Artificial Intelligence, or AI, has revolutionized financial technology, also known as fintech, by enabling innovative solutions that transform financial management. From programs that can complete customer onboarding processes seamlessly to algorithms that predict market trends faster than ever before, AI-powered fintech solutions offer huge potential.
But what will this new world of high-tech finance look like? In this article, we’ll explore some expert opinions and predictions about how AI is (and will continue) shaping the future of fintech. These key industry players provide insights on the various applications of artificial intelligence in financial services and where they think AI is taking us.
The future of fintech: Unleashing the power of AI
ChatGPT and other large language models similar to it are unlikely to be widely adopted in the finance industry in 2023, despite many predictions on Twitter. While these models have generated excitement about the potential of AI, they are not well-suited for the financial sector. The models' tendency to "hallucinate" facts and provide false references is unacceptable in an industry with zero error tolerance. These limitations cannot be overcome with incremental improvements.
However, the recent focus on how finance companies can adopt AI will continue to grow in 2023, with banks and investment funds exploring ways to utilize unstructured data and automate analytical processes. At Pathway, we are working to facilitate this transition by providing finance professionals with efficient tools to access, analyze, and effectively use unstructured data. -Vladislav Stanev, Co-Founder and CEO at Pathway
2023 will see the use of AI continue to expand rapidly, with many companies adopting AI-powered solutions to improve customer experience, automate mundane tasks, and provide insights for better decision-making. Although AI has always been on the radar of financial institutions, we see AI entering the mainstream much more, seeing it as an expectation as opposed to a goal.
However, AI still has a significant opportunity in risk management and compliance in fintech.AI and data governance go hand in hand, allowing democratized access to data to analyze, assess, and identify potential risks. As financial institutions generate and collect vast amounts of data, effective data governance practices have become increasingly critical. AI can help automate the data governance process, including data classification, data privacy and security, and data retention.
For example, AI can identify sensitive data and ensure it's protected according to regulatory requirements, reducing the risk of data breaches and complying with data privacy regulations such as GDPR. Automated policy management can help financial institutions create, enforce, and monitor policies, streamlining compliance and reducing the risk of regulatory violations.
As organizations start or continue their data journey, AI will be essential in remaining ahead of the competition. -Dr. Adi Hod, CEO at Velotix
“Decision intelligence is the edge of the future.”
In today's dynamic financial landscape, investment decisions have become more complex, uncertain, and fast-changing than ever before. Traditional methods relying on manual data analysis with spreadsheets and subjective decision-making are no longer sufficient.
Financial services, CFOs, and advisory firms, including investment banks, must embrace decision optimization to automate and augment their processes. By harnessing the power of artificial intelligence, they can reduce risks, increase speed and efficiency, and ultimately create a competitive advantage in critical areas such as M&A, investments, and more.
Investment decisions involve intricate analyses, considering various factors, such as market trends, financial statements, risk assessments, and due diligence. With an overwhelming amount of data available, relying solely on manual analysis becomes a daunting task prone to errors and biases. Here, decision optimization with AI comes to the rescue, enabling financial professionals to efficiently process large datasets, identify hidden patterns, and derive valuable insights.
By leveraging AI-driven decision optimization, financial services can reduce risks and enhance the speed of their decision-making processes. AI algorithms can perform complex scenario analyses, risk simulations, and portfolio optimizations within minutes, providing CFOs and advisory firms with critical insights to make informed decisions. This not only minimizes the chances of making costly mistakes but also enables them to capitalize on emerging opportunities swiftly.
During M&A or investment processes, due diligence and valuation play crucial roles in determining the potential success and risks involved. Manual analysis can be time-consuming and error-prone. However, by applying AI-driven decision optimization, financial services can streamline due diligence processes, automate data analysis, and accelerate valuation calculations. AI systems can quickly analyze financial statements, identify anomalies, assess market potential, and provide comprehensive valuations, significantly enhancing efficiency and accuracy.
In an increasingly competitive market, decision optimization through AI offers a unique opportunity for financial services to gain a competitive edge. By leveraging AI-powered tools, CFOs, and advisory firms can make quicker, more accurate decisions, seizing investment opportunities ahead of their competitors.
The ability to process vast amounts of data, detect patterns, and generate reliable insights empowers financial professionals to stay one step ahead, navigate uncertainties, and create value for their clients. -Dr. Dominik Dellermann, Founder and CEO at Vencortex
“In order to fully leverage the potential of today's AI, you need to go cloud.”
Modern AI platforms cannot be operated on-premise, as they require a lot of computing power and must constantly learn from the largest and most comprehensive data sets possible. The next forward-looking generation of artificial intelligence in the B2B sector will therefore be operated in the cloud.
For a long time, we observed a strong reluctance in the financial industry to move to the cloud; this seems to be slowly but surely dissolving. On the one hand, this development is due to a new awareness and a new orientation of the regulatory authorities.
On the other hand, AI-supported providers such as Parashift enable the use of state-of-the-art AI in a regulatory-compliant manner. At Parashift, we were early adopters of the cloud and have enabled banks and insurance companies to be at the forefront of the development of AI in document processing. -Alain Veuve – Founder and CEO at Parashift
Explainability, Auditability, and Model Governance – transparent AI and automation
Explainability, audibility, and model governance are important considerations in the development and use of financial crime detection technology, especially when using AI and machine learning. Compliance teams need to employ solutions that can explain how their algorithms make decisions. This will allow them to understand why a particular transaction or activity was flagged as suspicious and make informed decisions about whether to investigate further. Compliance teams will increasingly need systems that leave auditable explanations for the accuracy and effectiveness of their models.
A black-box AI solution will not cut it when regulators review decisions the model has made. Model governance processes control these situations and ensure that models are developed, implemented, and maintained in a responsible and transparent manner. This includes considerations such as risk management, testing, and continuous monitoring. By incorporating explainability, audibility, and model governance into their AI compliance efforts, financial institutions will ensure that their financial crime detection technology is effective, accurate, and transparent.
Model Validation – the evaluation of model effectiveness
Model validation is the process of evaluating an AI model or algorithm to ensure accuracy and effectiveness. Model validation helps financial institutions to ensure that their systems are working as intended and identify any errors or biases that may be present. By performing model validation, FIs can gain confidence in the performance of their financial crime detection technology and make informed decisions about how to use it. As FIs increasingly use AI models to detect money laundering and fraud, model validation will be essential to ensuring the models function as designed. -Tobias Schweiger, Co- Founder and CEO at Hawk AI
The advent of generative AI technology will have a profound impact on fintech organizations in the coming years. One of the most important technologies that can provide immediate impact, allowing organizations to realize significant benefits, is generative AI synthetic data. Some of the many use cases include:
- Data democratization to derive valuable insights while maintaining compliance with privacy regulations.
- Promote innovation and experimentation to test hypotheses and develop new products and services without the constraints associated with real customer data.
- Simulate various risk scenarios to improve lending processes, identification of potential defaults, and credit scoring algorithms.
- Training fraud detection models on diverse synthetic data enables better identification of patterns and anomalies associated with fraudulent activities, resulting in faster and more accurate fraud detection, saving money, and building trust among customers.
- Create cost and time savings by eliminating the need for manual collection and cleaning of large datasets, accelerating time to value new products and features.
To be effective, generative AI synthetic data must provide both utility (accuracy) and privacy of generated data. With the wave of generative AI startups entering the market, selecting a partner with fintech experience is critical to ensure the effective use of this exciting technology. -Mike Eckhoff, Chief Revenue Officer Mostly AI
“AI Transforming Compliance and Transaction Monitoring in Banking and FinTech”
AI continues revolutionizing the banking industry, and Vespia is at the forefront with Julia AI. This innovative technology is a full Know Your Business, or KYB, and Anti-Money Laundering, AML, compliance tool with AI-powered transaction monitoring capabilities. It's a game-changer in the battle against financial crime.
Banks and financial institutions face the daunting task of manually processing vast amounts of data for compliance purposes, which is not only labor-intensive but also prone to human error. Julia AI, with its advanced machine learning algorithms, automates these processes, drastically reducing the chance of errors and improving efficiency.
Moreover, its AI transaction monitoring system is a significant step toward proactive financial crime prevention. By learning from past transactions, the system can identify unusual activity patterns and flag potential risks in real time. This predictive capability is crucial in today's dynamic financial landscape, where traditional rule-based systems often fall short.
As we move forward, I predict that AI solutions like Julia AI will become the norm in the banking industry, helping institutions to keep pace with regulatory changes, improve their risk management strategies, and enhance overall customer experience. The era of AI-powered compliance and transaction monitoring has truly begun. -Anton Vedešin, CTO and AI Expert at Vespia
According to McKinsey,generativeAI has the potential to generate up to $4.4. trillionvalue across industries, with a potential productivity boost of 3-5% of global revenue, or $200-340B, in banking alone. Analysts expect enhancements in customer service, improved decision-making, and employee experiences, and decreased risks through better monitoring of fraud and risk.
Fintech-specific large language models like BloombergGPT, or its open-source alternative FinGPT, have been released to serve the specific use cases of the fintech industry. These new enablers will feed an entire ecosystem of new LLM-based fintech applications, from robo advisory to risk management to fraud detection, financial analysis and predictions, and financial education.
However, this AI boom introduces new risks – such as potential biases, cybersecurity threats, or hallucinations in language model outputs – by integrating generative AI into financial decision-making. Fintech firms must thoroughly assess these risks and limitations in their unique use case context and ensure innovation does not compromise the trust and safety of delivered services. AI systems must be transparent, accountable, and robust.
Also the regulators are awake with an attempt to build guardrails for AI, including the new generative AI capabilities. The European Parliament just adopted its position on the AI Act, and the new regulation is expected to be finalised still this year, establishing rules for high-risk AI systems, including AI-enabled credit decisions, and promoting responsible and transparent AI use.
In the midst of this AI-driven transformation, fintech firms must adopt systematic AI governance practices to manage AI-specific risks and meet growing regulatory requirements. Proper AI governance, built on ethical principles and risk management best practices, will demonstrate the responsibility, accountability, and transparency of fintech AI systems. As AI becomes increasingly central in fintech and generative AI invites new types of competition to the market, companies balancing AI benefits with effective governance will stand out. -Meeri Haataja, CEO at Saidot
AI-driven automation and generative AI will completely revolutionize the customer relationship in the finance and fintech industry.
Through the use of generative AI models, customer service communication in banking will make huge leaps toward automation of a large part of 1st and 2nd level support requests. This, however, will not mean a compromise on customer experience! Thanks to the latest AI technologies, companies will be able to create natural and personalized interactions with banking customers, providing them with highly tailored assistance – on any channel they like.
We are already seeing generative AI set new standards in customer service within the finance industry, automating conversations from simple support requests to highly complex phone consultations. Generative AI is the future, also in banking. -Malte Kosub, CEO and Co-founder at Parloa
Quantum computing, with its transformative potential, is ready to propel the financial industry to new heights. Its unique computational capabilities offer a variety of advantages that can help reshape various aspects of finance.
In the realm of risk assessment, quantum computing's power to process complex data swiftly could redefine this traditionally challenging task. Quantum computers have the potential to swiftly calculate the outcomes of numerous financial events, enabling a more detailed risk analysis in a shorter time span.
Portfolio optimization is another domain where quantum computing shines. The task involves finding the optimal investment mix from a multitude of combinations, which is a complex, high-dimensional problem. Quantum computers, with their inherent capability to handle multiple calculations concurrently, can offer efficient solutions, outperforming conventional computational approaches.
Option pricing, a critical element in trading, could be revolutionized by quantum computing. Thanks to their high-speed processing capabilities, quantum computers can calculate precise option prices faster than conventional methods, providing traders with a competitive edge.
Moreover, Kipu Quantum, specializing in application and hardware-specific quantum algorithms, is stepping up to harness these benefits. Kipu Quantum's cutting-edge solutions aim to leverage the power of quantum computing, transforming the future of the financial industry. In the realm of finance, where every second and every decision matters, quantum computing offers a promising path toward efficiency and precision. -Dr. Tobias Grab, CSO at Kipu Quantum