AI in Fintech

Long ago, the average person would need to have his own financial adviser, tax adviser, and go through routine, redundant visits to their own personal banks. Then, everything changed when AI and Fintechs attacked.

Some changes were slow and gradual over time, like the rise of financial services over the internet, such as online banking through traditional websites, customer support, and then came the apps, etc.

Other changes definitely swept the world off its feet, like Artificial Intelligence. We’ve seen Financial technology (Fintech) begin to apply newer technologies and applications today, and as a result it offers a wide range of uses that make it essential for customers to deal with their financial burdens nowadays.

Evolution of Fintechs

In recent years, there has been an overwhelming rise of fintech companies and services, that have personalized ways to manage their money, with easier access that was not possible two decades ago. 

In fact, not only has the rise of fintech companies completely changed the way consumers go about with their finances, but it has also made traditional banking as you know it kind of…pointless.

No more are the days of waiting hours in line just to make a small transfer or to just make a simple inquiry about your account.

Now these are the big differences between twenty years ago and now, but what if I told you that the industry completely transformed in the past couple of years? Combining banking and finance with technology and the internet was already one of man's greatest ideas, but now, enter AI.

AI has offered new innovations and improvements to the fintech industry in ways that were not possible even ten years ago. AI has transformed the fintech industry to become a consumer’s miracle, solving all his pains and problems left, right, and center, past, present and future.

It is no wonder that back in 2019, the Fintech market was only worth $6.67 billion and was only expected to grow to $22.6 billion by 2025. Now? The expected valuation of the fintech market is at $50 billion.

Using AI in fintech is basically a cheat code, and big companies are already harnessing the power of AI in fintech. According to Nvidia, around 90% of financial companies are either assessing AI or already using it in production.

Already as we speak, the valuation of AI in fintech rises as it is becoming more and more powerful than traditional methods or human capabilities. It is no wonder that AI is now being dubbed as the backbone of modern fintech.

Why AI Streamlines Processes

There are very simple reasons that just make AI better to resort to than traditional methods in the world of finance and technology.

The most basic one of all, is just data. Fintech naturally deals with overwhelming raw data and numbers that make people scratch the wall.

Twenty years ago, it would have been standard procedure to be equipped with a calculator so YOU can calculate the numbers that YOU feed it.

What if you could basically order that calculator to just read all the data and figure out what needs to be calculated and have it all do it on its own?

Well, that’s kind of what it is! AI can read and analyze unstructured data through any form, even if you just give it a paper document.

It will be able to extract words and numbers out of it and structure it into a dataset. This is done through a process called Computer Vision, and Optical Character Recognition.

AI can also be your own personal data storage dump. You don’t have to clean up or sort your data out like you would do with data management platforms.

You can basically just copy and paste everything into it and not only will it store and protect your data, it will also sort it and group it how you want, while making reports and predictions from it. Talk about an AI Swiss Army Knife.

Lastly, AI can learn on its own and fill in the blanks if data is incomplete. It will also learn from its own mistakes as well. This is where Machine Learning comes in.

Machine learning allows AI to extract information from sources and continuously improve on itself by recognizing patterns. All of this essentially makes your AI Terminator a stalwart machine for any company or consumer.

AI Use Cases in Fintech

Financial Reporting

Financial reporting is basically what combined AI in Finance in the first place, specifically AI in Fintechs.

Naturally, banks and financial institutions contain enormous amounts of data that need to be studied and analyzed.

A lot of study is done into them to generate financial reports to calculate and analyze past quarters, and predict the upcoming ones.

AI has made this standard process in finance so much easier by doing all the hard work for you, and leaving you to analyze and conclude.

It will crunch up the numbers, even using just raw data as mentioned, and AI will generate your financial report in no time, with fewer mistakes and fewer human resources used. 

Regulatory Compliance

RegTech (Regulatory Technology) offers an easier way to navigate with modern corporate laws and regulations.

Document preparation is a nightmare for any firm, as employees can spend weeks or even months drowning in paperwork. They can also commit a tiny error in the paperwork which can send an entire company crashing.

With AI, compliance can now become automated, as it can keep up with the ever-changing laws, work through the technicalities, and prevent your company from getting into trouble by staying within the legal regulations.

Chatbots/Customer Service

There are millions and millions of customers today at huge financial institutions. It is almost an impossible job to keep all of them happy by running a traditional call center service where a human will assist each one, and without committing any errors and providing incorrect feedback.

This is where the power of AI has completely transformed the game, especially within financial services.

You see, each customer now gets their very own personalized customer service chatbot, assisting them 24/7 through any problem or enquiry they may have.

Right from the get go as you download a banking app or any financial service application, AI collects and analyzes your customer data.

This information is used to provide early, specialized financial advice. When using banking apps, AI can help the users track their financial goals and monitor their spending habits.

As the technology evolves, AI is now able to pick up on your tone of voice and determine the mood that you are in while speaking.

This makes it choose a suitable solution for you depending on your mood. So, lost out big on some random bet?

Don’t worry, your AI pal will be there for you and give you a pat on the back. (not really but you get the point)

Robo-advisors

Now it is a common error to confuse roboadvisors with chatbots, but they are not the same at all. Roboadvisors are basically behind-the-scenes friends of an analyst or employee in a fintech company.

It allows humans to focus on more strategic and creative tasks, such as actual analysis or predictions.

While the human does this, the roboadvisors work in the background to automate grunt work and simplify back-end office tasks, like crunching numbers and repetitive tasks like that.

Roboadvisors also offer analysts quick access to any document in the archive of a company within seconds, instead of swimming in a sea of paperwork to find one piece of information.

A robo advisor will also offer reliable investment advice with higher return rates than that of human trades.

Algorithmic Trading

Investing and trading in the stock market has become the fastest and most common way for people to make money and build wealth.

As everyone knows, the stock market is a high risk/high risk venture. You can build your whole life trading in stocks, but you can also lose everything in one bad trade.

People need to be educated before making such huge decisions regarding their money. Entire firms have been built on offering investment advice, regardless of whether or not the advice was good or bad, aka from The Wolf of Wall Street. 

There is a method to the madness of stock market trading, however. The more research you do and the more informed your decision is, the more likely your bets will pay off. But this can be easier said than done.

Researching before trading usually takes a long time looking at so much data in the entire industry and market. You read fiscal reports from companies and in the end you choose the best course of action.

There is another variable as well, that you may not be financially literate as well in the first place to understand the data in front of you. This is where AI has become a cheat code once again.

AI-driven applications help people navigate the stock market more efficiently. It examines historical data as well as current data from companies and their place in the stock market, their numbers, reports, etc.

After all that, AI will draw you a projection of the future based on facts and numbers, assisting investors to determine which stocks are safer than others to invest in, and which stocks to avoid.

On top of all that, AI can do it for you automatically. AI-driven algorithms analyze data in real time, identify market trends, and execute trades on the spot.

This is a more automated-approach which limits risks that are associated with humans, such as human emotions like panic selling/buying, FOMO, or passion purchases.

Using AI to handle your investment choices will result in safer bets with more accurate predictions, resulting in overall gain to your portfolio, which brings us to Portfolio Management.

Portfolio Management

Machine learning and natural language processing are used by artificial intelligence to analyze data and then offer helpful portfolio management recommendations.

AI can determine what assets to buy and which ones to stay away from. It assesses which assets to hold long-term and which ones to get rid of.

These choices are also suited for the goals and specific interests of the investor or the client.

With AI at the head of forecasting, it is always a sunny day. It is almost guaranteed that every investment is profitable. AI forecasting accounts for so many factors simultaneously that a human analyst can never compute on his own.

Fraud Detection

AI can detect and respond to problems in real time. This has changed the way that some fraud analysts operate, as they now no longer have the same work load.

Instead of analyzing every little irregularity, they are now free to concentrate on high-level problems and cases and leave AI to handle the little problems.

AI can help detect and prevent fraud by continuously monitoring transactions. It studies patterns and tendencies of a user to learn their spending habits.

If it detects an anomaly or suspicious activity that is out of the ordinary, it automatically raises flags and can halt any transactions instantly, even if they were approved by a human.

Fraud detection is one of the most important uses of AI today, especially when it comes to investment banking. AI and machine learning help banks find scams, reduce risks, find holes in their systems, and make online finance more secure.

By using AI, banks can easily identify fraudulent activities such as money laundering or other illegal transactions.

These threats can sometimes miss the human eye and go unnoticed. But this isn’t the human eye we’re talking about, this is AI.

For example, HSBC has fully adopted an AI approach to combat money laundering schemes. They are using a cloud-based transaction monitoring system, with Google Cloud’s AML as its central component.

AI in investment banking also allows for constant cyber-attack surveillance, allowing banks to respond quickly to upcoming intrusions before they impact their customers, workers, or infrastructure. Malware detection by machine is now possible through supervised machine learning. 

AI in investment banking also offers constant enhanced defense against cyber attacks. Banks are not able to respond quickly in real time and stop potential hacks before they impact a customer or their own systems. Machine learning allows for that to happen by constantly updating defense tactics to adapt to the ever-growing tactics of cyber attackers. Machine learning algorithms allow AI to monitor networks, detect malicious software, and prevent data breaches.

A bank’s capacity to detect fraud grew by 50%, while the number of false positives dropped by 60% due to machine learning.

Benefits

AI and fintech match perfectly together for many reasons. Fintech was pioneered in the first place to use modern technology to become better, easier, faster, and more efficient than traditional banking systems.

With AI becoming the newest breakthrough in our world today, it is only right that they team up together to bring in the new dawn on efficiency.

Utilizing AI in fintech will save so many costs, both on the customer and the company. The company can save costs on personnel, spaces, and equipment to support a customer in person, when they can just have the customer solve his issues through his phone.

A lot of money is saved that would’ve been spent on customer service, fraud prevention, or many other tasks. Now, AI will do all of that for you for free. 

The customer experience is now at an all time high. As the newer generations become more technologically aware, using fintech services is more natural to them, unlike if you were getting your grandpa to access his accounts through a smartphone.

Now digital services are a must. Customer experience is probably the most important aspect of AI in fintech today.

The analytics are also much more accurate and efficient when it is done by AI, rather than traditional human analysts. 

The user also benefits from AI by having 24/7 accessibility. Thanks to the chat bots and robo advisors, the customer can now contact them 24/7 and have instant access to their services at any moment.

Not only is it accessible, but it is also convenient, and that convenience is the number one currency in the modern world that we live in today.

An additional advantage is that now, anyone gets to have a financial advisor. Long ago, this was something for the rich and the elite only.

But today, through AI, anyone has his own financial advisor that offers bill tracking, market analysis, and investment opportunities.

Challenges

The biggest challenge of utilizing AI in fintech is establishing trust. Not everyone is open to the idea of having a “machine” handle their entire finances and make their financial decisions for them.

People are still skeptical about artificial intelligence and it won’t be easy to win those people over, even though AI is already assisting them and they may not even know it, like through chat bots.

The use of AI is also tricky sometimes because AI may not necessarily be transparent as to where to reach its conclusion from.

This is known as Blackbox AI. When you cannot provide transparency, it is even more difficult to win over those who are skeptical about you in the first place.

Security and cyber security is a challenge as well whenever you deal with sensitive information and money.

The more use of cyber methods, the larger the risk of having a breach and leak of private data. If potentially a fintech company was cyber-breached, it could be a disaster. 

Lastly, adapting to the ever evolving cyber threats is always an issue in any sector. You will have to continuously train your AI and update the learning models to evolve and adapt to newer methods.

Conclusion

The fintech industry is welcoming AI with open arms, and it makes perfect sense. The very reason why fintech started in the first place is because the newer generations were done with traditional methods.

People don’t wanna wait in line and wait for humans to deliver what they want, especially when it’s something so simple that could be finished in minutes.

Naturally, with more advancements like artificial intelligence, the fintech industry will adopt it without hesitation.

With AI, the purpose and potential of fintech is multiplied by 10. Everything is easier, faster, better, and cheaper.

In 2024, the fintech market is hotter than ever. With increasing demands and increasing investments, it is no surprise that in Forbes’ top 50 most funded startups of 2023, two of the top five have been fintech companies. 

We expect to find similar lists in the future, as fintech is the new age of the world of finance, and AI is the future of intelligence.