In today’s rapidly evolving digital landscape, technological advancements are revolutionizing every sector, including finance. One such groundbreaking innovation is Artificial Intelligence (AI) and Large Language Models (LLMs). With their potential to analyze vast amounts of data, improve decision-making processes, and enhance customer experiences, AI and LLMs have emerged as game-changers in the financial services industry. In this blog post, we will explore the exciting possibilities that AI and LLMs offer, particularly in the realm of everyday payments and credit cards, paving the way for enhanced financial services.
Providers must be careful when deploying AI. The Consumer Financial Protection Bureau has alerted companies that AI failures are not an excuse for lawbreaking that they are spotlighting the usage of AI, and requiring underwriting is explainable.
Credit cards play a significant role in everyday financial transactions. Integrating AI and LLMs can revolutionize credit card services, offering many benefits for both consumers and providers.
We can expect AI to play a key role in innovations in three key areas:
- Underwriting
- Fraud and Risk Management
- Cardholder Servicing
Underwriting
AI algorithms can process credit card applications in seconds, evaluating an individual’s creditworthiness based on their financial history, income, and other relevant factors. Instantaneous underwriting expedites the approval process, providing instant credit decisions to customers and enhancing the user experience.
AI algorithms are only as good as the data they are trained on. If the data used to train these models is biased or lacks diversity, it can perpetuate existing inequalities and biases. Financial institutions must ensure fair representation of consumer demographics in training data and regularly audit AI systems to mitigate potential bias.
Many in the industry are skeptical that AI-based underwriting will outpace traditional underwriting models, which already incorporate large amounts of data and high-quality statistical modeling.
Fraud and Risk Management
Credit card fraud is a persistent concern for consumers and financial institutions. AI-powered systems can analyze spending patterns, detect abnormal behaviors, and identify potential fraud in real-time. These systems enhance security and protect users from financial loss by taking immediate action, such as notifying customers or blocking suspicious transactions.
Newer fraud management service providers have been touting the use of AI for several years. Example providers include Feedzai and Sardine.AI. These companies use datasets of past transactions accurately scored for fraud or legitimacy to create intelligence around real-time and post-authorization transaction management. Fraud vectors continue to evolve, and many traditional fraud mitigation approaches are reactive. The promise of AI will be in its ability to detect and prevent fraud as it is happening.
Cardholder Servicing
Improving services for cardholders is the foremost opportunity for using AI in the context of credit card servicing. AI can be used to help cardholders understand their spending patterns and to provide higher-quality cardholder support.
LLMs can process vast amounts of transactional data and provide personalized spending insights to individuals. They can offer tailored budgeting, saving, and financial planning recommendations by analyzing spending patterns. Such insights empower individuals to make informed decisions, achieve financial goals, and improve economic well-being.
AI and LMs can help credit card providers deliver personalized rewards and offer to their customers. These systems can recommend tailored rewards, discounts, and promotions by analyzing transactional data and understanding individual preferences. These recommendations boost customer satisfaction and encourage increased card usage and loyalty.
On the cardholder support front, companies are already using AI and chatbots to create real-time support that is instantly available. While traditional chatbots had to be programmed manually, AI chatbots can dynamically develop responses. A major concern of chatbot servicing with AI is the risk that the chatbot will provide incorrect advice.
Of recent note, corporate card provider Ramp acquired Cohere.AI. Cohere provides AI-based support to several organizations and uses guardrails to ensure the AI stays within its bounds. We can expect substantial investment in AI support due to its ability to improve service for cardholders and reduce costs for providers.
While the possibilities of using AI and LMs in finance are immense, addressing the associated challenges and ethical considerations is essential. Using AI and LMs in financial services necessitates collecting and analyzing vast amounts of sensitive personal and financial data. It is crucial to prioritize robust data privacy and security measures to protect this information from unauthorized access, breaches, or misuse.
As AI and LLMs increase their sophistication, they may reach a level of complexity that makes their decision-making processes difficult to understand for humans. It is crucial to develop explainable AI models, enabling financial institutions to provide transparent explanations for the decisions made by these systems.
AI and Large Language Models are transforming the financial services landscape, offering many possibilities to enhance everyday payments and credit card services. From streamlining payments and detecting fraud to delivering personalized experiences and instant credit decisions, integrating AI and LMs brings efficiency, convenience, and security to the forefront. However, addressing the associated challenges and ensuring ethical considerations are at the forefront of these advancements is equally important. By embracing these technologies responsibly, the finance industry can unlock the full potential of AI and LMs, delivering enhanced financial services that cater to the evolving needs of individuals and businesses alike.
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