How AI Is Driving the Next Phase of Growth in Fintech
The finance sector is going through radical changes. Traditional business models and strategies are being replaced by more consumer-centric, personalized, data-driven approaches. To stay relevant, companies are not only switching to fintech solutions at a faster rate but are also aiming for innovative solutions that can help them achieve better operational efficiency and provide customers more personalized services. And that’s where AI comes into focus.
- According to PWC’s Global Fintech Report 2017, 30% of large financial institutions have already invested in AI this year.
- AI-based fintech startups have fetched over US$ 1 billion in funding in 2017.
- About 80% bankers believe that AI will revolutionize the way banks gather information and interact with customers.
Clearly, AI will play a key role in driving the next phase of fintech innovations. So let’s see how AI is transforming the fintech sector currently & what to expect in near future.
Personal Finance & Assistance
People and organizations that have traditionally relied on financial advisors for saving and investment related decisions are now opting for algorithm-based chatbots. By using advanced data processing, these chatbots analyze customers’ finances and make more intelligent and objective decisions.
Currently, AI-based smart chatbots are being used for many personal finance purposes including –addressing customers’ common queries, managing online accounts, expenditure reports, sending reminders about payments/investment opportunities, and even making online transactions.
Different chatbots (namely Plum, MyKAI, & Cleo) being used for different personal finance & assistance purposes
Credit Scoring & Lending
With automated data validation and analysis through Machine Learning (ML) algorithms, credit underwriting is no longer the arduous task it used to be for lending companies. In fact, credit scoring has become so efficient with ML that companies like Affirm and Wonga are doing it instantly on the point-of-sale to lend customers money on their online purchases. Something totally unthinkable in traditional lending.
Instant credit scoring and lending by Affirm’s ML-based platform
Apart from that, ML credit scoring platforms like ZestFinance & Better Finance are helping companies increase their approval rates tremendously by analyzing non-traditional data like customers’ rejection data and their expenditure behavior. With access to customer behavior, lenders are now able to assess borderline cases better, as well as provide customers with more personalized solutions.
Using ML algorithms, asset management firms can extract valuable insights from the huge search engine and social media data streams much efficiently. Today, most asset managers are of the opinion that AI-based data-driven trading and investment strategies are helping them considerably in getting prepared for the next generation of investment systems.
For instance, Bank of America’s wealth management arm Merrill Lynch recently invested over a billion on an AI-based stock picking tool to help its clients identify & benefit from valuable small-cap stocks that traditional analytics were missing.
Regulatory & Compliance
According to a recent report, banks are spending about $70 billion per year on regulatory compliance (not to mention thousands of hours spent in record keeping). Using AI-based practices and tools, expenditure on regulatory compliance can be reduced by 30% and the throughput can be 3 times faster.
JPMorgan Chase recently launched a program COIN (Contract Intelligence) that can review commercial loan agreement documents in seconds, which otherwise require 360,000 hours/year of manual checking work by loan officers. Not only are these AI implementations for regulatory compliance faster but less error-prone too.
For any business dealing with financial services, the need to switch to technology-driven solutions is becoming more urgent than ever (and according to PWC one-third businesses consider AI as the most relevant technology). But the big challenge most companies face today is that they neither have the right talent nor have the required know-how to implement these changes successfully.
Given the scenario, safe option that companies have is to partner with an experienced digital transformation service provider, who can implement a robust tech solution to gear up their offerings for the next-gen financial services.