On January 31st of 2023, news got out that an AI-powered Equity ETF (AIEQ) from ETF Managers Group was up 13.5% year to date as of January 27th according to data from Morningstar. That’s twice as high as the performance of some other well-known ETFs. And while AIEQ is an actively managed fund with fees up to .75%, that’s still an eye-opening difference in return, especially since the fund has trailed other benchmark funds in the past few years. The reason for the sudden improvement could be luck, but it also could be a reflection that AI is getting smarter and performing better.
Finance and financial technology or FinTech is yet another sector of the economy that’s poised to benefit greatly from the adoption of AI. Not only will AI revolutionize the ways in which individuals, investors and fund managers manage money, but AI will also revolutionize the ways in which consumers interact with financial institutions, make financial decisions and mitigate financial risks. The AI-powered financial market size was around $7.91 billion in 2020 and it’s estimated that it will reach close to $27 billion by 2026.
Research from Oracle shows that 87% of business leaders believe that they will fall behind their competitors if they don’t rethink their financial processes, and 85% of business leaders surveyed report that they want help from AI. These leaders realize that the sheer amount of data that AI can work with is unparalleled. AI can analyze standard market data in addition to non-standard data like social media posts and earnings calls to make market predictions, decisions and risk assessments on a much larger scale.
In addition to data analysis, AI can automate manual processes, deploy digital assistants, facilitate customer engagement and improve product offerings. According to Insider Intelligence, banks could enjoy an aggregate potential cost reduction of $447 billion by 2023 from AI applications. With numbers like that, it’s no wonder that 80% of banks are “highly aware” of AI’s benefits. Financial institutions are also highly aware of the risks associated with not adopting AI into their business models, which can include losing out to competitors, a higher stress level among workers, inaccurate reporting and reduced productivity.
According to CB Insights, Capital One, J.P. Morgan Chase and Royal Bank of Canada are leading the way when it comes to AI innovation in retail banking. The investments that these organizations have made in AI technology have gone way beyond virtual assistants and management tools to include acquiring AI startups, applying for AI patents, investing in internal research and development, and aggressively courting top talent in the AI field. AI initiatives at these banks include security and anti-fraud measures, loan approval, web payments, AI development tools, synthetic financial datasets, sports analytics, AI infrastructure, electronic trading and portfolio management.
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