The banking business is employing financial artificial intelligence to assess the creditworthiness of borrowers, a development that’s allowing the industry to massively expand its reach, according to a report from analysis firm GlobalData.
“Traditional credit scoring techniques are ill-equipped to deal with consumers who lack conventional credit records, which is a common occurrence in developing markets,” GlobalData stated in a press release. “However, some lenders are now using AI to analyze non-traditional types of data, such as mobile phone usage and social media profiles, to predict the creditworthiness of borrowers.”
The firm noted that traditional credit scoring techniques are becoming ineffective amid changing market circumstances. Banks increasingly are attempting to address developing markets with large portions of consumers who have no conventional credit records. Traditional credit checks have limited effectiveness when assessing these consumers’ backgrounds.
Financial artificial intelligence can analyze non-traditional consumer data, such as mobile-phone usage habits and social media activity. This provides a new way to establish credit scoring, allowing banks to extend their service offerings to vast numbers of consumers in third-world nations.
“Although these consumers may not have access to regular banking services, many are heavy users of mobile phones and social media, and this generates huge amounts of data that can be analyzed to model their financial reliability,” said Daoud Fakhri, principal analyst for retail banking at GlobalData in a press-release quote. “There is, therefore, huge potential to widen access to credit without exposing lenders to higher levels of risk.”
Addressing customers in developing economies represents a huge opportunity for financial institutions. A total of 2 billion people worldwide didn’t have bank accounts as of 2014, according to a report from the World Bank. This unbanked population is concentrated in developing economies, with only 54 percent of adults in these countries owning accounts.
However, the global number of unbanked people declined markedly between 2011 and 2014, primarily because of technological innovations, such as mobile money.
Other technologies such as financial AI promise to help expand the banking market even more.
A total of 32 percent of financial services executives are using AI technologies such as predictive analytics, recommendation engines, voice recognition and response, according to a survey conducted by Narrative Science in cooperation with the National Business Research Institute. The survey described financial artificial intelligence as being in its early stages of adoption.
Beyond reaching consumers in developing economies, financial artificial intelligence can help banks deliver better service to younger customers.
“Consumers, especially younger ones, can lack confidence around financial matters and find it hard to manage their finances effectively,” Fakhri said. “There is, therefore, a potentially large market for AI-based services that offer a guiding hand or can assume some of the responsibility for making appropriate decisions.”
Nirel Marofsky is project analyst for the cognitive engine and application ecosystem at Veritone. She acts as a liaison to strategic partners, integrating developers and their capabilities into the Veritone Platform. Learn more about our platform and join the Veritone developer ecosystem today.