Future of AI in Finance and FinTech
In the past few years, there has been a complete change to the face of banking and the FinTech industry. The cutting-edge solutions provided by emerging technologies such as Artificial Intelligence (AI) could account for the staggering rise of FinTech companies. Even small financial firms with limited resources and technical manpower are not left behind in embracing AI-powered technology to address the pain points of their customers.
The disruptive nature of these solutions and the numerous benefits they offer have triggered a financial revolution such that many financial institutions are beginning to tailor their financial services to reflect the new reality. The AI technology has brought the possibilities of conducting financial transactions (including payments, withdrawals, and transfers), making sound financial decisions, and stimulating financial behaviors in users through FinTech applications.
According to statistics revealed by Mordor Intelligence, the global AI-powered FinTech market was worth USD 7.91 billion in 2020. This value is expected to reach a whopping USD 26.67 billion by 2026, at a CAGR of 23.17%. The most growth is being witnessed in the United States, the United Kingdom, and China.
The adoption of AI by financial institutions and FinTech companies has opened up a new frontier of knowledge that allows them to provide innovative solutions to their customers, achieve their growth goals, and gain a competitive advantage. These solutions relate to process automation, predictive analytics, fraud detection and reduction, improved customer service, personalized banking services, as well as credit scoring and loan prediction.
A good example of an AI-powered technology that has helped to improve customer service and experience is the Cleo Application. The app is capable of analyzing users’ income and expenses to provide financial advice. It also takes the function of a chatbot, which can only interact with customers and respond to their inquiries as well as resolve basic complaints, to a more advanced level.
Similarly, FinTech apps allow firms to obtain data and gain valuable insights that are critical to helping them make important decisions in addressing the challenges they face while rendering everyday services. Beyond that, an AI-powered technology that integrates Deep Learning can provide financial intelligence on potential global financial crises and preventive measures that could be taken.
With technological interventions related to crowdsourcing, Blockchain, cryptocurrencies, and mobile wallet, AI is poised to revolutionize financial institutions completely. By 2050, the financial sector may witness a proliferation of AI-driven smart assistants that will help people manage their finances and investments as well as engage in trading. An early-stage example is the robo-advisor. A prediction by Insider Intelligence indicates that robo-advisors will be managing up to $4.6 trillion in assets across the globe by 2022.
Many traders are also managing their investments with automated trading bots. This is because trading entails data assessment and quick decision-making. Therefore, with the large amount of data that machine learning algorithms can evaluate, they would be able to quickly recognize patterns and automatically execute trades based on data insight.
Apart from that, many banks and financial institutions are beginning to be conscious of the need to become more efficient and serve their customers better. The results of a study carried out by the International Monetary Fund (IMF) reveal that almost every financial institution across the globe – from central banks to fintech startups – is introducing AI to their service delivery. This development will further make them explore different ways through which they can integrate AI-powered technology with other emerging technologies such as big data analytics and machine learning.
For instance, while most modern banking institutions have integrated basic personalization in financial management, AI might be a pathway towards an ultra-personalized approach whose success has been witnessed in shopping and streaming services. Adopting the technology with natural language as well as augmented reality (AR) and virtual reality (VR) will afford customers the opportunity to interact with virtual financial assistants in a natural and seamless manner. This would be quite similar to communicating with a professional human financial assistant or advisor.
Another future application of AI technology is the hyper-automation feature. Imagine a future where AI-driven assistants are able to predict market trends and how their implications on savings or investments. This will not only help customers to make the best deals but also help them in saving up. This could be regarded as a fully integrated service.
However, as artificial intelligence dominates modern financial institutions, there are some concerns about security and regulations. Lawmakers and regulators cannot underestimate the threats posed by cybercrime in the current and ever-growing digital world. In other words, the increase in online banking tends to attract hackers.
According to Forbes, banks lose billions of dollars to fraud each year. A case was the 2017 Equifax (an American credit bureau) data breach, where some criminals hacked the company to compromise the records of over 163 million individuals. This is just one of the numerous cases that may be witnessed in the coming years. However, with AI, banks would be better fortified to detect suspicious activities and prevent fraud.
Having foreseen the possible risks associated with AI-powered technologies, the European Union, in 2021, introduced rules and regulations that will shape its use. This relates, especially, to use cases that tend to interfere with people’s fundamental rights as well as endanger the safety and security of their personal data. An instance is how algorithms have been used to discriminate – that is, denying customers certain benefits, including access to a service on the basis of their location, age, occupation, or any other demographics.
Other regions are likely to follow the EU’s lead, considering the need to keep people’s data from being exploited. In fact, many banks are taking measures such as leveraging advanced technologies that are powered by AI to analyze high risks as well as to detect massive fraud.
Artificial intelligence (AI) is resolved to continue its disruption of financial institutions and FinTech companies. As its use grows, it will get better at understanding consumer behavior and predicting their needs. Ultimately, the future (use) of AI will be heavily dependent on human ingenuity and the capacity of the technology to drive different aspects of the banking industry. While the average consumer may not be fully aware of its various applications within the industry, there is a need for firms that integrate them into their various services and processes to keep up with necessary legal demands and protection of user data.
References
https://fintechmagazine.com/technology-and-ai/imf-examines-use-cases-fintech-banking
https://www.insiderintelligence.com/insights/best-robo-advisorsl
https://www.mordorintelligence.com/industry-reports/ai-in-fintech-market