Artificial Intelligence has helped revolutionize several industries since its emergence. This includes the Fintech industry.
How is AI used in Fintech you might ask? Well, it has transformed many existing systems. AI in Fintech industry has changed the way we bank, invest, and other ways we manage our finances.
Other processes like fraud detection and risk management have also become streamlined. AI has the ability to predict outcomes based on the vast information it has access to.
With this technology providing personalized financial advice has become more precise.
This piece is a deep dive into three innovative ways AI has reshaped Fintech.
Machine Learning for Fraud Detection and Risk Management
As financial transactions become increasingly digital and global, the threat of fraud and financial crimes continues to rise.
The world of online gaming, for instance, invites a lot of fraudulent transactions. Several online casinos and betting site face the challenge of making sure every player is human.
The appealing bonuses and rewards that are usually associated with these sites give many players reasons to create multiple fake accounts.
According to the data experts at TransUnion, online gambling identity fraud cases shot up a startling 43% in 2021 compared to the previous year.
Enter machine learning, a subset of AI that enables systems to learn from data, identify patterns, and make predictions without being explicitly programmed.
By leveraging machine learning algorithms, fintech companies can analyze vast amounts of transactional data in real-time, spotting anomalies and potential fraud with greater accuracy than traditional rule-based systems.
A whitepaper by computer scientists from University of Jakarta reveals that machine learning algorithms can achieve upto 96% accuracy while reducing fraud in eCommerce.
One company leading the charge is Feedzai, a Silicon Valley-based AI startup that provides fraud prevention and anti-money laundering solutions to banks and fintech firms.
Robo-advisors and Personalized Financial Services
In the realm of wealth management and investment advice, AI is disrupting traditional models by offering personalized, cost-effective solutions through robo-advisors.
These digital platforms use AI algorithms to analyze a user’s financial situation, risk tolerance, and investment goals, and then automatically create and manage a customized investment portfolio.
By leveraging AI and machine learning, Betterment can deliver tailored investment advice and portfolio management services at a fraction of the cost of traditional financial advisors.
The market size for the robo-advisory market was estimated at 6.61 billion last year, with a projected growth of 30.5% from 2024 to 2030.
Beyond robo-advisors, AI is also enabling fintech companies to offer personalized financial services ranging from budgeting tools to credit card recommendations, all tailored to individual user profiles and behaviors.
AI-Powered Lending and Credit Scoring
Traditional lending practices often rely on limited data sources, such as credit scores and income statements, which can lead to biased decisions and exclude individuals with limited credit histories or alternative income sources.
However, AI is transforming the lending industry by enabling more comprehensive and accurate credit assessments.
Companies like Upstart, an AI-powered lending platform, use machine learning algorithms to analyze alternative data sources, including employment history, education, and online footprints, to determine creditworthiness.
This approach has allowed Upstart to approve more loans while maintaining low default rates, ultimately increasing access to credit for underserved populations.
As companies continue to explore the applications of AI in Fintech, we can expect to see even more innovative solutions that streamline financial processes, enhance security, and deliver personalized experiences to consumers.
The total spending value on gen AI was estimated at 3.86 billion dollars last year. This value is only showing growth.
Closing Thoughts on How is AI Used in Fintech
New technologies have transformed several industries within the past few years. The way Fintech operates now is far different than a decade ago, specifically with AI in Fintech.
This proves that in order to keep up with the pace, industries need to adapt to these changes. The Fintech industry in particular needs to implement AI in order to stay ahead of the curve.
The key benefits like an enhanced security system and personalization of financial services are somethings that the industry can no longer do without.
With the way AI in fintech has reshaped the industry, organizations must assume consumers have also evolved with their practices and behavior.
It goes to say that businesses that actively implement AI in their systems benefit greatly and stay ahead of competition as well.
With the rapid changes that both customers and businesses are witnessing, it is certain that there is only growth to look forward to.
