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Machine Learning in Finance - Overview, Applications

Over the past few years, the financial services industry has focused on using artificial intelligence to exceed customer expectations, reduce operational costs, and make better business decisions. Machine Learning in Finance is, therefore, a very important subject. As the financial industry gathers a high amount of large data from its users, it is best tailored to the advantages of data mining.. Several new financial applications based on machine learning algorithms are already being used by banks and financial organizations to gain competitiveness. The use of Machine Learning in Finance has grown steadily in recent years. In addition, we note that the financial services sector is one of the sectors that recruits the most Data Scientists.

The present article shall present the main uses of Machine Learning in the financial sector.

Subscription insurance

In the short term, machine learning can help automate large volumes of auto, home, etc. insurance underwriting. In the future, artificial intelligence will improve modelling, highlighting key considerations for human decision makers that might otherwise have gone unnoticed. It is also possible that machine learning will allow a personalized subscription by company or individual, taking into account unique behaviours and circumstances. Enhanced underwriting can leverage not only machine learning for data mining, but also wearable technology and deep learning facial analysers. For example, Lapetus, a start-up, wants to use selfies to accurately predict life expectancy. These types of nuanced, real-time risk analysis will not only allow more accurate pricing of customers, but also early detection of risk. 

Fraud detection

Banks and financial services companies use analytics to differentiate fraudulent interactions from legitimate business transactions. By applying analysis and machine learning tools, they can define normal activity based on a customer's history and distinguish it from unusual behaviour indicative of fraud. Analysis systems suggest immediate actions, such as blocking irregular transactions, that stop fraud before it happens and improve profitability.

Risk management

While all businesses need to engage in risk management, the needs are perhaps the greatest in the financial industry. Regulatory systems such as Basel III require companies to manage their market liquidity risk through stress testing. Financial firms also manage the risks associated with their clients by analysing complete portfolios of clients. The risks associated with algorithmic trading are managed through back test strategies on historical data. Big data analysis can also support real-time alerting if a risk threshold is exceeded.

Deep customization

Businesses are realizing that one of the essential steps to be competitive in today's marketplace is to generate engagement through high-quality, personalized relationships with their customers. The idea is to analyse the digital customer experience and modify it taking into account the interests and preferences of the customer.

AI dramatically improves understanding of human language and emotions, taking customer personalization to a whole new level. Data Scientists can also create models that study consumer behaviour and uncover situations in which customers need financial advice.

The combination of predictive analytics tools and advanced digital transmission options can help with this complex task, guiding the client to the best financial solution at the most opportune time and suggesting tailoring offers based on customer habits. consumption, socio-demographic trends, location and other preferences.

The use of data science tools creates a tremendous incentive for financial firms to stand out from the market and rethink their business.. There is a huge amount of constantly changing financial data, creating a need to engage machine learning and artificial intelligence tools in different aspects of the business.