BFIN Midterm

There will be two horizons where AI will impact.  What is the first more immediate impact?

Availability of technologies for handling unstructured data and data gathering, Rapid adoption of AI assisted tools

What were four immediate changes to financial services that artificial intelligence would impact

Automating unstructured data tasks, AI co-pilots, Always-on Web Crawlers, Hyper-personalization

How can AI Co-pilots enhance the financial services firms in the future?

Co-pilots could tailor investment strategies in real-time or predict market trends

How can continuously-on Web Crawlers enhance financial services firms in the future?

track real time financial news and market movements while detecting subtle changes in consumer sentiment on social media platforms, alerting banks to the potential risks and opportunities while enabling proactive management.

What is the benefit of generative AI systems being able to process large amounts of unstructured, often text-based data?

It allows quantitative investors to analyze complex documents thereby improving price discovery across asset classes

The impact of AI in 3 areas of the financial market. What were they?

Efficiency, Evolutionary Improvements, Revolutionary Transformation

Gen-AI is likely to lower barriers to entry for quantitative investors to do what?

Improvement of market liquidity in emerging markets and corporate debt

Revolutionary transformation may result in sophisticated autonomous AI-driven financial agents, however most market participants have a view that is an essential part of any AI-based strategy for regulatory, risk-management, liability and ethical reasons.  What is that?

Human oversight

AI has been used effectively to bring about productivity enhancements, cost savings, improved price discovery, dampening market volatility, however, investors have observed instability in the financial markets where?

Sudden market dislocations

Concerning the danger of cyber-attacks.  The thought was to put their investments into supervisory technology.  What is it?

It uses AI to process information and spot fraud and other potential troubles.

What is the biggest barrier to adoption by enterprises implementing AI solutions?

Tech talent

What is a common focus of early generative AI projects in organizations?

Improving their existing processes and reducing costs

What two ways companies are addressing the issue arising from the scarcity of professionals skilled in AI technologies?

Upskilling, Rethinking talent management - contracting, hiring and retaining

Two issues that is slowing down delivery of AI platforms at scale.  What are the two issues?

High cost of being an early adopter, Legal and regulatory unknowns of relying on the technology

What is the most important benefit organizations have achieved to date through Generative AI initiatives?

Improved efficiency and productivity

Deloitte found that 75% organizations have increased their technology investment around which area?

Data and life cycle management

Three barriers to successful development and deployment of Generative AI Tools and Applications?

Worries of regulatory compliance, Difficulty managing risks, Lack of governance model

What 2 factors led to the emergence of Open Banking?

Introduction of the Second Payment Services Directive (PSD2) in the European Union in 2015, which mandated banks to open up their data via Application Programming Interfaces (APIs), 2008 financial crisis had exposed the drawbacks of traditional banking systems, propelling the need for a more transparent and consumer-friendly approach

What areas below has AI been making advances beyond fraud detection and customer service bots?

Risk Assessment, Algorithmic trading, Customer behavior prediction, Regulatory compliance

In addition to artificial intelligence, what is driving the open banking business?

API's

What do API's do for the banking industry?

APIs facility communication between two disparate pieces of software and make possible to expand service offerings

An open bank is a system in which third party service providers access consumer transactions and other ___ ___ from ___ and nonbank financial institutions through the use of APIs.

financial data, banks

What benefits do APIs provide banking customers?

APIs help streamline the banking process across digital services by providing direct access to their bank account.

What are four types of APIs?

Internal APIs, Public APIs, Partner APIs, Composite APIs

What concerns do people have with open banking that makes the hard to adopt?

What concerns do people have with open banking that makes the hard to adopt?

True or false:  Traditional banking is evolving into open banking.

True

True or false: Open banking frameworks vary across jurisdictions in terms of stage of development, approach and scope.

True

What is not a benefit of blockchain and cryptocurrency adoption for financial institutions?

Increased reliance on intermediaries

What is not a key feature of blockchain technology?

Centralized control

What is a cryptocurrency?

A decentralized digital asset that uses cryptography for security

What is a primary consumer need that a retail Central Bank Digital Currency (CBDC) aims to address?

Providing cash-like safety and convenience for peer-to-peer usability

True or False: Is Blockchain Technology considered a distributed ledger technology?

True

One of the reasons Satoshi Nakamoto released his paper "Bitcoin: A Peer-to-Peer Electronic Cash System" in October 2008 was due to significant event in the financial markets.  What was it?

The collapse of Lehman Brothers and the global financial crisis

What is a key challenge that must be addressed for blockchain technologies to reach their potential?

Ensuring compliance with existing public policy and legal frameworks

Blockchain technology as a way to reduce the "cost of trust" for the financial community.  What is the cost of trust?

It represents the expenses tied to ensuring security, verification, and reliability in financial transactions.

Who is Satoshi Nakamoto?

Satoshi Nakamoto is a pseudonym and the identity of the author or authors remains unclear; people generally refer to this contribution by the fictitious first name.

What is a smart contract?

A self-executing contract with the terms directly written into code

What potential risks did Governor Brainard highlight regarding new digital payment players operating outside traditional regulatory frameworks?

Challenges in illicit finance, privacy, financial stability, and monetary policy transmission

What were 3 of Governor Lael Brainard’s concerns over the digitization of the payment system?

The weakening of data security standards, Transfers to be available within specified periods, The lack of deposits to be insured up to a limit

One of the top payment trends in 2023 was the adoption of merchants towards more flexible payment methods, which provide a better, frictionless payment experience amongst consumers. What were 2 of the potential flexible payment methods mentioned?

Biometric payment cards, QR Codes

What is one reason Governor Brainard is considering the issuance of a CBDC for the US?

Given the dollar's important role, it is essential that we remain on the frontier of research and policy development regarding CBDC.

What is a primary concern Kenneth Upchurch raises about hastily deploying AI in payment systems? 

Solutions that fail to deliver value

What approach did Paysafe take before fully deploying their internal AI tool, Ask Paysafe?

Testing with small groups and gathering feedback

What did PYMNTS find what is a significant advantage of using AI and ML in fraud detection for faster payments?

Analyzing large volumes of transaction data in real time to identify suspicious activities

Which type of fraud is identified as a primary threat in faster payments, accounting for 52% of fraud concerns?

Account takeover (ATO) fraud

What is a significant advantage of using AI and ML in fraud detection for faster payments? 

Analyzing large volumes of transaction data in real time to identify suspicious activities

How does AI improve the credit risk assessment process in lending?

By analyzing a broader range of data sources, including unconventional ones like social media behavior

What is a significant advantage of AI-powered loan approval systems over traditional methods?

They can process loan applications more quickly and accurately

Liquidity identified three areas in which AI has revolutionized different areas of loan management, making processes more efficient and accurate.  What are the three areas they identified?

Credit risk scoring, Loan approval and credit underwriting, Fraud detection

What are the two reasons Baby Boomers use credit cards, according to a Forbes Advisor survey?

To earn rewards, For safety over carrying cash

How do consumers typically pay for purchases?

Physical credit card, Physical debit card, Cash or check, Virtual credit card, Virtual debit card

What was a significant financial impact on Goldman Sachs due to its partnership with Apple for the Apple Card? 

Over $1 billion in losses since 2020

What operational challenge did Goldman Sachs face with the rapid growth of Apple Card?

Difficulty in managing the volume of customer disputes

What role is AI expected to be used in the insurance industry?

Enhance efficiency, improve risk assessment, detect fraud, and provide personalized customer experiences

What is a significant challenge facing insurers due to climate change?

Rising costs of flooding globally

How are insurers expected to differentiate themselves in a competitive market?

By improving the customer experience through digital enhancements

What is a key challenge for insurance supervisors when dealing with fintech innovations?

Understanding how innovations work and are applied to assess risks

How can supervisors foster innovation while safeguarding policyholders' interests?

By creating regulatory sandboxes or innovation hubs

What is a key benefit of AI in the insurance industry?

Enhancing efficiency and accuracy in claims processing and underwriting

What is an important principle for ensuring AI applications are responsible and ethical?

Ensuring transparency and explainability in AI decision-making processes

What is a key aspect of trustworthy AI for the insurance industry?

Prioritizing transparency and explainability in AI decision-making

If you were to characterize where the articles feel the phase AI is being used by insurance companies, which of the following would be the choice?

Exploration: Conducting research and developing plans to learn what AI can do.

Which 2 areas does Swiss Re feel that Generative AI still poses a risk?

The collection of the large data sets with the intent of producing something new from that material raises questions around rights, Unresolved intellectual property issues regarding training

What are 3 pros of robo advising? 

1. Real-time analytics and advice 

2. Low fees 

3. No minimum 

What three ways can a client oriented robo advisor operate? 

1. passive model excludes direct contact with the customer, letting them just browse available trading advice in a dedicated section of the app. 

2. discretionary one that allows a digital advisor to execute trades for a customer, providing fully automated portfolio management. 

3. active advisory model means that a customer receives regular suggestions and recommendations from robo advisor but executes trades themself. 

What is a primary advantage of using robo-advisors in fintech? 

They provide automated, data-driven investment advice at a lower cost 

What is a common challenge associated with developing a robo-advisor platform? 

High customer acquisition costs and trust issues 

How can investors mitigate the risk of over-reliance on algorithms in automated investing? 

Supplement the platform’s advice with their own research 

What is a major cybersecurity risk associated with automated investment platforms? 

The potential for hacking and data breaches 

How do robo-advisors enhance control and transparency for investors? 

By providing real-time portfolio management and allowing investors to make adjustments 

What is one of the main reasons for the growth of automated investment and robo-advisory platforms? 

The high cost of traditional investment management 

What is a major challenge associated with AI-driven robo-advisors? 

Regulatory compliance, privacy concerns, and the need for human oversight 

Which future trend is expected in AI robo-advising? 

The integration of more advanced AI for personalized financial management