The Impact of Artificial Intelligence in Fintech

The rise of Generative Artificial Intelligence (GenAI) like ChatGPT, continues to buzz across the marketplace unlike anything we have seen recently. One industry that is leading from the front in terms of adoption and implementation of Artificial Intelligence (AI) is the FinTech sector. In this article Joseph O’Flynn highlights the impact of Artificial Intelligence in Fintech and the growing desire for AI experts.

Despite all the opportunities presented using AI in the FinTech industry, there are some big concerns. The most obvious of which are around trust and bias. Anyone who has played around with any of the GenAI tools and platforms will have experienced receiving factually incorrect results. Rightly or wrongly, some critics question if we can trust AI to make financial decisions. More alarmingly there have been reports of AI bias, with chatbots and robot perpetuating discrimination and misinformation.

A Study from Women’s World Banking found that credit scoring AI systems employed by global financial service providers are likely to discriminate against women, excluding women from loans and other financial services. In 2018 Amazon scrapped its AI recruiting tool after discovering it favoured male candidates over female candidates for software development roles.

Legislation impacting AI

The EU AI Act, set to be adopted in April, is poised to be as impactful as the General Data Protection Regulation (GDPR). It encompasses regulations governing the development, deployment, and use of artificial intelligence systems across the European Union. Much like GDPR, it prioritises transparency, accountability, and ethical considerations, aiming to balance innovation with fundamental rights and values. This legislation is expected to have widespread implications for businesses and individuals alike, shaping the future landscape of AI within the EU.

It will be interesting to see how it will impact the FinTech market and whether other regulators will follow their lead. In 2018 there was a rush on GDPR experts, there is growing evidence that the same will happen once the EU AI Act is finalised.

The creation of opportunity

Clearly these concerns have not put off the market. According to Grand View Research the AI Market is expected to grow at 37.3% (CAGR) between 2023 to 2030 with FinTech set to be one of the biggest beneficiaries of this growth. As recently in Feb 2024 New York based FinTech company , Biz2Credit have struck a deal to feed Magnati’s real-time payments data into AI models on its lending platform. It is highly likely this will not be the last time such a deal happens in 2024.

11:FS, a global fintech consultancy, emphasised that in 2024 the big winners will be FinTech businesses that are able to deliver tailored financial services and a more consumer-centric approach. FinTech firms that can deliver greater personalisation will make great strides in the marketplace. Greater personalisation is only possible through harnessing the power AI, Machine Learning, and real-time data. Quantexa, the AI Decision making platform, explored the delivery of hyper-personalisation within insurance. Demonstrating the gains to be made, Quantexa pointed to a Tier 1 client who deployed these capabilities. The client was able to deliver $200m in additional revenue as a result of implementation.

AI in the fight against Fraud

The other main positive from the rise of AI, is the assistance of Fraud Detection. According to the latest True Cost of Compliance report from LexisNexis and Oxford Economics, the UK Financial Services industry is spending £34.2 billion each year on financial crime compliance. AI is being used to lead the way in helping the Financial Services space improve its fraud detection, using customer purchase profiles to allow financial institutions to understand typical customer behaviour. Models are being used to create Fraud Scoring Systems, that rank each transaction in terms of likelihood of fraud when compared to existing habits and data. The ability to analyse hundreds or thousands of transactions per second, should make fraud detection and investigation more robust and easier to spot.

What are business leaders focused on?

The potential of AI to transform the Fintech and Banking sectors has quickly become top of the agenda among business leaders. Seemingly the answer to the productivity conundrum, process efficiencies, and closing the skill gap, GenAI is changing ways of working for all. We are already experiencing an increased dialogue around AI experts across FinTech, it may only be a matter of time before this skillset is no longer desired but required. However, currently the single biggest constraint and barrier to GenAI adoption is: Insufficient expertise and resources in-house, and a lack of knowledge on where to source it. As is the case with all great technological advancements it creates a talent shortage.

Summary
The use of Artificial Intelligence in Fintech has the potential to deliver us a golden age of Financial Services; providing personalised experiences, elevated customer service, and robust fraud prevention. Despite the inevitable challenges with new technology, proactive measures aim to ease the transition, paving the way for an innovative future in financial technology. In 2024, the demand for AI experts is likely to reach critical mass within FinTech. Perceived talent shortages, increased desire for AI adoption, and the EU AI Act will all elevate the necessity for skilled professionals. Hiring Interim Managers with AI expertise is one way to navigate the evolving landscape, ensuring seamless integration, compliance, and optimisation of AI technologies within financial services.