Back to Blog

Machine Learning in Banking – An Overview of Benefits and Possible Use Cases

Machine Learning in Banking

Machine learning application is growing thanks rapidly to its ability to help businesses automate processes and enhance operations. As the internet proliferates and the need for a growing online presence becomes necessary, companies in various industries increasingly depend on algorithms to decipher complex problems with good assurances toward a solution. Statistics indicate that the machine learning market will grow to $117.19 billion by the end of 2027.

A significant contributor to its unprecedented growth is the rising application of machine learning in the finance sector. Financial institutions use machine learning to analyze historical information and better business judgment behaviors. The adoption of machine learning in finance has also enabled banking and financial institutions to modernize legacy systems without creating digital disruptions to their overall operations.

Although digital disruption in the finance industry brings several advantages, Forbes reveals that only 44% are thrilled to go through that process. Through machine learning, banking and financial organizations can bolster security and safety and meet customer demands and regulations while simultaneously reducing modernization complexities. Keep scrolling and find out other use cases of machine learning in banking so that you can take full advantage of this technology.

1. Fraud Prevention

Cybersecurity issues are increasing with each passing year, and online banking fraud is no different. As millions move toward ubiquitous digitalization, online criminals become more innovative in finding weak spots in digital financial applications. Banks are increasingly worried about the slightest changes in their clients' activities. 

With online spending and digital banking apps growing exponentially, so must the efforts to identify and avoid fraud. Perhaps the best way to win against financial fraud is to get rid of outdated approaches and implement machine learning. Banks that adopt traditional fraud detection techniques often find themselves stuck guessing whether transactions are authentic or false positives, creating inconveniences for customers. 

Machine learning helps you identify and prevent fraudulent transactions by evaluating high-volume data in real-time. Machine learning algorithms can eliminate fraudulent transactions with an unmatched degree of preciseness through pattern identification and predictive analytics. It can also detect abnormal machine learning banking transactions in your records that otherwise might have gone unnoticed, thereby preventing fines and ensuring compliance. 

2. Customer Service

With everyone offering nearly identical financial products and services, the experience customers have with banks can be a key competitive differentiator. Therefore, banks must ensure excellent customer service and engagement to open themselves to more opportunities. Whether they are using a virtual assistant or speaking to a banking representative, clients want quick solutions and accurate information to resolve their issues. 

Adopting machine learning empowers banks to enhance their customer service by using previous customer interaction data to determine quantitative results. It can also help assess customer personal behavior patterns in their financial transactions and emphasize products and services that are most useful to each customer at a given moment. This way, banks can stay ahead of the competition and create targeted products that provide high value for clients at a lower financial risk. 

Machine learning also enables your virtual chatbots to learn about customer interactions rather than following a prescribed set of conditions. Customers are often discouraged from talking to banks because of chatbots that only offer canned responses. With an ML-driven chatbot, you can solve daily customer queries and simplify the user decision experience while simultaneously letting human assistants concentrate on other complex tasks.

3. Risk Management

artificial intelligence software

Risk management has been a core area of focus for banking institutions since the financial crisis of 2008. The problem revealed shortages in financial risk management, specifically on credit risk, where most banks could not accurately predict creditworthiness. While traditional software applications can perform such actions, projecting creditworthiness based on financial reports and loan applications alone can leave banks susceptible to other risks. 

However, with machine learning, financial institutions can go beyond traditional processes by determining current market trends and relevant news items that can impact the customers' ability to pay. Banks are crammed with customer information ranging from recorded conversations to transaction histories, and identifying their relationships can be time-consuming. Using artificial intelligence software for your industry allows you to determine complex data relationships, thereby speeding up decision time. 

Machine learning can be especially beneficial in individuals with thin credit line and new customers. The fundamental tendencies that can be evaluated with algorithms are essential in helping banks detect trends that might impact their future lending decisions. By defining and managing credit risk rating in banks using machine learning, they can create strategies to guide themselves through the financial market's murky waters while simultaneously ensuring profitability.

4. Algorithmic Trading

Algorithmic trading is brimming with benefits that include reduced transaction costs and automated checks. It also performs trades automatically based on the fund manager's predefined criteria. Nevertheless, like other investment trading opportunities, it does not come without risks and challenges. 

One particular risk of algorithmic trading is its ability to react to market conditions instantaneously. This leaves banks with no time to make manual and comprehensive assessments about stock movements, thus increasing potential losses. Implementing machine learning in your banking and financial investments allows you to make algo trading intelligent and quick to respond to volatile trends.

While traditional algorithms made by quant strategists and programmers can pack a punch, these algorithms are based on several "what if" scenarios. This means it cannot automatically learn the rules and constantly update you. The same cannot be said for ML algorithms, which can absorb knowledge continuously and evaluate previous and current historical behavior, thereby making it easier to create an effective trading strategy.

5. Process Automation

The banking sector is a data-driven industry that requires stakeholders to deal with a high volume of data to digitize in a highly-regulated market. Therefore, financial institutions must take advantage of automation technologies to eliminate manual, costly, and time-consuming methods of performing tasks and increase accuracy. Although the shift from simple worksheets to cloud-based data storage presents a tremendous opportunity, it has specific limitations that could impact how banks do business. 

Banks and financial organizations must be able to do more than automating redundant and data-intensive processes to maximize operational efficiency and stay competitive. Employing machine learning in process automation empowers organizations to evaluate data, interpret documents, and suggest or perform smart responses. This makes it easier for you to pinpoint issues requiring human intervention before they happen. 

Adding machine learning financial services to process automation also enables banks to significantly increase performance and efficiency levels to staffing expenses and issues. It also helps find suitable solutions to any unexpected event and track human transactions using top natural language processing techniques. This way, machine learning can reduce risk, drive better efficiency, and foster improved compliance.

Leveraging Machine Learning in Banking

Banking institutions continuously face challenges from all sides of the spectrum, including the pressure to centralize client experience, reducing costs, and meeting stricter regulatory requirements. Implementing machine learning solutions can help your bank foster strong customer relationships, extend market share, and win new customers. A good start to achieving all these goals is to use machine learning automation solutions from