For years, it seems like everyone has been talking about artificial intelligence, and personal finance is one of the fields where it has gotten the most attention. Many online banking customers have grown accustomed to — and perhaps reliant on — receiving individualised insights about their spending habits, all enabled by artificial intelligence.
Artificial intelligence also plays an important role in retail investing on the personal finance side. To stay lucrative, an increasing number of traders rely on algorithmic trading based on artificial intelligence (AI). In this piece, I’ll go over these and other ways that artificial intelligence is affecting personal finance and, more significantly, how it’s affecting people’s lives.
What is Artificial Intelligence and Why Does It Matter?
Artificial intelligence is a discipline of computer science in which engineers create software that can “think” on its own. The goal is for a computer to solve issues without the need for human intervention. To put it another way, A.I.s are self-learning computer programmes.
From the standpoint of both companies and customers, here are some of the advantages of deploying A.I. :
- Companies can save money by streamlining and automating operations.
- The A.I. becomes a revenue-generating asset that helps financial institutions generate more money by reducing the risk of losses.
- Customers can gain a competitive advantage in their financial health by using A.I.’s spending analysis and recommendations (automatic spending insights).
- Chatbots allow customers to have a more accessible banking experience.
- Companies and individuals can use A.I.-based trading to manage risk and automate investing.
All of these advantages make A.I. a useful tool for both businesses and customers, which is why huge tech corporations are purchasing A.I. startups in droves.
A.I., of course, is not without its drawbacks. One of the most common applications of artificial intelligence in finance nowadays is the selection of sensible investments.
But keep in mind that this technology is far from flawless, and its effectiveness cannot be guaranteed. As a result, doing your own research by analysing the markets and studying assets to find prospective investment opportunities that the A.I. missed is still a good idea.
With that disclaimer out of the way, let’s take a closer look at how artificial intelligence is influencing the future of personal finance.
Personal Finance Managers & Chatbots
In terms of acceptance, artificial intelligence in mobile banking has already made significant progress. In the guise of chatbots and personal finance managers, most individuals have already seen or experienced it.
A chatbot is an artificial intelligence (AI) that exists solely to communicate with clients and answer their inquiries. These inquiries can range from how to carry out specific tasks to how certain features or services function. You can simply arrange transfers, automate transactions, and even be led to a live representative if necessary with the help of a chatbot.
Personal finance managers, or PFMs, are a sort of artificial intelligence (AI) that is commonly employed in banking apps or digital wallets. Their goal is to put all of your transactions into context by analysing them.
As a result, they provide insights into your spending habits as well as recommendations for where you could spend more or less.The value of PFMs is that they allow you to get a bird’s eye view of your finances and discover where you can make improvements.
These two technologies are the first of many that will make personal finance even more powerful and useful in the future. The following are the two main causes behind this:
Accenture predicted that by 2020, 50% of customers will communicate with their banks via mobile applications and other online means rather than in person, up from only 34% in 2018. This is partly due to the fact that artificial intelligence has made internet banking far more user-friendly and accessible to a wider range of people.
PFMs and chatbots are useful for this because they’re designed to make things easier for you as a user. Automating transactions, scheduling transfers, and having spending insights at your fingertips are more than enough to make mobile banking more convenient, especially if you have “someone” to ask questions to whenever you want or need.
As a millennial or even a younger person, it’s easy to believe that everyone should be able to utilise their online banking apps and take full benefit of all of their capabilities. However, certain people, namely the younger generation, will inevitably struggle with this technology.
This is where the ability to converse with a chatbot as effortlessly as if it were a real person comes in handy, something that was unthinkable only a few years ago. Today, anyone can start a conversation, type “Transfer $500 to X,” and then leave it to the A.I. to handle the transaction. That’s all there is to it!
PFMs and chatbots work in tandem, and in some cases, as part of the same artificial intelligence. PFMs, on the other hand, can be separate programmes that examine a person’s bank account. Wallet.ai is a good illustration of this. It’s a programme that creates automated spending insights.
It captures information about a transaction’s context and provides recommendations for future transactions.As a result, everything linked to personal finance is more easier to do now than it has ever been, and we can thank artificial intelligence for that.
Increasing the Interactivity of Digital Banking
The terms “engagement” and “mobile banking apps” aren’t commonly used in the same sentence. Nonetheless, AI is making personal finance more dynamic and exciting for the average individual.People used to use spreadsheets to keep track of their finances, but now A.I. encourages them to use individualised spending insights.
The influence of artificial intelligence isn’t about creating a better spreadsheet; it’s about technology truly assisting people with their money and assisting them in making better decisions based on insights they wouldn’t have gotten simply by looking at a balance sheet.
More consumers will be willing to go online for most of their banking procedures as these new tools for personal finance become more widely adopted.Now let’s look at another way that artificial intelligence is affecting personal finance today:
Trading using Algorithms
Since their inception, investing and, in particular, trading have been somewhat de-mystified. Online stock brokers and new financial instruments have made the stock market more accessible to the general public, which has sparked a lot of interest in it.
As a result, people are constantly devising new strategies to make the market operate in their favour. A.I.-powered algorithmic trading is one method that has grown in popularity in recent years.
Algorithmic trading, often known as algo-trading, is a method of investing in stocks that depends on a mathematical model that automatically executes certain actions based on predetermined criteria. This model, for example, can examine the prices of pre-selected assets and make decisions based on that information at a rate that a human could not.
Software developers and expert traders, on the other hand, established a new branch of algo-trading based on artificial intelligence. It works by “feeding” millions of data points, such as news, stock prices, and market patterns, to an artificial intelligence (A.I.) that can anticipate where the market will go.
Thanks to algorithmic trading, the quantitative hedge fund industry reached $1 trillion in assets under management in 2018. A.I.-powered algo-trading has had a tremendous impact on the finance industry and traders’ finances since it transitioned from disruptive technology to mainstream technology. Here’s how to do it.
The Impact of A.I.-Powered Algo-Trading on Trader Performance
Trading is a difficult procedure that necessitates a thorough understanding of the stock market as well as a little of luck. Algorithmic trading based on A.I., on the other hand, takes care of the “deep understanding” aspect because it can learn and make decisions on its own with little to no human input.
This type of algorithmic trading avoids a number of issues that certain traders have previously encountered. An A.I., for example, doesn’t have to second-guess itself based on emotions, nor does it have to cope with a clumsy interface or risk making the same mistakes humans do while trading.
A.I. provides a way to precisely predict the movement of stock values, automate transactions, and obtain a competitive advantage over the broader market. Big brands like JP Morgan have made significant investments in artificial intelligence, setting a precedent for others to follow.
Though artificial intelligence is still in its infancy, it is evident that it will play a significant role in how people manage their personal money.Regardless of their location.
In conclusion, artificial intelligence is here to stay.
Artificial intelligence is already transforming the face of personal finance, whether through chatbots, PFRs, or algorithmic trading. With more companies hopping on the artificial intelligence bandwagon every year, it’s safe to assume that the trend will continue as the technology develops.
In any case, artificial intelligence has had and will continue to have a significant impact on personal finance. Of course, this is just a taste of how this technology is making people’s lives easier and better right now, but A.I. will continue to improve over time, and there’s no saying what’s next.