IndexGPT: What will be the future of finance?

At this point, everyone is using ChatGPT, even professionals. And for those who live under a rock, OpenAI’s ChatGPT is an AI model capable of generating human-like responses to user’s questions. With the immediate success of this technology, it has fuelled a race among industries to catch up with the arrival of new innovations to artificial intelligence.

It is no secret that the banking industry has been investing in artificial intelligence for quite some time now. Dating back to the 1970s, the technique of algorithmic trading has been widely used to lower transaction costs and perform transactions quicker than any humans can do, that is, in milliseconds. With huge advancements to technology, how can we gain an edge and significantly outperform the market using AI? That is the question JP Morgan is trying to solve, with a budget of $14 billion spent annually on technology, the development of IndexGPT allows them to move one step closer in understanding this problem. Currently, this banking giant making waves as the first bank to release a GPT-like service directly to its clients, using a tool that can simplify financial information and provide investment advice for customer’s needs.

This technology will have a range of possible uses in finance, that is more than simply advising investors. In the filing used to apply for its trademark, IndexGPT will also have applications helpful in the fields of “funds management” and “financial investment in the field of securities. It has the potential to find application in a wide range of areas, including but not limited to advertising, marketing services, as well as clerical and administrative functions. In addition, JP Morgan’s technology will also “target cloud computing software using artificial intelligence” for “analysing and selecting securities tailored to customer needs.”

What are the implications on the wider economy?

The innovation to artificial intelligence is undoubtedly going to improve the productivity of the US economy. With estimates ranging between a 2-4% increase in efficiency for companies that adopt AI, ultimately, can amount to an increase of 0.5% in GDP. With this being said, AI will affect the labour market, where jobs involving repetitive and rule-based tasks will be susceptible to automation. JP Morgan’s take on this matter,

“To maximize profits, US corporations have often found cheaper labor abroad and/or automated processes.”

You might ask, “What happens to financial advisors?” My take is that if it is capable of providing better investment recommendations compared to a human, then this role may become potentially replaceable. With its current capabilities, these technologies can process vast amounts of data, provide personalised recommendations, and automate many financial advisory tasks. And here is the kicker: AI-powered platforms offer round-the-clock services, cost savings, and a wider reach. The future may involve a hybrid model where advisors can collaborate with GPT-like tools to deliver comprehensive financial planning services.

What now?

The development and integration of IndexGPT and other AI tools into the finance industry holds tremendous potential to revolutionise many aspects of finance. JP Morgan's CEO states,

"AI will be critical to our company’s future success [..] The importance of implementing new technologies cannot be overstated.”

Striking a balance between automation and human expertise will be pivotal for leveraging the benefits of AI while delivering personalised and innovative financial services.