Artificial intelligence has had a huge impact on the financial sector over the last few years. Global financial companies spent over $10.5 billion on AI in 2022 and that figure is growing by 23.2% a year.
A growing number of banks and other financial institutions are using AI streamline their operations, improve cost effectiveness, increase customer satisfaction, fight fraud and improve their actuarial processes. There are many financial issues that can be solved with AI.
They can also make the process fairer for minorities. Keep reading to learn more about this.
New Startups Are Making the Lending Process Fairer
One of the most important ways that lenders are using AI is to determine how much of a risk borrowers are before issuing loans to them. There are many huge benefits for lenders using AI. This helps significantly reduce the likelihood that borrowers are going to be delinquent on their debts. This is why machine learning credit score algorithms have become so popular in recent years. However, AI has some other benefits that don’t get as much attention.
One benefit is that AI can help make the lending process fairer. This is a big deal for social justice, since minorities are often unfairly denied loans. This is one of the benefits of AI for banks that many people don’t talk about.
Pavan Agarwal wrote a great article on this topic on Fast Company. Agarwal says that AI has already had a huge impact on fighting unfairness in the mortgage industry and is going to be even more beneficial in the years to come.
“We’ve been able to eliminate human bias and increase mortgage application acceptance rates by up to 50% for some groups using augmented AI technology. AngelAi, an AI platform we created, is opening up the restrictive financial lending process. We reimagined the application and approval process, and AngelAi simplifies complex applications and delivers objective and accurate results, redefining trust. “
How Does AI Make the Lending Process Fairer?
AI has already significantly changed the lending process and started making it fairer for minority groups who have historically had a lot of problems accessing loans. Lenders can use AI technology to make more objective, data-driven decisions that are not as likely to be affected by human biases.
One of the biggest ways that AI makes the lending process fairer is with machine learning algorithms that help score credit better. Older credit scoring models tend to rely a lot more on historical financial data, which can be unfair to minorities who don’t have as much credit. Many minorities live in communities where there aren’t a lot of banks to lend to them in the first place, so this makes it harder for them to build credit to eventually get loans.
Models that rely on AI are better because they use a wider range of factors, such as rent payments, utility bills, and other information that isn’t usually shown on credit reports. These AI models have a lot more detail about a borrower’s ability to repay their loans, which gives minorities a better chance to qualify for loans.
Another benefit is that AI can help reduce human biases in the lending decision process. Human loan officers might accidentally bring their biases into the process, which can lead to unintentional discrimination. AI algorithms that are setup properly can help lower these biases because they only look at data-driven factors. This is a better and fairer approach that helps make that all applicants are evaluated based on the same, consistent factors.
AI also helps lenders create more personalized loans. Lenders can use AI to look at very large datasets, so they can notice specific needs and risk profiles of minorities trying to take out loans and create loans specifically for them.
AI Has a Lot of Benefits in the Financial Sector and Can Be Great for Minorities
There are a lot of reasons that AI is becoming a lot more popular these days. A growing number of financial institutions are using AI to streamline their lending processes, which is making things fairer for minorities.