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Reading Assignment 5

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7 views

Reading Assignment 5

Uploaded by

TWICE FUA GROUP
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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A,

One key application that Big Data is changing in finance is the generation of adaptive and
predictive risk models. In the insurance sector, companies can use big data to calculate
customers' risk profiles and match the appropriate products. Big data can foster insurers' analysis
and enable them to offer more personalized products to meet customer needs, including for car,
life, and health insurance. For example, to personalize car insurance, customers may agree to
install a device that tracks their driving activity, such as speed, braking patterns, mileage, and
times of day the vehicle is used, as well as the customer's safety record. The more data the
insurer collects, the more accurately they can adjust the insurance coverage and pricing. This
massive real-time data also improves risk assessment for emerging insurance products like drone
coverage, allowing for more customized policies.

Another key application is customer segmentation and personalized offerings. Fintech


companies can use robotic process automation (RPA) to collect, process, and analyze big data
from various sources, including social networks. Platforms like Facebook, Amazon, Apple, and
Google can complement traditional banks by using algorithms and big data to provide more
affordable and accurate financial recommendations. For small and medium-sized enterprises,
these personalized financial services can help them make better investment decisions. By
leveraging big data, financial service providers can offer customized pricing and
recommendations, reducing fixed costs and allowing more efficient control of other variables.

Overall, the application of big data in financial services can positively reinforce desirable
customer behaviors.

B,

One key application of AI that is changing finance is data automation. Robotic Process
Automation (RPA), robotic advisors, and natural language processing allow for the automatic
collection and analysis of data. This can enhance efficiency and detect fraud across the financial
sector. For example, in the insurance market, RPA can automate the sales cycle, reduce manual
costs, and improve customer service. Robotic advisors and virtual assistants enable customers to
compare policies, receive quotes, and purchase directly without the need for sales agents. When
combined with machine learning, these AI-powered systems can help companies navigate
increasingly complex situations, detect patterns that human analysts miss, and refine or
accelerate calculations. By leveraging RPA, financial firms can provide more accurate and
affordable recommendations to their customers in the capital markets.

Another key application of AI in finance is financial forecast. Machine learning


models can help address traditional problems like conflicts of interest, fraud, moral hazard, and
adverse selection. Take Lemonade, an insurance company that has developed a peer-to-peer
platform using open and proprietary data to identify likely claims. It then runs this through its
own API to generate a claims avoidance model. The company's mobile payment system and
chatbot increase efficiency in claims processing, with the chatbot automatically checking claims
against policies and running them through anti-fraud algorithms to determine approval. Machine
learning can enable greater information symmetry and social responsibility for financial firms.
This can increase customer trust and loyalty, as companies are better able to predict and mitigate
risks.

Overall, the application of AI-powered data automation and financial forecast is


transforming the finance industry, driving greater efficiency, accuracy, and customer-centricity.

C,

One key application of Blockchain that is changing finance is cryptocurrency.


Cryptocurrencies operate without a central authority, allowing for lower risk and eliminating
many of the processing and transaction fees associated with traditional payment systems. Take
Stripe, a third-party payment provider, as an example - it utilizes application programming
interfaces (APIs) to allow seamless exchange transactions, without redirecting customers to
another site for checkout. Stripe also makes mobile payments as easy as a single click. The
emergence of virtual currencies has increased the speed and efficiency of financial transactions.
More importantly, customers can be reassured by the shared, distributed ledger of Blockchain.
This eliminates disputes over transactions, as there is a transparent, tamper-resistant record.
Therefore, cryptocurrencies facilitated by Blockchain allow for faster, cheaper, and more secure
ways of conducting payments and other financial transactions.

Another key Blockchain application transforming finance is smart contracts. Smart


contracts are self-executing digital agreements that automatically enforce the terms and
conditions of a relationship, without the high transaction costs and ambiguity of traditional
contracts. Blockchain enhances the verification and compliance of these smart contracts, as the
digital agreements are digitally stored and duplicated across all nodes in the network. The
transparent transaction history recorded on the Blockchain provides an audit trail and assurance
of contractual fulfillment. For example, in the case of a car accident, a smart contract could
automatically activate the claims process and handle the settlement, streamlining the claims
process.

Overall, the applications of cryptocurrency and smart contracts powered by Blockchain


are revolutionizing the finance industry by reducing costs, increasing efficiency, and providing
greater transparency and trust in financial transactions and agreements.

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