Artificial intelligence is driving innovation in the fintech industry by making financial services more efficient, faster, and more reliable. AI-powered apps are spearheading business growth and improved user experience within the fintech industry, and these creations are paving the way for the future of fintech. We’ve seen startups flourish with the aid of AI and machine learning capabilities in data analysis, watched apps develop new payment solutions, and seen innovative personalization integrations accelerate brand loyalty.
We take a look at artificial intelligence in the financial services industry and the future of fintech, thanks to AI.
How AI drives innovation for the fintech industry
Predicting the future is a tough ask, but there are a few trends to take note of that are already emerging, and that we feel will drive innovation for the fintech industry in the coming years. It is however important to keep in mind that the fintech industry is an ever-evolving space, and we’ll likely see new developments being brought to light as the financial services sector and artificial intelligence technologies continue to merge. Nevertheless, here are a few ways AI is driving innovation for the fintech industry:
Transfers and Payments
Fintech, as the contraction for “financial technology”, has changed the way traditional financial institutions offer transfer and payment solutions to consumers. Incorporating AI into fintech products will undoubtedly give rise to new and improved ways for users to employ mobile banking services, action payments, and conduct peer-to-peer transfers and/or payments.
Blockchain and crypto have the potential to change the way the world manages its finances and has opened the door to new forms of currency and ways to transact. Cryptocurrencies have already begun to revolutionise the financial industry, and AI will continue to drive innovation in this field. From new blockchain applications to market growth, there are many ways in which artificial intelligence could impact blockchain and cryptocurrencies.
Artificial Intelligence and Machine Learning
AI and machine learning have the capability to make fintech products more efficient and provide an improved user experience. Artificial intelligence models have already begun to infiltrate automation processes in fintech, and we think this is an area where the marriage of these technologies will continue to greatly benefit and drive customer service.
Interested in the specific applications of artificial intelligence in fintech products? Check out our blog: 10 ways to incorporate AI into your fintech
How AI benefits the fintech industry
Machine learning models have been utilised in the fintech industry for some time now and, while they have provided valuable data analysis and predictions, incorporating artificial intelligence into these models has made them more efficient and more accurate. That’s not to say that machine learning algorithms don’t still have their place in the fintech sector alongside AI. In fact, some fintechs have incorporated both technologies for their combined benefits. These fintechs make use of AI and machine learning in the following ways:
Advanced sentiment analysis, AI-powered chatbots and virtual assistants are just some examples of how AI is enhancing the customer experience. AI and machine learning algorithms have the ability to provide personalised experiences by analysing historical data to make recommendations. AI-powered chatbots are also programmed to answer common questions immediately so that human support services can concern themselves with more complicated queries and tasks.
Analysing data and providing insights is a superpower of artificial intelligence tools. The fintech industry is benefiting from this superpower for all kinds of data analysis from credit scoring to user behaviour. This functionality not only saves fintech companies time and money but also minimises risk, as artificial intelligence algorithms have a higher accuracy score than their human counterparts.
Having touched on the capabilities of AI and machine learning when it comes to data analysis, it’s no surprise that improved decision-making would be on our list of benefits. Artificial intelligence and machine learning algorithms process millions of data points to provide insights and make predictions. The patterns these models identify can then be used to empower decision-making.
How AI enables fintech integration with other industries
The integration of artificial intelligence and machine learning in fintech is not only benefiting the financial services industry but others as well. Embedded finance is a fast-growing trend that is enabling better financial services for several sectors so that consumers have a convenient way to manage their finances.
Embedded finance is the process of integrating financial services into business products and services with the use of Application Programming Software (API). It comprises four pillars: payments, banking, lending, and insurance. The great thing about embedded finance is that these businesses are not regulated in the same way as financial institutions, and businesses have the capability of keeping payments in their own ecosystem.
E-commerce retailers are one common use case of embedded finance. E-commerce stores integrate payment infrastructure within their applications, so users can action payments easily, without needing to be directed to a different platform. This integration ensures efficient service that improves the user experience. Another example is that of embedded credit whereby users can apply for loans and action repayments all within a mobile app.
How AI in the fintech industry is being regulated
The introduction of technological advancements is generally shrouded in controversy and concern. In the case of artificial intelligence, particularly so. Fintech regulations were initially created to instil balance and equal opportunity between financial technology and traditional financial institutions and to drive innovation for the financial sector. These same regulations are being used to monitor the use of AI in fintech, as well.
The three main regulators are Financial Conduct Authority (FCA), the Payment Services Directive (PSD2), and the Directive on Markets in Financial Instruments (MiFID II). Together, these regulations provide a controlled environment for fintechs to test their AI-powered apps, enforce rules for the use of AI in payment solutions and the financial market, and allow for the development and access to services and markets, respectively.
How AI in fintech continues to impact society
Fintech in general continues to have a significant impact on society and the way people move about their day. From managing their finances to paying for goods and services, and education on financial markets, fintech has made finances more convenient, more accessible, and more affordable to the global population. Incorporating AI into the fintech sector has further impacted society by providing more users with access to financial services, increasing competition within the financial services industry, and stimulating economies. Indirectly, AI in fintech has empowered users to make financial decisions, improved the quality of those services, and created jobs within the financial services industry.
On a grassroots level, AI-powered fintech has had a positive impact. Underserved communities have previously not had access to traditional banks within their immediate surrounds and thus faced the challenges of travel and time to manage their finances and action payments. Fintech products have resolved this issue as users living in these communities now have mobile app access to those very same services. Personalisation services also grant better services to underserved communities in the form of products such as microloans and low minimum balance savings accounts; tools which help empower and provide financial control.
Artificial intelligence is disrupting the fintech space and has become an ingrained part of fintech app development. Financial institutions will need to adapt and consider the benefits of utilising AI in their own products to remain relevant in a highly competitive market. Automation, machine learning, payment solutions and personalisation are just some of the trends to emerge from AI-powered solutions. Financial institutions that are most likely to succeed in this evolving ecosystem are most likely those who are adapting and taking advantage of artificial intelligence technologies. AI has transformed the fintech space in many ways and will continue to do so. Want to learn more about AI’s fintech capabilities? Connect with our team of developers.