Risk management is of the highest priority for financial institutions / credit bureaus and lending firms because of far-reaching consequences. The ripple of massive fraud cases touches every party in the ecosystem – the customer, the institution, and businesses. Machine learning and AI opens up a wide range possibilities for risk management in financial institutions. So, let’s find out how AI solutions can be incorporated to overcome the risk cases.
While providing a loan to any client, lending firms go through a process of risk assessment to estimate the creditworthiness of a prospect. Traditional systems relied on historical data like transaction history, credit history and income growth over years to understand the risk associated with every loan extended. This resulted in inconsistent estimates as historical data is not always an accurate standard to predict future behaviour.
Then came machine learning to the rescue. Machine learning allows analysis of real-time data of recent transactions, market conditions and even latest news to identify potential risks in offering credit. With the help of predictive analytics, a ML algorithm can analyse petabytes of data to understand micro activities and assess the behaviour of parties to identify a possible fraud. This is something impossible for human investors to perform manually.
Machine Learning & AI solutions in risk management
Uncertainty and risk are ongoing challenges faced by enterprises across all verticals. In the financial space, cryptocurrencies and political uncertainty are adding layers of complexity and unease to a perpetually volatile space.
Intelligent automation and AI detects issues before they arise and activates backup measures, mitigating risk and cybersecurity threats as well as managing outputs before escalating to hands-on “human” involvement.
The ability of machine learning models to analyse large amounts of data both financial and non-financial – with more granularity and deeper analysis – can improve analytical capabilities in risk management and compliance, helping analysts make more informed decisions at a securities level and across a broad based multi-asset portfolio.
The promise of AI is that theoretically it can analyze all of the data sources together to create a coherent decision. At its core, lending is a big data problem, making it a business naturally suited for machine learning. The more data you have about an individual borrower (and how similar individuals have paid back debts in the past), the better you can assess their creditworthiness.
AI can be used to create sophisticated tools to monitor and analyze behavior and activities in real time. Since these systems can adapt to changing risk environments, they continually enhance the organization’s monitoring capabilities in areas such as regulatory compliance and corporate governance. They can also evolve from early warning systems into early learning systems that prevent threats materializing for real.
AI-based analytics platforms can manage supplier risk by integrating a host of different information about suppliers, from their geographical and geopolitical environments through to their financial risk, sustainability and corporate social responsibility scores.
AI systems can be trained to detect, monitor and repel cyber-attacks. They identify software with certain distinguishing features – for example, a tendency to consume a large amount of processing power or transmit a lot of data – and then close the attack.
Lending firms or credit bureaus can incorporate Artificial Intelligence (AI) into their strategies to drive operating and cost efficiencies, as well as critical business transformation programs.
How can Insight Consultants help you?
Insight Consultants specialises in digitizing the lending ecosystem. From general to specialised, prime to sub-prime, we have helped organization evaluate data structures and availability, free up information from siloed systems, and identify the richest areas for machine-fuelled insight and improvement. We can help you provide actionable advice to begin an AI initiative with the right approach and perspective. So, if you are you looking for ways to harness the power of machine learning and AI for your business, or would just like to know more,