Gen AI takes over finance: The leading applications and their challenges

The impact of generative AI on the finance industry is a topic of intense debate among experts. Major financial institutions are rapidly integrating generative AI into their operations. Goldman Sachs has deployed its first generative AI tool across the firm, focusing on market analysis and creating a copilot assistant for investment bankers. JP Morgan has implemented AI in its fraud detection systems, while Bank of America and Capital One are using AI-powered chatbots to revolutionize customer service. Ally Financial has identified more than 450 use cases for generative AI, with applications ranging from transcribing and summarizing contact center calls to recapping earnings reports and conference call transcripts.

The integration of generative AI in finance is expected to bring substantial benefits:

• Increased efficiency: By automating repetitive tasks, AI frees up human resources for more strategic work.
• Enhanced decision-making: AI can analyze vast amounts of data to generate insights that inform better financial decisions.
• Personalized services: AI enables the creation of tailored financial products and services based on individual customer needs and preferences.
• Improved risk management: AI can generate risk assessments and predict potential issues, helping institutions manage their risk exposure more effectively.
• Cost savings: With 60% of financial institutions anticipating significant cost savings from AI, the technology promises a strong return on investment

While some predict widespread job displacement, others view it as a powerful productivity tool. A recent Gartner survey revealed that 66% of finance leaders believe generative AI will have the most immediate impact on explaining forecast and budget variances. This aligns with the view that AI will augment rather than replace human workers. However, a study by Citi suggests that up to 54% of jobs in banking have a high potential for automation, higher than in other industries. This dichotomy highlights the uncertainty surrounding AI’s role in finance, with the reality likely falling somewhere between total job replacement and mere productivity enhancement.

Despite the potential benefits, the adoption of generative AI in finance faces challenges. Data privacy and security concerns are critical where AI systems require access to sensitive financial information. Regulatory hurdles also pose a major obstacle, with existing laws struggling to keep pace with technological advancements. The complexity of AI models presents challenges in terms of transparency and interpretability, making it difficult for financial institutions to ensure the accountability of AI-driven decisions. There’s also the risk of AI hallucinations or inaccurate outputs, which could have severe consequences for financial operations. Additionally, there’s a significant skills gap, with many finance professionals lacking the necessary expertise to effectively implement and manage AI systems.

These conflicting views and challenges underscore the need for informed discussion and shared insights from industry leaders. At VentureBeat Transform 2024, attendees will have the opportunity to dive deep into these issues with executives from major financial institutions and tech companies. From exploring the latest AI applications in finance to addressing concerns about job displacement and regulatory challenges, the event promises to shed light on the complex landscape of AI in finance. Don’t miss this chance to be part of the conversation shaping the future of the industry.

Fast, but not so fast

Muhammad Wahdy, portfolio manager at San Francisco hedge fund Wahdy Capital, offered a compelling argument for why AI won’t quickly replace equity analysts. “I think that right now, AI is not super helpful for portfolio management and equity research. I think this will change over the next five years – I’m praying that it does”.

Wahdy zeroed in on the scarcity of suitable training data. “We have only have about 160 quarters of IBES data.” This scarcity of data is a significant hurdle for AI models, which typically require vast amounts of high-quality, relevant data to perform effectively. In the rapidly changing world of finance, historical data quickly becomes outdated, further complicating the training process.

Wahdy emphasizes that much of the know-how and information is held in the heads of human analysts who are incentivized to keep it private: “There’s a little bit of this cutthroat perspective in the sell side of the world, where the equity research analysts are. They’re paid like professional athletes – I would say the average comp is probably $1M a year total, but a top-ranked analyst would be doing closer to $4-8M a year.” As a result, “They don’t want anyone else to somehow take their spot.” This reluctance to share information creates a significant barrier to training effective AI models in this domain. 

Furthermore, Wahdy suggests in many cases the data simply does not exist. “A lot of the alpha from sell-side analysts is their relationship to top executives that makes them a nexus in their respective industries. It’s not so much they have secrets, but rather they have access and that’s not something you can pick up [in the data].”

The proprietary nature of financial analysis compounds the data problem. Unlike other fields where data might be more openly shared or published, the most valuable insights in finance are often closely guarded secrets. This creates a catch-22 situation: the data needed to train truly effective AI models is precisely the data that human analysts are least likely to share.

Further, financial markets are influenced by a complex interplay of factors, many of which are difficult to quantify or predict. Human analysts often rely on intuition, experience, and an understanding of subtle market dynamics that may not be easily captured in structured data sets. This tacit knowledge is challenging to transfer to AI systems, regardless of the amount of historical data available.

Wahdy also points out the constantly evolving nature of financial markets: “Humans change the way that we set prices, so strategies that worked last year don’t necessarily work this year.” This constant flux means that even if sufficient historical data were available, it might not accurately reflect current market conditions or predict future trends.

These factors combined – limited historical data, the proprietary nature of financial insights, the complexity of market dynamics and the rapid evolution of financial markets – create significant challenges for developing AI models that can truly replicate or surpass the capabilities of human financial analysts in the near term.

A qualitative look at AI’s impact on finance 

VentureBeat conducted a qualitative assessment of the current impact of generative AI across various finance industries and job functions. This assessment is based on a synthesis of expert opinions, industry reports and anecdotal evidence from financial institutions implementing AI technologies. Our analysis provides a high-level overview of trends and potential impacts, rather than a quantitative or statistically rigorous study. It’s important to note that this type of analysis is subject to interpretation and may not capture the full complexity of AI’s impact in every organization or role. The rapidly evolving nature of AI technology also means that these assessments may change quickly over time.

Our analysis spans a wide range of sectors including commercial banking, investment banking, asset management, insurance, fintech, accounting, venture capital, real estate finance, corporate finance, hedge funds, personal finance, retail banking, payments and consumer credit. We assessed the current AI impact on each job role as high, medium or low, based on the current capabilities of generative AI and its implementation in these areas. It’s important to note that while some roles are experiencing significant AI impact already, others remain largely unaffected due to the complex nature of their work, the need for human judgment, or the importance of personal relationships in their functions.

High AI Impact Industries and Jobs

In addition to industry-specific roles, we examined cross-functional areas that span multiple finance sectors. These include customer service, compliance, risk management, marketing, human resources, legal, information technology, operations, financial reporting, fraud detection, and training and development. 

Our assessment revealed varying levels of AI impact across these functional areas. Some, like customer service and marketing, are seeing high levels of AI integration, while others, such as executive leadership and strategic partnerships, remain largely untouched by generative AI due to their reliance on complex human skills and judgment. This analysis highlights how generative AI’s impact is not uniform across the finance industry, but rather depends on the specific requirements and nature of each functional area.

High AI Impact Functional Areas

Our analysis also identified several roles and functional areas in finance that are currently experiencing high impact from generative AI. These include high-level positions such as Mergers & Acquisitions Advisors, Venture Capital Partners, Hedge Fund Managers and Chief Financial Officers, as well as client-facing roles like Relationship Managers in Private Wealth Management and Commercial Real Estate Brokers. 

In cross-functional areas, we found that Executive Leadership, Ethics and Corporate Governance, Strategic Partnerships and Complex Problem Solving remain largely unaffected. These roles and areas typically require advanced human skills such as complex decision-making, emotional intelligence, ethical judgment and the ability to navigate ambiguous situations – capabilities that current generative AI technology has not yet mastered.

Low AI Impact Industries and Jobs

Finally, we also identified several that are currently experiencing low impact from generative AI. These include Account Management/Executive roles, Executive Leadership, Ethics and Corporate Governance, Strategic Partnerships, Crisis Management and Organizational Change Management. 

These areas typically rely heavily on uniquely human attributes such as relationship-building, strategic vision, ethical decision-making and the ability to navigate complex, unpredictable situations. Additionally, functions like high-level Investor Relations, Board Relations, and Mentorship and Leadership Development remain largely untouched by AI due to their dependence on interpersonal skills, nuanced communication and personal experience. The low impact in these areas underscores the continuing importance of human judgment and emotional intelligence in key aspects of financial operations and leadership.

The future of Finance in an AI-driven world

As we’ve explored throughout this analysis, generative AI is poised to fundamentally reshape the finance industry. While its impact varies across different sectors and job functions, the overall trajectory is clear: AI will become an increasingly integral part of financial operations, decision-making, and customer interactions.

Key takeaways:

1. Uneven adoption: AI’s impact is not uniform across the finance industry. Some areas, like customer service and fraud detection, are seeing rapid integration, while others, such as high-level strategy and relationship management, remain largely human-driven.
2. Augmentation, not replacement: For most roles, AI is likely to augment human capabilities rather than replace workers entirely. This shift will require finance professionals to develop new skills to work effectively alongside AI systems.
3. Challenges ahead: Data privacy, regulatory compliance and the need for transparency in AI decision-making remain significant hurdles for widespread adoption.
4. Evolving skill sets: As routine tasks become automated, finance professionals will need to focus on developing skills that AI cannot easily replicate, such as complex problem-solving, emotional intelligence and ethical judgment.

Looking ahead, we can expect:

1. Increased personalization: AI will enable financial institutions to offer hyper-personalized products and services, tailored to individual customer needs and preferences.
2. Enhanced risk management: Advanced AI models will improve our ability to predict and mitigate financial risks, potentially leading to greater stability in the financial system.
3. Democratization of financial advice: AI-powered tools may make sophisticated financial planning and investment strategies accessible to a broader range of consumers.
4. Regulatory evolution: As AI becomes more prevalent, we’ll likely see new regulations emerge to govern its use in finance, focusing on fairness, transparency and accountability.
5. Ethical AI: The finance industry will need to grapple with ethical considerations surrounding AI, including issues of bias, privacy and the societal impacts of AI-driven financial decisions.

As generative AI continues to evolve, it will undoubtedly bring both opportunities and challenges to the finance industry. The most successful organizations will be those that can effectively harness AI’s capabilities while maintaining a human-centric approach to finance. The future of finance is not about AI versus humans, but rather about finding the optimal synergy between artificial and human intelligence to create a more efficient, inclusive and robust financial ecosystem.

Hear from AI pioneers in Finance at VentureBeat Transform

While our analysis provides a broad overview of AI’s impact on finance, nothing beats hearing directly from the industry leaders at the forefront of this technological revolution. For those eager to dive deeper into the real-world applications and challenges of generative AI in finance, VentureBeat Transform offers an unparalleled opportunity. This event brings together some of the most innovative minds in fintech and traditional finance, providing attendees with firsthand insights into the cutting edge of AI implementation.

At VentureBeat Transform, attendees will have the opportunity to hear from leading finance players about their experiences with generative AI. The event will feature an impressive lineup of speakers from major financial institutions and tech companies, including:

• Aparna Sinha – SVP, Head of AI Product at Capital One
• Awais Sher Bajwa – Head of Data & AI Banking at Bank of America
• Christian Mitchell – Executive Vice President and Chief Customer Officer at Northwestern Mutual
• Fahad Osmani – Vice President – AI/ML, Data, and Software Experience Design at Capital One
• Arjun Dugal – EVP, Divisional CIO, Card Technology at Capital One
• Shri Santhanam – Executive Vice President and General Manager of Software, Platforms, and AI at Experian North America 
• David Horn – Head of AI at Brex

These industry leaders will share insights on how they’re leveraging generative AI to drive innovation and efficiency in their operations, as well as discuss the challenges and opportunities they’ve encountered in implementing these technologies. Their firsthand experiences and perspectives will provide valuable context for understanding the current state and future potential of AI in finance.

Don’t miss this unique opportunity to gain insider knowledge on the future of AI in finance. Register now for VentureBeat Transform 2024 to join the conversation with these industry titans. Whether you’re a finance professional looking to stay ahead of the AI curve, a tech innovator seeking new applications for your solutions, or simply curious about the intersection of AI and finance, this event is your gateway to understanding the transformative power of generative AI in the financial sector. Secure your spot today and be part of shaping the future of finance.