Artificial Intelligence (AI) has developed very quickly from a specialist technology to a mainstream force for business creativity and economic progress. In the last decade, AI innovations have found their way into healthcare, manufacturing, retail, and, most prominently, finance. The spending of the financial sector on AI is expected to reach Rs. 8.4 lakh crore ($97 billion) by 2027, at a CAGR of 27%.
For Indian businesses and investors, it is important to understand the financial impact of AI. Whether it is applying AI for smart investment decisions, finance automation, or new business models, the financial possibilities and challenges of AI are huge. This article explains the financial implications of the evolution of AI.
1. Impact of AI on financial markets
AI is also increasingly utilised by investment banks and trading systems to analyse market information, forecast the direction of prices, and complete trades at even higher speeds. The global AI-powered trading market is expected to be equivalent to Rs. 4.3 lakh crore ($50.4 billion) by 2033. AI applications today perform more than 60% of trades worldwide. Aside from speed, a key point where AI-powered systems stand out is that they eliminate human emotion and bias, leading to reliability in investment outcomes.
2. Driving financial inclusion
AI can facilitate financial inclusion in emerging economies by increasing access to credit and financial services. 22% of India was unbanked / without access to financial services, as reported by the World Bank in 2021. AI is employed by Indian fintech firms to assess creditworthiness, particularly of those with little or no credit history. Machine learning algorithms browse details such as utility bill payments and mobile phone transaction history, in order to gauge the borrower's financial conduct. Therefore, there are more lenders who are able to provide loans to a larger number of people, encouraging economic development and supporting underprivileged customers.
3. Augmenting risk management and anti-fraud ability
AI's ability to read patterns and detect anomalies comes in particularly useful when it comes to risk management and fraud. AI is employed by banks to monitor transactions in real-time, identify suspicious transactions, and prevent financial fraud. They also employ AI to enhance their Know Your Customer (KYC) processes by automating identity verification and ensuring that their operations meet regulatory requirements. Organisations that incorporate AI in their security infrastructure lower the time taken to contain data breaches by 29%. Firms that incorporate AI-based fraud detection systems see up to a 40% improvement in detection rates. This shows just how powerful AI is when managing security for a business.
4. Enhancing customer experience
AI plays a pivotal role in improving customer interactions for financial services businesses. Virtual assistants (VAs) powered by AI provide customer support. They answer basic queries, guide users through the details of products and process transactions.
For example, SBI’s YONO app uses AI to offer personalised banking services, from suggesting investment products to managing savings accounts. As per a survey by Accenture, 67% of customers expect their financial services providers to offer them personalised experiences. AI also assists banks and fintech firms in analysing customer information to provide customised financial guidance. A word of caution, however - a 2024 survey by J.D. Power revealed that less than 30% of customers are willing to take the word of chatbots when it comes to financial advice. This implies that financial services companies must establish credibility and foster transparency in the customer-facing applications that they make use of.
5. Building new business models
The AI-powered personal finance management market was at $0.7 billion (Rs. 6,000 crore) in 2023 and is expected to grow by 5x to $3.7 billion (equivalent to Rs. 32,000 crore) by 2033, with a CAGR of 18%. 45% of consumers say they have received personalised experiences via finance-related mobile apps, and 36% are willing to share their financial information securely in order to get personalised advice. Online channels are currently leveraging AI to deliver financial products directly to the end consumer. Payment applications such as Amazon Pay and Google Pay utilise AI to enhance the payment experience. They use AI-driven analytics for accessing consumer behaviour patterns and modifying financial products for precise requirements. This rapid evolution shows just how much potential AI has to help financial service businesses to develop newer ways to reach customers.
6. Building financial inclusion
AI facilitates financial inclusion in emerging economies such as India by making financial services more accessible to underbanked populations. 22% of India were unbanked / without access to financial services, as reported by the World Bank in 2021. AI is employed by Indian fintech firms to assess creditworthiness, particularly of those with little or no credit history. Machine learning algorithms browse details such as utility bill payments and mobile phone transaction history, in order to gauge the borrower's financial conduct. Therefore, there are more lenders able to provide loans to a larger number of people, hence encouraging economic development and supporting impoverished segments.
Conclusion
AI is transforming the Indian financial sector. AI is enhancing efficiency, making processes more streamlined, and improving security and financial inclusion. Indian businesses, such as NBFC, as well as online marketplace, can reap tremendous advantages through the adoption of AI technology. The advantages are to streamline in-house procedures as well as create custom-designed financial products for customers.
While ML technologies continue to develop, business enterprises must adopt a balanced approach that aligns technological development with ethical and regulatory limits. They thus can derive the maximum economic value from AI while enabling trust in the financial system.
