Navigating the role of generative AI in financial services

Artificial Intelligence (AI) has become an increasingly important part of our daily lives, whether it is streaming movies, operating digital assistants, curating social media feeds, or unlocking mobile phones. Lombard Odier highlights the importance of AI in financial services and discusses how it has become indispensable for fraud detection, determining consumer credit scores, and analysing insurance claims. 

However, the bank is skeptical of the application of generative AI like Chat GPT in financial services. According to Lombard Odier, generative AI tends to “hallucinate”, which means it can offer information that is incomplete, inaccurate, or inappropriate. This is why its application in fields like financial services that demand accuracy and precision is drastically limited. “In the heavily regulated financial services industry, AI models that could give clients incorrect or even illegal advice simply won’t gain the necessary license to practise,” opines the bank.

However, it acknowledges that generative AI will play a critical role in customer services, where interactions would become faster and more personalised. ”AI will even enable users to ‘program’ their own custom investment dashboards and generate interactive reports based only on brief natural language instructions.”

Lombard Odier emphasises that generative AI will continue to play an important role in fraud detection. Increasingly, AI models can detect activity that aligns with the patterns of money laundering. “Future AI models will be deployed to anticipate yet uncommitted frauds by probing for ‘loopholes’ or weaknesses in the way that regulators, institutions, and investors interact with one another.”

The bank elucidates that larger datasets can be processed for investment insights with the help of generative AI. With analytics performed by AI, a tab on the financial habits of the customers allows firms to offer financial services in a targeted way. “As datasets build, and AI becomes more sophisticated, this targeting will become increasingly accurate,” as per Lombard Odier.

Lombard Odier still cautions that despite the impressive growth of generative AI, investors with only a short-term horizon may find themselves disappointed. Meanwhile, in the long term, the AI revolution is genuine. It is essential for investors to look beyond the marketing hype and analyse how AI is truly impacting company fundamentals. Assessing firms adapting to both the risks and opportunities created by AI is also critical.

“AI is unlikely to turn the financial services industry on its head overnight – instead, the winning companies will be those that invest in AI for sustained innovation in efficiency, security, and better customer service,” concludes Lombard Odier.

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