Exploring ChatGPT’s transformative role in reshaping financial services, amidst emerging threats and unprecedented opportunities of a tech-driven revolution

Ignacio E. Carballo

Senior Consultant — Financial Inclusion and Alternative Finance Lead

Last year was most likely the worst in the history of the fintech and digital banking industries. ChatGPT, however, drastically altered the debates in 2023. This natural language processing tool powered by AI technology that enables human-like dialogues, prompts a flood of questions, concerns, but also potential opportunities.

Artificial intelligence (AI) is nothing new to the financial technology industry, which employs it in areas such as consumer personalization, loan underwriting, and insurance. However, ChatGPT is a public, open-source language processor that has the potential to disrupt many areas of the financial services industry, from chatbots and robo-advisors to the demand for highly trained programmers.

A game-changer such as ChatGPT comes after fintech’s darkest year and brings in both: new threats, but also new possibilities.

The Use Cases That Confirm a ChatGPT Revolution in 2023

Many aspects of the financial services industry had already been revolutionized by artificial intelligence before ChatGPT became widely known. In 2022, a survey realized by Nvidia highlighted that 78% of banks and other financial institutions already employed some form of AI. Nvidia’s third annual “State of AI in Financial Services 2023” report[1], based on a survey of approximately 500 global financial services professionals, shows the trends, challenges, and opportunities of accelerated AI adoption:

• Businesses are speeding up the introduction of AI-powered software into operational environments. 20% or more of the businesses surveyed use the AI for specifics use cases analyzed, and the proportion of businesses that see themselves as laggards in AI has decreased dramatically year over year.

• 44% of respondents’ organizations are now using hybrid infrastructure for AI workloads and projects (to reduce costs, shifting investments in data centers from on-perm to the cloud).

• AI has already improved their business. 35% of respondents said the applications created operational efficiencies, and 20% said they reduced the total cost of ownership.

When asked about specific AI-enabled applications, responses varied from fraud detection to portfolio optimization to conversational AI. Surprisingly, 10 of the 21 diverse use cases examined by the survey are used by more than 20% of respondents’ organizations, suggesting the potential for multiple applications to influence how financial institutions operate. Interestingly, “metaverse / virtual worlds” attracted 12% of respondents, indicating that financial services firms are identifying a variety of use cases for virtual worlds, including training, new employee onboarding, retail branch simulation, insurance risk evaluations, and more.

However, as we may see, natural language processing (NLP) and/or large language models (LLMs) highlights.

Additionally, according to a recent consumer survey, 37% of individuals who have heard of AI are familiar with OpenAI’s ChatGPT. The same proportion of respondents said they have never heard of any of the other generative AI companies/products listed in the survey. In other words, ChatGPT leads in awareness, so far, among next-gen AI tools.

But what immediate effects would natural language processing AIs as ChatGPT have on the financial business?

ChatGPT’s Opportunities for Financial Services

According to a PWC report, by 2030, AI is estimated to contribute around US$16 trillion to the global economy. In fact, according to the study, product upgrading will account for 45% of total economic gains by 2030, driving consumer demand, as AI will produce a broader range of products with greater personalization, attractiveness, and accessibility over time[2].

Specifically, ChatGPT may assist financial institutions in streamlining their processes, lowering expenses, and improving customer experience. ChatGPT is likely to play an increasingly crucial role in altering the Fintech industry as it grows.

The following are some of the most frequently mentioned theoretical applications and impacts of ChatGPT in the financial industry:

• Customer Support: Chatbots’ personalized customer support is making them popular in Fintech. ChatGPT can interpret natural language and reply to client enquiries like a human. ChatGPT chatbots answer account, transaction, and financial questions. These chatbots can also be integrated with Facebook Messenger and WhatsApp for fast and effective service.

• Data Analytics: The growth of Fintech businesses depends heavily on data analytics. Data collected from customers can be analyzed with ChatGPT so that trends in their actions and preferences can be uncovered. This information can be put to good use in creating more tailored offerings for existing customers as well as attracting new ones. Financial data can be analyzed with ChatGPT to reveal market patterns, investment opportunities, and risk management.

• Automation: Fintech efficiency relies on automation. Automation technologies can help streamline and save costs with ChatGPT. ChatGPT can automates loan applications, credit checks, and fraud detection. Chatbots powered by ChatGPT can communicate with customers to collect information and documents for loan applications.

• Fraud detection: Chat GPT has the potential to greatly improve fraud detection thanks to its advanced skills in analyzing client interactions. Chat GPT can detect unusual trends, detect potential fraudulent behaviors, and issue alarms in real-time by continuously monitoring and analyzing user money movements and interactions, strengthening financial institutions’ attempts to combat fraud and improve security measures for its consumers.

• Increased speed, precision, and efficiency: Finally, the ability to handle vast amounts of data rapidly and precisely has resulted in speedier decision making and enhanced assessment accuracy. Altogether, it will impact in the business efficiency.

ChatGPT: Revolutionary or Hype?

As we have shown, ChatGPT has the potential to radically alter the delivery of financial services by raising client satisfaction and customer experience, lowering risk, and strengthening compliance. However, like with any cutting-edge innovation, ChatGPT has its own set of challenges and limitations.

The prominent future of ChatGPT in the financial services industry will need to navigate through a number of specific challenges or potential risks, some of which are listed below:

• Challenges when deploying AI: When using AI, financial institutions will encounter several special problems. The requirement for experienced workers, and the costs associated with deployment, and others such as issues around the data privacy.

• Concerns about potential regulations: As the adoption of Chat GPT continues to gain momentum, it is essential to consider the regulatory implications that come along with its implementation in the financial sector. In the near future, AI will follow new laws and conventions. As legislation and regulations change, there are new threats to privacy and compliance that financial institutions cannot identify clearly.

• Ethical issues: ChatGPT and all NPL IAs based on historical data are at danger of bias, which could lead to discrimination. When dealing with sensitive consumer information, ethics are also important concerns that must be addressed.

• Inadequate understanding of financial terms: It’s possible that ChatGPT has trouble grasping the subtleties of industry and market-specific financial terminology. Inadequate understanding of sophisticated nuances and subtleties in language is one of the technology’s drawbacks, and can lead to mistakes or misinterpretations, which can have a significant impact on the quality of the experience that a client has.

While ChatGPT has unquestionable disruptive promise in improving customer service, fraud detection, and financial advisory services, financial institutions must navigate an uncertain regulatory landscape to maintain compliance and protect consumer data and privacy. The ability to strike the correct balance between exploiting the power of Chat GPT and managing risks will be critical for financial institutions as they achieve the benefits of this technology.

In conclusion, the boom around ChatGPT and AI in financial services is not just hype. While there are some obstacles to overcome and potential risks ahead, ChatGPT has the potential to transform the financial services business. The financial industry has only begun its road towards using ChatGPT, which has the potential to revolutionize the way we do business with financial institutions and herald in a new era of superior service for clients across the world.

Sources

[1] Nvidia “State of AI in Financial Services: 2023 trends”. Access here

[2] Access to PWC report here