Even though many people are concerned about automation and robotics, the reality is that they are already in use in our everyday lives.
We only need to look at the likes of Tesla to see what the future holds for robotics and artificial intelligence.
Surprisingly, while algorithms and automated trading have been part of the financial industry for some time, we are only now starting to see the real impact of artificial intelligence and finance automation.
There is nothing worse than approaching the end of your financial year, going through your books, creating spreadsheets, and answering a million questions from your accountant. Well, for many small, medium, and large-sized businesses, accounts automation is taking away a huge element of the heavy lifting.
There are now software packages that can go through your accounts in a split second, give you an up-to-date summary of your financial health, and basically present your account in real-time. Year-end accounts, no problem, the click of a button.
This kind of finance automation is very useful for a number of reasons:-
While there is obviously a cost to this kind of package, when compared against relatively expensive accountancy fees, it is well worth the investment. There is also a good chance this will free up colleagues to work on more business orientated ideas/plans.
Planning for the future
The ability to monitor and project cash flow is priceless. The impact of small tweaks to your income and outgoings is instantly visible and allows you to plan for the future. This may involve disinvestment, investment, or even expansion plans. Having your finger on the financial pulse of your business 24/7 is a huge benefit.
When you saw the term “Robo-Advisors” how many of you envisaged Arnold Schwarzenegger managing your investments? While robo investing does involve a significant element of finance automation it is still currently under the control of good old-fashioned humans. So, what are Robo-Advisors and how are they benefiting investors?
The key to any investment strategy is a deep understanding of a client’s financial background, hopes and aspirations and risk tolerance. Accumulating this type of data is relatively straightforward but actually using it to create a fully personalized investment strategy is a little different.
This is where Robo-Advisors come in. The software package is relatively subtle asking about your financial background, future goals, and risk tolerance – it seems like any other financial survey – but it is the way this information is used which makes it so valuable.
The relationship between asset allocations and risk tolerance levels is set by experienced human operators – the foundations of the system. Then the automated side of the service takes over. Using Exchange Traded Funds (ETFs), which are highly liquid, tradable index-tracking investment tools, it is possible to mix-and-match them to create the optimum portfolio for you.
As a large percentage of the service is automated, continuously being reviewed and adjustments made, this ensures that management charges are extremely low compared to the industry average.
If at some point you need to update your financial information and plans for the future, this is very easy and then the system will adjust your investments accordingly. Incorporating foundations set by human operators with the algorithms, speed, and accuracy of groundbreaking technology; this is the perfect form of personalized passive investment.
AI personal injury claims checking
The personal injury claims market is a global phenomenon which continues to grow as more as more third parties are held to account for negligence. Unfortunately, as you might expect, the potential for large compensation payments has attracted modern-day criminals, often working in gangs, who are looking to exploit the system.
A recent report from Aviva suggests that 25% of auto claims in Ontario may be fraudulent. It is no coincidence that Ontario has the highest auto insurance rates in Canada and motorists are not happy.
Artificial intelligence is now an integral part of our lives although many of us may not be aware of it. Insurance companies across the globe have invested billions of dollars into artificial intelligence fraud detection systems.
The ability to review huge rafts of data that would take humans literally years to look through is invaluable. However, it is the algorithms used by the artificial intelligence systems which bring the real value.
We know that criminal gangs have been targeting the personal injury claims market for many years. They often work in particular areas, use particular garages and live in the same region. Until the use of artificial intelligence monitoring systems, it was nigh on impossible to accurately link claims which had a number of common denominators.
Not anymore! These new artificial intelligence monitoring systems can pinpoint the use of particular garages, solicitors, regions, individuals, families and connected parties. Creating a list of “potentially fraudulent applications” they are literally saving the insurance industry hundreds of millions of dollars each year.
This has led to many successful prosecutions. Then the icing on the cake – reduced insurance premiums for the general public.
You may well have come across the term “dynamic pricing” but what exactly is it and how does it work. In its most basic form it is the ability to change the price of a product/service to maximize sales and profit. Some of the more common examples include:-
Have you ever wondered how hotels are able to confidently increase and decrease the cost of their rooms in an instant? This is a process known as yield management and incorporates very successful algorithms under the finance automation umbrella.
Powerful systems take into account competition, local events, seasonal trends, room rack rates, and predicted occupancy levels at different room rates to find the optimum price.
Sale of sneakers
We have all done it, walked into various sports shops comparing and contrasting the sale price of our favorite sneakers. How is it that the reduced sale prices are often very similar? This is a consequence of dynamic pricing where each individual shop will take into account the competition, stock levels, and seasonal demand to create that perfect price point. They know the price we are willing to pay before we do!
Dynamic pricing is all around us with just one focus, finding that critical price point which maximizes profitability for the retailer/service provider while still maintaining the attention of consumers.
Detection of money-laundering
Money-laundering has always been a hot topic in the world of finance but it is even more critical in the modern era. Criminal gangs are literally funneling billions of dollars through suspect bank accounts, stock-market investments, insurance policies, and anything else they can buy and sell relatively quickly. These gangs are looking to integrate criminal funds into legitimate transactions, creating a priceless paper trail. Constantly switching funds between products, countries and siphoning off small amounts as they go has created a huge headache for regulators around the world.
Step forward automated anti-money-laundering analysis, which has turned the tables on criminal gangs. These are systems that can analyze huge amounts of data in a fraction of the time it would take a human team. This creates two major benefits:-
Error-free analytical data
Computer algorithms create error-free analytical data (filtering out human error) producing a list of suspect transactions to investigate further. Many money-laundering systems will utilize a risk scoring system thereby allowing investigators to work down from the most suspicious transactions.
Focus on investigation
By eliminating literally thousands upon thousands of hours of data analysis this leaves money-laundering teams more time at the sharp end. Chasing up leads, gathering more data and prosecuting money launderers, the results are there for all to see.
Terrorists and criminal fraternity are finding it more and more difficult to wash illegal funds through the system. The fight goes on but the use of finance automation software is proving priceless in so many areas of business.
Auto investment trading
Last but not least we move to auto investment trading which has had a monumental impact on stock markets around the world. While algorithms used for automated investment trading have been tweaked and improved of late, they are not infallible and have often been blamed for “flash crash” market movements. So, how do auto investment trading systems work?
Auto investment systems revolve around algorithms which are constantly comparing and contrasting trends. Stop-loss limits, chart breakouts and the creation of overbought and oversold positions will bring auto investment trading systems to life.
In an instant, they can buy and sell huge numbers of shares not only impacting index levels but also the market sentiment. These systems are monitoring markets 24/7 and the ability to auto-trade means that stop-loss limits are hit in a split second. The only problem emerges when automated trading prompts other systems to react thereby creating a huge knock-on effect – a self-fulfilling prophecy if you like.
Recent trends in stock market investment have introduced the likes of EFTs which offer the ability to invest in a variety of different indices in a split second. No more buying and selling individual constituents of an index, simply trade the EFT.
In many ways, this has increased the influence of auto trading systems in markets around the world. There are regulatory restrictions, with many markets looking to reduce the impact of auto trading, but the genie is out of the bottle and there is no way back.
Historically there was one key element of the auto trading jigsaw missing, human intuition and emotion. However, the introduction of artificial intelligence has created all-encompassing systems which are highly analytical, with mind-blowing algorithms, but also able to incorporate human thinking.
Those concerned about finance automation are probably 20 or 30 years too late. It is all around us, from our shopping trips to banking, investments to the creation of company accounts, and more.
The incorporation of artificial intelligence has helped create the ultimate analytical self-learning system. What value human intuition and emotion these days?