AI is making a significant impact in the financial industry, yet one area that often doesn't receive enough attention is its role in enhancing financial inclusion. As AI continues to evolve, it is providing new opportunities for making financial services more accessible. In this blog, we will explore this topic in two key areas:

• How AI is revolutionizing the way individuals research financial products, make decisions about investing, and manage their savings, making these processes more informed and personalized
• Once individuals decide which product is right for them, how AI is transforming the way financial institutions assess creditworthiness, using alternative data and advanced analytics to offer credit to individuals and businesses who were previously excluded from traditional financial systems.

AI as an Impartial Advisor

How often do we find ourselves uncertain when it comes to making financial decisions? For most of us, finance isn't a profession—it's a means to an end, whether it's investing in an RESP for your child's future, an RRSP for your own, or simply choosing the right credit card.

Not long ago, making informed financial decisions often involved navigating a maze of bank websites to compare products, attending financial literacy courses, or seeking guidance from a bank adviser. These methods, while effective, were time-consuming and often overwhelming. The complexity of choosing the right financial tools required considerable effort. Today, however, the landscape has dramatically changed. With the rise of conversational AI like ChatGPT, Gemini, and Co-Pilot, individuals can now easily pull out their phones and instantly receive advice on a wide range of financial topics, from investment strategies to budgeting, financial planning, and beyond.

This shift is particularly evident among Generation Z, as highlighted by a recent BMO survey. One-third of this demographic is actively using AI to learn about finance, create budgets, explore investment opportunities, and build or update financial plans. This tech-savvy generation is taking full advantage of the tools available to them, embracing AI as a trusted financial advisor. The survey further reveals that over half of the respondents believe AI has the potential to help individuals make better-informed financial decisions, ensuring that financial planning becomes more accessible, efficient, and personalized.

What sets AI apart in the financial space is its ability to provide unbiased, data-driven insights. Unlike traditional methods that might be influenced by specific product offerings or sales goals of a bank, AI-powered tools leverage vast amounts of data from diverse sources, including articles, web postings, and financial reports, to offer the most relevant and accurate advice. This means that the recommendations users receive are not skewed toward a particular financial institution or product but are instead based on the most probable and beneficial outcomes for the individual. With such capabilities, AI is not only democratizing access to financial advice but is also helping users make more informed decisions.

 Financial Inclusion through AI

AI solutions are not only advancing financial inclusion by providing faster and easier access to financial information for end-users, but they are also enabling financial institutions and platform providers to create tools and products that foster inclusivity. Traditional banking systems often imposed barriers, especially for customers who lacked formal credit histories or access to conventional financial services. Today, AI and advanced analytics are breaking down these barriers by enabling organizations to assess creditworthiness through non-traditional data sources such as social media activity, mobile phone usage, and other digital footprints. For instance:

• Tala uses AI to offer micro-loans based on smartphone data, giving individuals in underserved regions access to credit
• Aviva, a Mexican financial platform, offers a fully conversation-based loan application process that uses natural language processing and computer vision, helping people in rural areas secure loans
• In Egypt, Synapse Analytics is using AI to support financial decision-making in areas such as credit scoring and KYC (Know Your Customer) processes, further promoting financial inclusion
• Pgnme, a data platform company based in Kenya, uses AI to help businesses, particularly banks, fintechs, and microfinance institutions, access and analyze mobile and alternative data to make more informed decisions, offer personalized financial services, and improve financial inclusion in emerging markets.

In North America, these AI-driven solutions are also proving valuable for financial institutions. They allow these organizations to target new customer segments and offer innovative products, especially those requiring real-time decision-making, such as "buy-now-pay-later" options at checkout. These solutions are also unlocking opportunities for data-driven, instant decisions that were once impossible with traditional systems.

In a very real sense, artificial intelligence has introduced a form of "Open Banking" that goes beyond the conventional model of banks opening their APIs to third parties. Rather than relying solely on banks to expose their systems, AI is enabling customers, banks, and fintechs to access the right information, creating an ecosystem that promotes inclusivity and accessibility. Through this dynamic use of AI, financial services can be tailored to meet the diverse needs of individuals, fostering a more inclusive global economy.

While the potential for financial inclusion through AI is promising, there are important challenges and risks that must be addressed:

• Bias in AI models: If not properly managed, AI models could inadvertently perpetuate financial exclusion for certain groups, particularly those relying on non-traditional data sources like social media or mobile phone usage, which may not be accessible to individuals in underserved communities.
• Data privacy and security: Protecting sensitive financial information from breaches is critical, as AI solutions often handle large volumes of personal data that must be securely safeguarded.
• Lack of human oversight: While AI can automate financial decisions, there is still a need for human oversight to ensure ethical, transparent decision-making and to prevent systems from making potentially harmful or unintended recommendations.

Ensuring AI is used responsibly, fairly, and securely is essential to unlocking its full potential for financial inclusion.

Explore more from the AI series:

AI Unleashed: Ushering in the Era of Unprecedented Productivity

Unlocking the Power of Conversational AI: A New Perspective