How AI and Predictive Analytics Are Changing Finance

Finance is one of today’s most data-driven career fields. Nearly every financial task, from investments to compliance reporting, requires some form of financial analysis.

Individuals who work in finance spend a lot of time reviewing and acting on historical data. With the help of artificial intelligence (AI) and predictive analytics, they can make strategic decisions faster for employers and clients.

This post explores the impact of AI and machine learning in finance. You’ll learn how professionals use AI tools for forecasting, risk management and small business financing, and what you can do to prepare for a modern finance career.

The Role of Artificial Intelligence in Finance

AI in finance is the practice of using advanced technologies, including algorithms, natural language tools and machine learning, within the finance industry. These tools can swiftly analyze data, support process automation and strengthen decision-making.¹

AI tools used in finance may resemble traditional financial modeling and analysis software, but they’re quite different. Financial software follows rules-based, step-by-step programming. AI and machine learning tools deliver outputs based on patterns and historical data. This structure allows them to adapt to data and refine outputs over time.²

According to a recent Gartner study, 59% of financial leaders report using AI in various financial functions. That number will likely grow as companies overcome talent and implementation complexity barriers.³

What is the future of finance and AI? Areas where it may prove useful include:

• Detecting market trends and optimizing financial portfolios
• Analyzing historical data for corporate financial forecasts and reporting
• Supporting high-frequency trading through complex analysis
• Identifying potential fraudulent banking transactions¹

As an aspiring or current financial professional, expertise in data science, AI, and financial strategy can help you stand out as a leading job candidate in your field.

How AI Improves Financial Forecasting and Strategy

AI and machine learning are intertwined, but they’re not the same. AI tools are systems that mimic human thought. Machine learning is a subset of AI that analyzes structured and unstructured data to identify patterns. In a financial setting, machine learning tools process vast amounts of data to arrive at a particular conclusion.⁴

Machine learning tools can evaluate information much faster than a human. Where a human may take hours to assess data from multiple data sources, machine learning can arrive at an answer in seconds.

Let’s take an example. Say you’re planning next quarter’s financial investments for a client. If you feed relevant historical data to an AI tool, it could immediately detect patterns and provide a realistic forecast of market volatility. With that information, you could optimize your client’s portfolio to meet their specific investment requirements. Performing this task on your own may yield similar results, but require days to complete.

Utilizing AI for Risk Management and Security

One area where AI may be particularly useful is risk management. For decades, U.S. financial institutions have relied on credit scores to determine whether to approve loans to individuals and companies.

Traditional credit scoring models use limited data to reach a conclusion. That data typically includes previous credit history and income. This doesn’t always lead to optimal outcomes, as banks may not have enough information to predict whether a borrower will default.¹

With the help of AI, financial institutions can use predictive modeling to make lending decisions. Predictive analytics in finance can determine the likelihood that a client will make repayments based on justifiable datasets. This may reduce lending risks for banks.¹

Another area where AI and machine learning prove useful is fraud detection. Remember that machine learning’s strongest capability is analyzing large datasets.⁴ It’s the perfect tool for identifying anomalous transactions, since it can pinpoint pattern deviations that signify potential fraudulent activity almost instantaneously.¹

Financial institutions are strictly regulated. With AI and machine learning tools, organizations can quickly adapt to changes in the legal environment. For example, automated AI tools can scan current laws and regulations and suggest policy updates when necessary. This helps organizational legal teams support compliance.¹

What Trends Are Shaping the Future of Small Business Financing?

Small businesses often face hurdles when trying to obtain loans. Lack of credit, limited operating history, and fluctuating revenues can deter financial institutions from approving small business loans. However, financial predictive analytics supports smarter lending decisions by reviewing other factors, such as the founder’s experience and the industry’s market potential. This can enable small businesses to qualify for funds that were out of reach in years past.⁵

Rapid, automated underwriting is another benefit of predictive analytics and machine learning in finance. Lenders apply automated processes to review loan applications and reach a decision, often within a day or two.⁵ Some use AI to tailor financial products to the specific needs of their clients. This approach enables banks to serve a wider base of clientele while meeting risk management requirements.

Lead the Future of AI in Finance with a William & Mary Mason MSF Degree 

Machine learning, AI, and predictive analytics are swiftly changing the finance industry. Companies need professionals who understand how AI-driven financial models work and can use them to transform traditional workflows. By mastering these tools, you’ll be well-prepared to drive innovation and manage complex financial risks.

The Online Master of Science in Finance program at William & Mary sets you up for a successful career in corporate finance, commercial banking, and investment management. Our courses give you hands-on experience with advanced technologies commonly used in the financial industry. You’ll learn how to transform raw data into meaningful insights for strategic decisions.

William & Mary’s reputation as a “Public Ivy” school is well-known among employers. The Raymond A. Mason School of Business’ online program allows you to organize your learning experience around your schedule.

To learn more about the application process, tuition and financial aid and the online experience, schedule an appointment with an admissions outreach advisor or contact us directly.