How is AI disrupting the financial industry
NEW YORK — Artificial intelligence, along with other financial technology (fintech) innovations, are significantly changing the ways that financial business are being run, especially in the fields like trading, insurance and risk management, leading the traditional financial industry into a new era.
Back in 2000, Goldman Sach’s New York headquarters employed 600 traders, buying and selling stock on the orders of the investment bank’s clients. Today there are just two equity traders left, as automated trading programs have taken over the rest of the work.
Meanwhile, BlackRock, the world’s biggest money manager, also cut more than 40 jobs earlier this year, replacing some of its human portfolio managers with artificially intelligent, computerized stock-trading algorithms.
Those two big companies are not the only financial institutions replacing human jobs with robots.
By 2025, AI technologies will reduce employees in the capital markets by 230,000 people worldwide, according to a report by the financial services consultancy Opimas.
“Asset managers, analysts, traders, compliance administrators, back-office data collection and analysts are most likely to lose their jobs, because their jobs are easier to be replaced by automation and AI,” said Henry Huang, an associate professor at Yeshiva University’s Sy Syms School of Business.
“The net effect of this kind of automation will be more about increasing the productivity of the workforce than of robots simply replacing people,” said Richard Lumb, group chief executive of Accenture’s Financial Services operating group.
The best automated firms will outperform their competitors by making existing workforces more productive through AI, he added
While humans are losing jobs in the financial industry, companies are enjoying the benefits ought by AI technologies.
“Initially AI will add the most value and have the largest impacts in compliance (especially anti-money laundering and know-your-customer functions), cybersecurity and robo-advice,” Lumb said.
Facing rising pressures from fintech innovations, represented by AI, Wall Street financial institutions choose to embrace the new trend.
“In general, we see the outlook for fintech as strong. Demand for fintech by banks is growing because of regulatory and capital pressures, competition from large technology players like Google and Amazon and the abundance of new security threats,” Lumb said.
The FinTech Innovation Lab, an annual program launched in 2010 by Accenture and the Partnership Fund for New York City to foster fintech growth, has helped New York participants raise more than $440 million.
“The FinTech lab has proven to be a significant program for engagement between entrepreneurial technology companies and New York’s financial industry,” said James D. Robinson III, general partner and co-founder of RRE Ventures.
In New York City alone, fintech investment overall has increased from $216 million in 2010 to $2.4 billion in 2016.
“Big new frontiers are only just beginning to opening up in fintech — from AI, block chain and robotics to biometrics, augmented reality and cybersecurity,” Lumb said.
Among all the fintech innovations, the prospect of the block chain has the highest expectation.
“The block chain will change the way people store information, which is real, spreading fast and cross-border, and its ‘de-centric’ feature will allow everyone to know what other people are doing. The application of block chain in finance will once again bring about a revolutionary impact on the industry, just like AI does,” said Huang.
Although it is hard to tell which country is leading the fintech innovations, many experts agree that China has outperformed other countries in fintech services adoption.
“The work in China has been dramatically ahead of anywhere else in the world,” said Jim Bruene, founder of Finovate conferences, which showcase cutting-edge banking and financial technology.
With more intelligent, in-context financial services, especially commerce activities built around social media applications, “China is likely five or six years ahead of the United States,” Bruene said.
The latest report by Ernst & Young showed that China’s fintech adoption rate came at 69 percent in an index that measures users’ activity in various areas, including money transfer, payments, investments, borrowing and insurance, the highest among 20 major markets globally.
Wechat Pay, the e-payment platform built inside the 900million-user Chinese social media application Wechat, is seen as the future of fintech services by many experts.
“Messaging is the next web browser, fintech and all other applications are going to live in a mobile messaging application like Wechat, just like how they lived in web browsers,” said Greg Ratner, co-founder and chief technology officer of Troops, a US artificial intelligence startup.
“It is going to be the future and is already happening in China. And I think it will come to the United States in the next five years,” Ratner said.
According to Huang’s observation, there is a major difference between China and the United States in fintech development model.
“In the US, banks are the main driver of fintech innovations, while in China, BAT (Baidu, Alibaba, Tencent) representing the enterprises contribute most to the fintech development,” Huang said.
“Considering the scale of banks in China, they should play a more important role in fintech innovations,” he suggested.
The net effect of this kind of automation will be more about increasing the productivity of the workforce than of robots simply replacing people.” Richard Lumb, chief executive of Accenture’s Financial Services operating group