# Finance execs must understand AI or risk falling behind Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2020-10-27 Category: FINANCE Category URL: https://financedigest.com/category/finance Meta Title: AI & Machine Learning Revolutionising Finance: Expert Meta Description: Discover how the fourth industrial revolution is transforming the finance industry with AI and machine learning. Stay ahead of the curve with Imperial College URL: https://financedigest.com/finance-execs-must-understand-ai-or-risk-falling-behindhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/untitled-design-45-1736838760079-compressed.jpg) _By_ **_Gordon Graylish,_** _Programme Director of the AI & Machine Learning in Financial Services virtual programme at Imperial College Business School_ Steam, electricity and computing. These three industrial revolutions have completely transformed the way in which we manufacture and work, and the efficiency of this process too. All three revolutions were met with great fear, despite proving to be the catalyst for massive innovation. We are currently living through what [experts describe as the fourth industrial](https://www.financedigest.com/fiat-republic-the-specialist-baas-platform-that-bridges-web3-and-banks-announces-the-appointment-of-two-industry-experts-as-non-executive-directors-to-the-board-of-its-dutch-subsidiary.html "Fiat Republic, the specialist BaaS platform that bridges web3 and banks, announces the appointment of two industry experts as Non-Executive Directors to the board of its Dutch subsidiary.") revolution, and the situation is exactly the same – mass innovation mixed with fear too. The 4th [industrial revolution is set to completely change the job landscape](https://www.financedigest.com/alpaca-fiber-market-2019-outlook-current-and-future-industry-landscape-analysis-2029.html "Alpaca Fiber Market 2019 Outlook, Current and Future Industry Landscape Analysis 2029"), just as the previous ones did. In the 1800’s, for example, Primary jobs based around farming, fishing and mining [accounted for over 80%](https://www.financedigest.com/skin-lightening-products-remain-sought-after-among-women-who-continue-to-account-for-80-of-sales-study.html "Skin Lightening Products Remain Sought-after among Women, who Continue to Account for 80% of Sales: Study") of roles, now they are just 1.3% of the UK workforce. On the other hand, Tertiary [jobs including transport retail](https://www.financedigest.com/britains-next-buys-failed-furniture-retailer-made-com-400-jobs-axed.html "Britain’s Next buys failed furniture retailer Made.com, 400 jobs axed") and services moved from less than 15% to 84%, which as a result of, we see a massive increase in societal wealth. In this fourth industrial revolution, labelled as “cyber-physical systems” by the World Economic Forum, the main driver is the growth of intelligence in our digital systems – and in finance in particular the lead vehicle is [Artificial Intelligence](https://www.financedigest.com/types-of-artificial-intelligence.html "Artificial Intelligence"). **AI’s** [competitive edge](https://www.financedigest.com/leveraging-ai-for-the-competitive-edge-in-insurance.html "Leveraging AI for the Competitive Edge in Insurance  ") Today, digital technologies such as AI, [distributed ledger](https://www.financedigest.com/how-distributed-ledger-technologies-are-transforming-esg-reporting-for-financial-intermediaries.html "How Distributed Ledger Technologies are transforming ESG reporting for Financial Intermediaries"), and ubiquitous computers are massively increasing competition in all aspects of finance, from digital onboarding, compliance and fraud detection, to loans, investments and to a radical increase in efficiency. These technologies have two imperatives, reduce costs and initiate new offerings – both of which can give a company a real competitive edge. Unfortunately, CEOs and [finance executives just cannot ignore the benefits](https://www.financedigest.com/the-benefits-of-using-a-commercial-finance-broker.html "The Benefits of Using a Commercial Finance Broker") any longer. They cannot say they do not need to understand these technologies, or say knowledge of technology is not necessary for a finance role – the two are increasingly becoming intertwined, and the most [successful finance leaders for the future](https://www.financedigest.com/digital-democratisation-through-low-code-the-future-of-finance-success.html "Digital democratisation through low-code – the future of finance success") will get ahead of the curve in this space. AI is completely changing the information that we use. In the past, 80% of information was internal to the organization, within five years, that will reverse with 80% being external – it just simply cannot be ignored by finance professionals anymore. All major financial [firms](https://www.financedigest.com/how-finance-firms-can-unify-two-data-approaches-to-improve-both-compliance-and-security.html "How finance firms can unify two data approaches to improve both compliance and security") have multiple efforts underway with AI and it is of course a huge focus of the startup and disruptor community. Semiconductor firms, such as Intel and Nvidia, list AI as their prime focus, as have Microsoft, [Amazon web services](https://www.financedigest.com/uk-to-examine-cloud-services-dominated-by-amazon-microsoft-and-google.html "UK to examine cloud services dominated by Amazon, Microsoft and Google") and IBM. The focus has shifted from CPUs to GPUs to neuromorphic computing with an astounding increase in capability. This has had a disruptive impact on cost and capability. The statistics simply prove this further. From 2017, the [costs of training a common image algorithm has dropped](https://www.financedigest.com/german-gas-import-costs-surge-153-in-first-half-as-imports-drop-24.html "German gas import costs surge 153% in first half as imports drop 24%") from $1000 to $10, the costs to classify a billion images is even more radical, a drop from $10000 to .03 – it’s clear they have a disruptive impact on costs. **AI has its challenges** In many cases the AI [application is a black box – its process can be unknown, which of course means its application is susceptible to risks](https://www.financedigest.com/treasury-and-risk-management-application-market-to-bring-in-revenue-of-us-7-1-bn-by-2028-comprehensive-research-report-by-fmi.html "Treasury and Risk Management Application Market to bring in revenue of US$ 7.1 Bn by 2028 – Comprehensive Research Report by FMI"). For instance, levels of bias from historic data points have been seen in the adoption of AI in both mortgage lending to minorities and [credit card](https://www.financedigest.com/what-happens-to-credit-card-debt-when-you-die.html "What happens to credit card debt when you die") lending to women – something that certainly needs re-addressing and correcting. Whilst in a non-finance setting, we’ve seen the recent A-level debacle, where students faced historical bias in their results because of previous school results. The implications of this bias, both in terms of bad publicity and customer dissatisfaction, act as a stark [warning for CEOs](https://www.financedigest.com/adidas-shares-leap-on-results-but-ceo-warns-of-bumpy-year.html "Adidas shares leap on results but CEO warns of bumpy year") and finance leaders who think they can implement AI without understanding it fully. These black box algorithms have huge challenges and rosks, hence the extreme focus now been paid on explainable AI, the ethical use of AI and tools based [approaches made to assist in testing](https://www.financedigest.com/demystifying-us-feds-approach-on-systemic-climate-risk-stress-testing.html "Demystifying US Fed’s approach on Systemic Climate Risk Stress Testing") and challenges algorithms. [**Invest in understanding the technology**](https://www.financedigest.com/adnami-to-receive-six-figure-sum-of-investment-from-danish-government-in-recognition-of-its-pioneering-technology-and-strategy.html "Adnami to receive six-figure sum of investment from Danish government in recognition of its pioneering technology and strategy") Like all revolutions, it is at times messy, but progress will come, and the pace of change and the massive changes in storage and communications magnifies this. [Artificial Intelligence will massively impact insurance](https://www.financedigest.com/how-artificial-intelligence-is-simplifying-sanctions-screening-for-insurers.html "How Artificial Intelligence is Simplifying Sanctions Screening for Insurers"), banking and investment, but the benefits of this impact will only be there for those who are implementing it are knowledgeable and have the expertise. Simply not engaging in [investment in AI is no longer possible for CEOs](https://www.financedigest.com/mg-appoints-former-head-of-axa-investment-managers-andrea-rossi-as-new-ceo.html "M&G appoints former head of AXA Investment Managers Andrea Rossi as new CEO") and finance executives, they’ll be left behind and beaten by the competition if they don’t invest. Leaders and executives have to learn the inside out of AI in their industry, or incur competitive impacts and unacceptable risk. Programmes like the [Imperial College Business School online AI & Machine Learning in Financial Services](https://www.imperial.ac.uk/business-school/executive-education/short-courses/ai-machine-learning-in-financial-services-programme/) are there to educate leaders about these AI applications in their industry and are vitally important for leaders in understanding the realm of the possible and also its risks. Without understanding AI, the future of their companies could be in doubt, and blind [investment without understanding how to utilize the technologies will bring about just as much risk to brand and the survival of the business](https://www.financedigest.com/unlocking-fresh-business-investment-opportunities-beyond-covid.html "Unlocking fresh business investment opportunities beyond COVID"). --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---