For your information, Fintech is short for ‘financial technology’. Popular cases of fintech are PayPal a digital payment platform and Bitcoin cryptocurrency that uses blockchain. In 2021, the overall AI usage in the fintech sector was USD 8 billion. It is projected to touch USD 27 billion by 2026. The number of individuals using fintech for payments is expected to reach an impressive 3.5 billion by this year. AI is expected to play an increasingly important role in fintech, with predictions estimating it will drive 95% of customer interactions within the next decade . The use of AI in fintech will only increase in the coming future.
Table of Contents
How Does AI Affect the Fintech Industry?
AI is impacting several sectors significantly including the important domain of finance. Simply put, fintech represents the merging of AI and Finance. We look at 4 ways AI is affecting the fintech industry.
- Better Handling of Portfolios and Optimizing the Trading Process
AI-driven trading algorithms have the ability to skillfully analyze vast amounts of information such as social media sentiment, news content as well as current market trends. As a result, lucrative trading opportunities are discovered and trading can be done faster than before.
AI aids investors to better handle diversified portfolios as per their risk capacity and financial objectives. The former helps realize optimal asset allocation as well as yield maximum returns.
- Improved Assessment of Credit Risk
By leveraging AI, loan providers can better determine credit risk and are able to approve loans faster. Earlier credit risk assessment used fewer sources of data. Now AI algorithms use a relatively expanded number of data sources such as the loan seeker’s previous transactions, online activities as well as social activity. This ensures better and unbiased assessment resulting in superior lending approvals and brings down the frequency of defaulting.
- Enhanced Customer Service
Note that it is the quality of customer service that determines the success of financial institutions. Did you know that the cost of acquiring fresh customers is seven times more than retaining a new one? AI helps accurately predict customer requirements as well as future financial behavior. This is achieved by analyzing all the available customer related data. Hence, financial entities become customer centric and use AI-powered chatbots and virtual assistants to serve customers 24/7. Unlike humans, chatbots are available round the clock. AI technology helps personalize customer service and make it real-time.
- Robust Fraud Detection
AI helps financial institutions to safeguard the money of customers. Machine learning algorithms as well as natural language processing enables AI powered fintech to learn from historical information and harness the knowledge to instantly identify fraudulent transactions. AI is also widely used for fraud prevention. Older fraud detection methods struggled to manage the continuously changing mechanisms employed by fraudsters. AI reacts fast and continuously learns as well as adapts making it effective against fraud attempts.
How is AI Used in Fintech?
- Making the KYC (Know Your Customer) Process Faster and More Convenient
Financial institutions are required to implement KYC. Earlier KYC processes were manual and took a lot of time. Now, customers are required to submit photos of their faces along with a photo of their respective ID document. AI uses OCR (Optical Character Recognition) to scan photos to verify if they match the customer’s face. KYC is necessary for verifying identity and the AI decreases the time taken to implement this process.
- Dispensing Expert Advice on Financial Planning
AI compares the customer’s expenditure with their salary, savings goals, and bills. Next the data is presented to the customer in a manner that is simple to comprehend even to individuals with no or limited knowledge of financial planning. Chatbots incorporating Natural Language Processing act as virtual financial advisors.
- Superior Transaction Search
AI enables users to search for a specific bank transaction similar to searching for content on the Google search engine. The results are easier and faster to understand by users compared to earlier methods.
- Reading of Documents
Computers use OCR technology to process a vast number of documents – a capability unmatched by humans. Now this technology is combined with AI to recognize human speech and acquire the ability to quickly spot inconsistencies in contracts.
AI in Fintech Use Cases
- Automation of Processes
Robotic process automation brings down operational expenses. improves the level of accuracy and speed as well as significantly ramps up productivity. As per Gartner, almost 80% of financial entities have already incorporated RPA or plan to incorporate it. AI takes care of repetitive work earlier performed by humans. Thus, considerable time and money is saved.
RPA (Robotic process automation) is leveraged for the following processes
- Real-time financial reporting
- Efficient reconciliation of accounts
- Seamless payroll processing
- Handling Invoices
- Dealing with purchase orders
- Timely Detection of Frauds
Over USD 217 billion have been spent on AI-powered software designed specifically to prevent frauds as well as assess risks. The AI-driven software detects suspicious activities in real time, confirms user identity and quickly defends client accounts from even the most sophisticated of cyberattacks.
By harnessing ML (Machine Learning), vast quantities of data are processed as well as analyzed in real time. ML empowers applications to learn from experience making them better and also enhances security. When clients and customers perceive that the security of their sensitive data is well taken care of, you earn their trust and loyalty.
- Ensuring Regulatory Compliance
There exist major malpractices such as financial fraud, monetary support to terrorism, money laundering and more. AI makes the process of complying with existing regulations easy as well as convenient. Complex regulations are interpreted, regulatory alerts are dispatched and full compliance is implemented.
- Enhance and Elevate Customer Experience
As per McKinsey, modern customers desire a customer experience that is personalized, user-friendly, convenient as well as seamless. AI using chatbots as well as virtual assistants offer 24/7 customer service and tailored advice. Hence, customers are happier and money is saved. AI technology analyzes customer data to design personalized financial roadmaps, market products and/or services and more.
Why CoffeeBeans?
CoffeeBeans has relevant experience and expertise in both AI technology and the Finance domain. We have provided Custom Fintech Solutions to our clients in the past. Reach out to us for your Fintech requirements. You will find that our deliverables are reasonably priced and adhering to the highest quality standards. Note that we leverage world class talent and mature processes to deliver superior results.
