Listen to the Article: #ChatGPT, How Will It Revolutionize Finance?

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If you are one of those who keep tabs on what's viral today, you gotta know ChatGPT is one of them trending memes right now. The AI conversational model developed by OpenAI is creating a buzz. Meanwhile, we are seeing its competitors, Google's Bard and Baidu's Ernie bot, getting eager to jump in, with Google's set to be officially launched in weeks and Baidu's set to begin beta test in March.

In the financial sector, AI is no longer a new concept and has been applied in both retail-end (e.g. investment portfolios) and institutional-end (e.g. trade monitoring, CRM, and plug-ins etc.) for a long time. This article will explore the impact of such AI applications on financial services/fintech firms, by taking a look into the reason behind the #ChatGPT first.

Behind the Hashtag: What is A Conversational AI Model?

Since this February, ChatGPT has been a hot topic, not just among the tech-savvy guys any more, but among everyone, for its impressive ability to generate coherent and context-related answers. For the general public, they mostly use it for chatting and generating jokes. However, we want to know more than a meme that has gone viral, we want to know what kind of AI model ChatGPT represents and if it will bring significant impact to the financial industry.

ChatGPT is based on the transformer architecture and uses self-attention mechanisms to process and generate text. The model is trained on a large amount of data, allowing it to generate responses that are similar to human ones and covering a wide range of topics. GPT stands for Generative Pretrained Transformer. To some extent, ChatGPT's popularity shows that it can generate responses similar to human's and represents a significant progress in both AI and natural language processing.

Impact Is Here: Funding+Valuation

The impact of ChatGPT, released by OpenAI in November 2022, has already been evident. Microsoft announced at the end of January this year that it planned an investment of $10 billion in OpenAI's latest round of funding, boosting the valuation of the startup to $29 billion. Similarly, Alphabet Inc. has announced its investment of $300 million in Anthropic, another AI developer which also developed a chatbot named Claude, so in a sense, it is OpenAI's competitor. Funding is critical for fintechs. Statistics showed that the global fintech funding amount in 2022 was $75.2 billion, a 46% decrease compared to 2021. It is well known that money only goes to hot spots, so believably, what ChatGPT has done will almost definitely somewhat promote funding for fintechs, for them being a sub group of the tech community.

Positive Impact on Financial Services Providers (e.g. Brokers)

From a retail investment perspective, AI-assisted trading has been hot all the time. Many brokers have started offering or expanding trading in AI-powered ETFs, including more recent cases such as eToro​, Vanguard, and Morgan Stanley​.

- A financial advisor for individual investors

By looking at the features of ChatGPT, it is very likely to see that it may play the role of a personal financial advisor for retail trading, providing more professional and comprehensive consulting services for those who lack knowledge of the assets they trade. At present, most brokers and their apps lack a way for customers to learn to trade assets in a more understandable way, and ChatGPT could fill the gap and serve as an advisor for newbie investors in an interactive way.

- Improve Customer Service Experience Provided by Brokers

ChatGPT-like programs can also greatly improve the customer service experience provided by brokers, and it would be a "win-win" for both the broker and its customers. First, brokers may reduce the size of their workforce and therefore save costs; and customers may also connect to service at any time, free from the time limits with human associates. Of course, AI customer service has long existed, but ChatGPT represents a higher level, the big-data-learning-based program that is the closest to human response.

​- Better the Efficiency Inside Financial Services Providers

Well, actually the better work efficiency thing brought by ChatGPT is universal, instead of just financial companies. It could almost allow people from all walks of life to be genuinely emancipated to an extent. Specific to financial institutions, it is very likely that the departments responsible for KYC, compliance such as AML will be benefited the most. For instance, a broker could cross check client information with AI, and go through all clients with sufficient accuracy and efficiency, effectively reducing the risk of fraud, and improving online transactions safety.

What Are the Bad Impacts Then?

Negative effects always come with positive ones, as mentioned above, the fact that the program will improve work efficiency is only a bright side if you are the company, but a bad news for those employees getting replaced.

Another example, even though ChatGPT could indeed offer you ideas on how to trade, thanks to machine learning, it is still up to the client to accept it or not. The world today is not a world where AI is that much trusted, and possibly when brokers introduce an AI customer service upgrade, clients might not buy it.

Or, ChatGPT-like programs are able to provide brokers with a view into funding, or even allow companies like investment banks to take a look into their thoughts on which merger or partnership is the most promising ones based on massive client information analysis, yet they are unable to go back of processes that ultimately lead to such answers. The lack of clarity of process might just lead to certain regulatory requirements for financial institutions, resulting in compliance risks.

Final Thoughts

All in all, it's still too early to talk about how ChatGPT would reshape the financial industry of the future. However, it is certain that the underlying technology will be used as instruments in the financial sector. Moreover, while the technology affects finance, it will in turn continue to be affected by the constantly evolving needs of the financial sector, and the two will always complement each other.