deliver smarter money decisions. This is possible because AI has the ability to analyse data and actually learn from it. Instead of poring over thousands of permutations and combinations, and filters to decide the investment, AI technology does all that in a flash and even executes transactions in certain investing models. Common examples are high-frequency trading.

Automated investments work well in the Systematic Investment Planning (SIP) scenario, where a set amount goes from your bank account to mutual fund account based on the defined periodicity. By using AI model, an investor can get a foresight on when she/he can face hardships in finances and accordingly arrange finance in bank accounts.  The AI-powered system will deduct a lump sum on that month, instead of the SIP, without any manual intervention. Based on technical parameters and algorithms, the AI system can also be flexible in terms of executing investments, taking decisions on its own instead of disturbing the investor. 

In the asset management industry, AI-powered investment solutions have huge scope. While earlier technologies delivered razor-fast analytics, the authority on decisions rested on the human investor. The ability to take decisions means investors have to be nimble-footed, alert to possibilities and do the risk-reward analysis on their own. That is changing, with automated investing platforms. Not only are investors relying on gathering and interpreting reams of information, they are also becoming comfortable in terms of allowing a software to make decisions. 

There are examples of exchange-traded funds using AI algorithms to choose long-term stock holdings. New programs create portfolios by screening stocks to select the ones that meet criteria. Instead of a human doing laborious calculations, AI allows all this to be done within moments and brings results that are accurate and dependable. AI embedded lines of code, like a diligent student, is continuously updating itself even as new terabytes of information come in.

A beautiful example is heavy cognitive lifting. The human mind can only read so many patterns before its brain gives up. AI systems can scour data to identify patterns that have so far remained obscure to human eyes. This opens up a treasure trove of opportunities in terms of investments in stocks, bonds, commodities and alternative asset avenues. Known patterns have been over-exploited, but new patterns when taken advantage of can generate the elusive alpha both investors and managers yearn for.

For an investor, AI tech mimics the investment process that will be matched by only an army of investment analysts. But the AI system works around the clock! This allows to side-step the inherent emotional and psychological weaknesses that engulf human reasoning. This is how AI allows informed human beings to manage and profit with the help of sound judgment.