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How Will AI change the Future of the FinTech Industry

01 Apr
How Will AI change the Future of the FinTech Industry

The topic of artificial intelligence (AI) in the FinTech industry has sparked widespread curiosity. The impressive progress that AI has made in recent years has left people talking about it endlessly or simply amazed into silence.

Today, let’s delve into how the FinTech industry has undergone a transformation worldwide with the integration of artificial intelligence and machine learning. Are you ready to gain some insights?


What Role Does Artificial Intelligence Play in the FinTech Industry?

The projected market size of AI in FinTech is expected to reach $31.71 billion by 2027, with a compound annual growth rate (CAGR) of 28.6%.

One of the greatest advantages of AI and machine learning is their ability to enable industries to personalize their approach to their target audience, thanks to their advanced algorithms that provide a deeper understanding of user behavior. FinTech companies are leveraging these insights to grow rapidly.

AI is particularly valuable in the FinTech industry for predicting loan risks. Machine learning plays a crucial role in the success of financial companies that are expanding their services and businesses by improving loan underwriting and mitigating financial risks. AI also helps companies detect fraud and unauthorized access through advanced methodologies, enhancing security measures.

Apart from these reasons, there are numerous other benefits of using artificial intelligence in the FinTech industry. Let’s explore them in detail.


Top Reasons to Embrace Artificial Intelligence in the FinTech Industry

There are several compelling reasons for FinTech companies to adopt artificial intelligence, which have significantly contributed to the growth and development of the financial industry. Here are some of the most common reasons:

  • Customization

With the help of AI and machine learning, FinTech companies can create hyper-personalized financial instruments and investment plans tailored to the suitability of their target audience, while ensuring robust security measures. Manual and repetitive tasks have been eliminated with the adoption of AI, saving ample time for banks and financial institutions. Moreover, the failure rate in transactions and loan processes has significantly decreased.

  • Reduction in Operational Costs and Risk

Despite the rapid advancements of AI, there are still tasks performed by humans that are prone to errors. These errors can result in significant time, effort, and costs to rectify. However, AI, including robotic process automation (RPA), can replicate human tasks to minimize unnecessary manual work, time, and costs, leading to a major reduction in operational costs and risks.

  • Improved Customer Experience

In the past, the banking sector was criticized for its inefficient service delivery due to the lack of advanced technology in the FinTech industry. However, with the help of AI, the FinTech industry has experienced remarkable growth. Chatbots, in particular, have been a pivotal pillar of AI in the FinTech industry, enabling banks to provide swift and personalized solutions to user queries and issues. Chatbots are available 24/7, catering to users across the globe and significantly enhancing the customer experience.

  • Automation of Investment Processes

In 2023, the adoption of advanced technology continues to rise, with many banks actively incorporating AI to streamline their investment decision-making processes and enhance their investment banking research. Additionally, many FinTech companies have taken it a step further by launching robo-advisors that can assist users throughout their investment journey. It is projected that robo-advisors will manage $2.8 trillion in assets by 2023, offering meaningful advice to users based on their queries.

  • Accurate Results

Humans are prone to errors, and this holds true in the FinTech industry as well. Manual tasks often result in minor errors that can impact the accuracy of end results. With the integration of AI, the chances of errors are significantly reduced, resulting in more accurate outcomes compared to traditional methods.

  • AI-Driven Competitive Intelligence

82% of traditional financial companies have plans to expand fintech partnerships in the next 3 to 5 years.

The advent of artificial intelligence has revolutionized the business landscape in various domains, which is truly remarkable. With the power of AI, conducting research, analysis, and competitive intelligence has become incredibly easy. To provide further clarity, competitive intelligence refers to the process of gathering and analyzing data about your current and potential competitors.


Applications of AI in the FinTech Industry

In the previous discussions, we explored the advantages and challenges of AI. Now, let’s delve into the specific applications of AI in the FinTech industry:

  • Data analysis and learning

AI-powered data mining tools enable FinTech companies to gather multifaceted data, eliminating data silos. AI and ML not only help in collecting diverse data but also assist in data ingestion, analysis, cleaning, and archiving, revealing valuable insights.

Manual data retrieval often results in incomplete and redundant data that offers limited value. In contrast, AI and machine learning can leverage predictive analytics to forecast future trends by analyzing historical data. This aids businesses in understanding stock price predictions, revenue forecasting, and risk monitoring. Although these predictive models may not always yield accurate results, they still enable businesses to create future-proof strategies for seamless operations.With AI, businesses can streamline data modeling, data governance, and data management, mitigating potential pitfalls.

  • Facial recognition for frictionless payments

Facial recognition for payments is a cutting-edge technology that has gained traction, especially in China. Self-service restaurants like KFC and major retail stores in China have widely adopted payment through facial recognition.

This technology utilizes the customer’s unique facial features, or “DNA,” to process payments and provide personalized recommendations based on their preferences.

  • Trading

AI is extensively used in quantitative, algorithmic, or high-frequency trading to analyze massive real-time data sets. AI can quickly evaluate data and send stock alerts, allowing for prompt action.Hedge funds, mutual funds, and capital management companies use AI to monitor equities with significant upward or downward trends for timely entry or exit positions.

  • Predictive modeling to optimize bank revenues

Predictive modeling is employed to identify potential risks in loan underwriting and fraud detection processes. Many institutions also utilize predictive modeling to optimize cross-selling and boost sales by leveraging existing customer behavior data.These predictive models are designed to learn from current customer data and generate relevant cross-selling opportunities for each individual customer. They also excel in accuracy through detailed dataset segmentation and market basket analysis, further enhancing sales performance.


The Bright Future of AI in the FinTech Industry

As businesses continue to embrace advanced technologies, financial institutions face increasing threats from malicious activities. The future of the FinTech industry lies in leveraging AI not only to streamline operations but also to enhance security measures.

The rise of malware activities and the growing risks of fraud and compliance demands financial institutions to stay competitive and vigilant. AI is poised to revolutionize how banks and credit unions protect customer assets and data, elevating security standards.

As advancements in technology continue to progress, so do the sophistication of malicious acts. Therefore, it is crucial for businesses in the FinTech industry to prioritize robust security measures alongside the adoption of AI for improved customer experience and business growth.

AI has shouldered the responsibility and expectations of the FinTech industry, empowering businesses with advanced technology. It is no wonder that global billionaires have expressed awe and admiration for artificial intelligence.