There are a number of industries that have already witnessed the impact of Artificial Intelligence (AI). But if AI has impacted one industry more than any other, it’s the financial services industry. It therefore should be no surprise that the financial services sector is leading others in adopting AI.
The history of AI goes back to the 1950s whenJohn McCarthy, an American computer scientist pioneer and inventor, coined the term in his 1955 proposal for the 1956 Dartmouth conference, the first conference on artificial intelligence. The objective was to explore ways to make a machine that could reason and act like a human.This was only the inception of AI as a concept but it wasn’t implemented until the late 1990s. Over the years, AI enhanced its role and scope to include natural language processing, image recognition, deep learning, speech recognition and emotions. However, the pace of AI only picked up seriously after 2011 when tech giants showed signs of great interest and adoption, investingheavily in R&D.
The AI revolution is not only restricted to the world of finance, but it has taken it by storm. Faced with unprecedented challenges, financial institutions have started racing to embrace AI to gain a competitive advantage. The newborn awareness of AI to power change, growth and innovation points to more opportunities for financial institutions to boost performance.
Although the application of AI in the financial services sector is at a nascent stage, the astonishing speed of change in behavior patterns among customers is forcing financial institutions to be agile and rethink the way services are delivered to meeting the diverse and evolvingneeds of their customers, thus taking them to the next phase of the sector’s evolution.
Disruptive AIreshapes global finance
For financial institutions the adoption of AI is not an option anymore; Customers’ needs are changingrapidly, and traditional banking methods won’t suffice anymore, especially with millennials. The need to embrace new technologies is imminent to compete in a data-driven, highly digitalized and device-using world.
By replacing older statistical-modeling approaches with AI and cognitive computing technology, financial institutions would see costs cut dramatically, along with improved operational efficiency and enhanced overall profitability. AI can also solve and even anticipate complex financial problems. The suite of tools available in AI such as machine learning, deep neural networks, natural language processing are amongst the few of the tools bringing a whole new experience to the world of finance.
Despite this strong IT need, it has been noticed that some conventional financial institutions are still in the early stages of AI adoption. On one hand, regulations and limitations in budget or resources are putting restrictions on the adoption of AI, and on the other AI continues to expand and grows smarter and more effective, combining human insight with automation and analytics, which present a double-edged risk to traditional banking, thus a stumbling block to progress.
Once AI-based systems surpass human performance, they are much likelier to spread quickly. The fear of falling way behind in the technology race will pressure these financial institutions to adopt AI-based technologies at any cost. Reaching this threshold opens up vast new possibilities for transforming their businesses.
AI: Islamic finance slow on the move
While AI continues to gain momentum across the financial services industry, Islamic financial institutions still lack the agility to fundamentally transform their businesses with modern AI. Despite being too close to that all-powerful machine intelligence, here the applicability of AI-based systems is yet quite narrow.
Islamic finance is still in the dismissive mode, thinking AI will not impact the industry. But, as customers become more sophisticated and knowledgeable, AI becomes extremely critical to Islamic finance. Just as in other aspects in life, the smart use of AI is a game-changer forthe industry.
When it comes to technology, what applies to conventional finance also applies to Islamic finance. As estimated by Gartner, by 2020, customers of financial institutions will conduct 85 percent of their financial transactions with no human interaction. With changing customer needs and a growing generation of millennials, a bigger challenge for Islamic financial institutions is the fierce competition of conventional banks offering financial services that are both attractive and popular amongmillennials.
Today’s customers of Islamic financial institutions require greater transparency, personalised products and seamless experience across all channels. Disruptive AI challenges the old models and provides them with greater choice, convenience and reachability.It canmake proactive recommendations to customers, and suggest courses of action based on data, logic and specific circumstances, which helps elevate the customer experience. AI is able to influence the speed and accuracy of this experience too.
Where do AI and Islamic finance intersect?
The lack of legacy infrastructure in Islamic financial institutions is making them fertile ground for innovations. And while those same institutions are seeking a differentiator in their intense competition with the conventional ones, AI promises to deliver exciting opportunities.
Currently, AI is at the peak of its buildup cycle. Millennial Muslims represent asignificant group of tech-savvy customers.As this target customer segment develops, it will require a suite of personalized services to address its needs and cultural values.One thing is evident, there is no conflict between innovation and Sharia.Thus, the coming years will be about combining AI with Islamic finance in order to ensure its survival.
In conclusion, we are at cusp of a real tech revolution. Plus, the building of a strong financial sectorremains a work in progress. In tomorrow’s world, there’s no industry that can benefit more from AI.This ground-breaking technology promises to deliver endless opportunities -most of them have not yet been tapped, and many believe the reality is not far off.
The effects of AI will be magnified in the coming decade, where every industry will transform its core processes and business models to take advantage of its proven and countless capabilities.One thing is for sure though,technology pioneers are the ones driving the reconfiguration of financial services in the AI space.