• Tuesday, June 25, 2024
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AI will strengthen financial inclusion in Nigeria — Expert

AI will strengthen financial inclusion in Nigeria — Expert (Financial Inclusion)

In this interview, financial services and technology expert, Abisoye Ajila, discuss the possibility of using algorithmic investing intelligence to transform asset management and how AI will strengthen financial inclusion in Nigeria with Chinwe Michael.

Algorithmic Investing Intelligence sounds promising, but can you elaborate on how it can specifically address the challenges of investment fraud prevalence in Africa?

The financial services sector stands as one of the most promising sectors for the integration of artificial intelligence (AI), trailing closely behind the healthcare and automotive sectors in potential impact. According to a report, both North America and Africa stand to reap significant benefits from AI-enhanced solutions, with projected gains of $3.7 trillion and $1.2 trillion respectively by 2030. With segments such as asset wealth management, investment and banking, and insurance poised for AI uptake, it becomes imperative for regulatory bodies, investors, and key stakeholders in the sector to align efforts and relevant investments across diverse time horizons.

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In Nigeria, the financial services sector has witnessed the emergence of holding company structures, consolidating strengths to offer a diverse range of financial services. However, the full potential of these structures remains unrealised due to inefficient technologies hindering efficient data analysis and personalized solutions and service delivery. Considering this, a comprehensive approach towards technological integration is crucial to unlock the sector’s potential.

There are concerns about AI potentially widening the financial inclusion gap. How can this technology be implemented to ensure it empowers, rather than excludes?

AI is positioned to strengthen financial inclusion not just in Nigeria but across the globe. According to a report by the Central Bank of Nigeria (CBN) in December 2023, financial inclusion in Nigeria stood at 74 percent, leaving a notable 21 percent gap to achieve the target of 95 percent.

Similarly, in the United States, significant portions of minority demographics, including Black and Hispanic Americans, along with families earning less than $25,000 annually, are either unbanked or underbanked. This exclusion forces individuals to resort to costly alternatives, exacerbating financial disparities. The Aspen Institute Financial Security Program’s report on long-term savings and investing underscores the urgent need to address these exclusions. According to the report, 68 percent of private workers in the United States have access to retirement benefits, while only 52 percent contribute to a retirement plan as of 2021 and 51 percent of working-age households are at retirement risk.

These statistics underscore the critical role that financial technology (fintech) can play in transforming these exclusions into economic opportunities, thereby promoting socio-economic growth. Key areas for AI enhancements include personalised financial services by efficiently analysing relevant data to tailor accessible financial products and services to underserved populations. Other areas include optimized credit scoring using alternative data for the underserved, risk management, fraud detection, and optimised loan disbursement process among others.

How can experts like yourself help to reposition the financial sector with technology?

Drawing upon extensive experience across diverse industries within the financial sector, coupled with educational backgrounds and successful collaborations with global technology players, experts like myself are strategically positioned to leverage technology, particularly Algorithmic Investing Intelligence (AII), to drive advancements in both the United States and Africa. AII, distinguished by its capacity to analyze data, discern patterns, and make informed decisions, represents a transformative force reshaping the competitive landscape of financial services. Within the asset wealth management domain, we aim to revolutionise customer experience by harnessing machine learning solutions to analyse time-series clusters of customer transactions. This approach facilitates the identification of recurring patterns or trends, enabling a deeper understanding of factors influencing transaction deviations. Additionally, the integration of external data sources such as financial literacy levels and customer preferences empowers tailored decision-making, thereby enhancing overall service delivery.

Do you think Algorithmic Investing Intelligence would yield better results than portfolio optimisation from managers?

Both have their strengths and drawbacks. They can however draw strength from each other to place the customer at a vantage point. Portfolio managers could be augmented with AII. Traditionally, portfolio optimisation aimed at maximising profits for both businesses and customers has been entrusted to portfolio managers. However, this conventional approach often falls short, resulting in unmet targets and diminished customer satisfaction. Embracing AII offers a paradigm shift, empowering portfolio managers with advanced analytics capabilities to analyze diverse datasets and recommend optimal asset allocations. This technological intervention promises enhanced speed, efficiency, diversification, and adaptability, thereby driving improved outcomes for both investors and financial institutions.

What’s your preferred cost-effective investment management solution?

Technologically enhanced solutions such as robo-advisors are a means to strengthen financial inclusion. Robo-advisors represent a low-hanging fruit within the financial technology landscape. While this technology has platforms that have gained acceptance, its full potential remains underutilised in the Nigerian financial sector. Current implementations primarily focus on offering educational resources, enquiring, and portfolio recommendations, with investment decisions often left in the hands of portfolio managers, resulting in high costs or management fees. By democratising access to cost-effective investment management solutions, robo-advisors contribute significantly to the broader goals of financial inclusion.

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Can AII help to curb investment-related fraud?

Absolutely yes. This is the capability that strengthens the offerings of AII. Financial data security and minimizing losses are paramount concerns within investment and wealth management, areas where my expertise in financial technology and services is instrumental. Recent data from the Consumer Sentinel Network revealed a staggering 5.39 million reports filed in the United States in 2023 with fraud, theft, and various scams collectively accounting for 48 percent, 19 percent, and 34 percent respectively of the total reports. Notably, the financial toll of the 48 percent attributed to fraud amounted to a stunning $10 billion, with investment scams alone accounting for 40 percent, equating to $4 billion. In parallel, Nigerian banks incurred substantial losses of N18 billion to fraud during the same period, an amount that likely understates the full extent of fraudulent activities.

These statistics underscore the urgent need for tailored and enhanced security measures inherent in Algorithmic Investing Intelligence which combat these unique challenges. Its versatility, whether in the form of assisted, automated, augmented, or autonomous intelligence, positions the Nigerian financial sector for a competitive advantage. Behavioural analytics and anomaly detection, powered by AI algorithms, represent promising avenues for detecting and mitigating fraudulent activities.

What other benefits can AII offer?

Algorithmic Investing Intelligence represents a powerful tool for optimising efficiencies, mitigating risks, and seizing market opportunities. It fosters scalability, speed, transparency, customisation, and access to a wide range of markets within the financial sector.