AI’s ability to increase financial inclusion and transparency

As I’ve acknowledged in my previous posts, one piece of technology which is debated constantly and seen by some as holding the keys to a positive future is artificial intelligence (AI). One of many industries the technology is seen to have the potential to revolutionise is the financial sector.

Currently, the World Bank estimates there are 1.7 billion adults around the world who do not have a bank account and are financially excluded. I would argue AI has the capability to address this and improve financial inclusion globally, by providing equitable access to financial services for everyone, regardless of income level, social status, or geographic location.

As it stands, a barrier to entering the financial system is that an adult generally needs a financial history to be approved for a bank account or credit. Traditional systems often rely on credit history, collateral, and other factors to establish whether or not an individual reaches these requirements. Access to a bank account or credit is often taken for granted in developed countries, however, in developing and emerging economies millions fall at the first hurdle.  

Introducing AI with its clear ability and capacity to analyse large amounts of data could solve this issue. With this capability, AI can be utilised to assess the creditworthiness of borrowers. AI can be used to evaluate a wider range of data, such as mobile phone usage, social media activity, and online shopping patterns, to get a more accurate picture of someone’s creditworthiness. Providing a detailed overview with AI, and therefore not having to rely on traditional systems will help to provide access to credit for those who are otherwise excluded from the traditional lending system.

Building on this, AI should, and in some cases already is, being used to develop new products and services that are tailored to the needs of underserved populations. The technology is unique in its ability to identify specific financial needs. For example, AI is already being used to develop micro-loans that are specifically designed for entrepreneurs, as well as mobile banking solutions that are accessible to people in rural areas. Building on this tailored approach, AI is currently providing financial education and literacy to millions of people, with the technology used to create personalised financial education programmes that are fine-tuned to the individual. This is helping to improve people’s understanding of financial concepts and improve confidence regarding financial matters.

Another aspect is AI’s ability to reduce the cost of providing financial services. AI can automate many of the tasks that are currently performed by humans, such as customer service and fraud detection. This can, in turn, help reduce the cost of providing services, making them more affordable for everyone. Tasking AI with combating fraud is something institutions are attuned to; the technology is used to identify and prevent credit card fraud and identify theft already. This helps to protect people from financial losses but more importantly, it makes people more likely to trust the financial system, an important factor, especially in developing countries where trust is often lower.   

Undoubtedly, the use of AI for financial inclusion is still in the early stages, and there are a multitude of reasons why institutions have been slow to adopt AI, particularly when it comes to loans and credit decisions. These range from simple issues such as core banking systems not being designed to operate with new types of data to slightly more complex programmes and coding points. One such complex issue is ensuring there are relevant monitoring and safeguards in place to guarantee systems operate as intended, without adverse action or disparate impact. With that being said, there is a lot of potential for this technology to make a significant impact. By helping to improve access, develop new products and services, and reduce the cost of financial services, AI is a powerful tool that has the potential to help millions around the world access the financial services they need to improve their lives.