The arrival of automated solutions in the domain of finance introduced plausible improvements over the years. Now, the discussions about the role of AI in fintech have been gaining traction, as financial services and solutions could become more cost-efficient and accessible. How will AI change the future of fintech? The following post helps you find the answer by reviewing the applications and challenges for artificial intelligence in fintech.
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What is the Significance of AI in the Domain of Fintech?
The first thing about fintech is that it implies a paradigm shift in the design of financial services. You might come across questions like “Is AI needed in fintech?” when you think about technological advancements required for finance. Interestingly, the importance of artificial intelligence in fintech has developed beyond expectations.
Market research reports have pointed out that the market for artificial intelligence in fintech can grow up to almost $31 billion by 2027. What factors could drive such favourable trends for adopting artificial intelligence in fintech? You can find a reliable answer with references to possibilities for coming up with a personalized approach to the target audience in fintech.
The benefits of AI in fintech would emerge from the outcomes of the advanced algorithms, which help in developing an in-depth understanding of user behaviour. Fintech companies have the best chances of leveraging AI and its comprehensive insights into consumer behaviour for defining their strategies.
For example, AI can help fintech companies identify suspicious behaviours which can lead to loan fraud. AI can also help fintech businesses expand their service offerings and reduce financial risks. Artificial intelligence works to detect fraud and improves safeguards against unauthorized or anonymous access through advanced methods.
Reasons for Embracing AI in the Field of Fintech
The importance of AI in fintech reveals significant insights into how artificial intelligence can improve fintech services. However, it is also important to learn about the other important reasons for encouraging the adoption of artificial intelligence in fintech. Here are the common reasons why AI can play a major role in transforming the development journey of the fintech industry.
One of the first aspects which favour the adoption of artificial intelligence in fintech would refer to customization. AI and ML ensure that fintech companies don’t have to worry about the manual setup for their plans. On the contrary, AI helps in creating personalized investment plans and financial instruments according to the preferences of the audience.
In addition, answers to “How AI affects fintech?” would also point to the assurance of robust security. Fintech companies can leverage the power of automation to their advantage with AI for eliminating redundant tasks.
Artificial intelligence offers personalized recommendations following a detailed review of data according to different critical parameters. Subsequently, it can provide suggestions for a reliable investment plan that would fit the customer’s requirements. The applications of AI have also reduced the possibility of failure in loan processes and financial transactions.
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Personalized Customer Experience
The biggest advantage of artificial intelligence in fintech would refer to the personalization of customer experiences. Discussions about the role of AI in fintech would point to the troubles of inefficient service delivery in fintech. Banking services have been at the receiving end of criticism for their inability to deal with user demands and queries.
For example, banking system servers can crash in the event of higher network congestion, leading to inconvenience for customers. On the contrary, applications of artificial intelligence can change user experiences with fintech systems.
One of the best examples of benefits of AI in fintech would point to AI chatbots, which have emerged as personalized solutions for customer experience. The fintech industry has provided successful examples of the adoption of AI chatbots. Users can communicate with AI chatbots to find answers to their queries or issues regarding access to financial services. Chatbots are available at all times and could help fintech services in interactions with users throughout the world.
The value benefits of artificial intelligence in the domain of fintech would also focus on improved access to business intelligence. Artificial intelligence provides the opportunity to boost your data analytics capabilities throughout different domains. With the help of AI, you can conduct research and analysis on fintech data to obtain valuable insights. For example, you can find important patterns in the usage patterns of services by the competitors of a fintech firm.
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What are the Challenges for Fintech Companies in Embracing AI?
The benefits of AI show that every fintech company should adopt artificial intelligence right now. On the contrary, you can make the most of artificial intelligence for fintech only by addressing the important challenges. You have to find answers to “How AI affects fintech?” from two different perspectives, one for the benefits and another one for challenges. Here are some of the common challenges for the adoption of artificial intelligence in fintech companies.
The plan of businesses to adopt an advanced technology like AI is always a welcome sign for the fintech sector. However, most of the organizations and startups in fintech have to fight against the inherent limitation of the lack of financial capital. Fintech companies are less likely to pay attention to the benefits of AI in fintech when they take a look at the costs of adopting artificial intelligence in fintech.
Interestingly, the successful examples of adopting artificial intelligence in fintech applications have fuelled the growth of AI adoption in fintech. As a matter of fact, around 86% of banks and insurance companies worldwide have plans to invest in AI by 2025. Fintech companies need a structured and resilient AI investment policy to find a suitable way toward their future.
Artificial Intelligence is a new technology, and every new thing can create curiosity as well as fear. Even if people and companies are talking a lot about the benefits of adopting artificial intelligence, reality depicts a different picture. Many people state that AI is not the ideal fit for financial services.
For example, questions on the role of AI in fintech have been targeted toward the functionality of AI-based chatbots. Critics have pointed out that AI-based communication can never replace the effectiveness of human interaction. However, the changing perceptions around the functionality of AI have created possibilities for addressing the challenges regarding resistance to AI.
The next big challenge in the adoption of AI for financial technology services, networks, and systems is the lack of skills. Most of the businesses in fintech have professionals working on existing technologies in the financial services sector. AI is still new in the world of technology, and you can find a massive skill gap as professionals struggle to familiarize themselves with AI concepts. On top of it, fintech companies do not have effective frameworks for hiring and retaining AI talent. As a result, the prospects for adoption of AI in the field of fintech can be affected due to administrative hurdles.
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Use Cases of AI in the Field of Fintech
The most important requirement for understanding the potential of AI for improving fintech would point to AI use cases. You can find a better explanation for “How AI affects fintech?” by referring to the use case of artificial intelligence in fintech. Here are some of the notable applications of AI for improving the uses of fintech.
The applications of artificial intelligence have emerged as promising boosters for data security in the domain of financial technology. You can find many AI-based chatbots by banks and fintech companies for improving client service. The AI models underlying fintech operations with chatbots can help in improving security.
For example, the applications of AI in fintech can help in allowing additional access or resetting lost passwords. Artificial intelligence can also boost fintech security by enabling facial, fingerprint, and speech identification. The additional layer of security can help safeguard valuable financial service data against breaches.
Personalization in Banking
The most pressing concern for fintech companies is evident in the large base of customers. While a fintech platform with a large number of customers is a good sign for success, it also brings some hidden challenges. Most important of all, banks and financial institutions have to think of new ways to cater to the individual needs of every customer.
The benefits of AI in fintech can help in boosting personalization, which would help fintech companies in earning trust of customers. AI systems can use customer data for recommending pre-approved items and customized financial advice. Artificial intelligence systems can improve over the course of time with their self-learning capabilities. For example, AI models can evaluate speech and voice characteristics to identify accurate patterns of customer behaviour.
The use cases of artificial intelligence in fintech also draw attention to the use of asset management. Some of the popular investment funds have been utilizing complex algorithms to come up with resilient simulations and forecasts. As a result, AI has offered the ability to restructure different processes in asset management. At the same time, fintech companies can also come up with new services, such as wealth management tools.
Fintech companies have identified the effectiveness of AI for asset management and are considering the implementation of such solutions for improving adoption among users. The use cases of AI in asset management are evident in examples where users can manage bank statements directly from their devices. In addition, artificial intelligence also helps in removing intermediaries from asset management, thereby reducing operational costs.
Insurance and Loan Risk Assessment
The list of AI use cases in the domain of fintech would also draw references to the effectiveness of transforming insurance and loan evaluation. First of all, the role of AI in fintech primarily helps to improve the effectiveness of financial tools. Based on this assumption, fintech apps can use AI to define new perspectives on the evaluation of insurance policies. Artificial intelligence can help in evaluating the risk level of an individual according to their activity. The automobile industry has successfully leveraged the use of AI and IoT for calculating the risk level of an individual by monitoring their driving skills.
Similarly, the applications of artificial intelligence for fintech can also transform the functionalities of lending apps in fintech. Artificial intelligence can help in evaluating the credit exposure and financial habits of an individual for credit scoring. On top of it, the use of artificial intelligence can help in improving accuracy in comparison to the traditional loan underwriting process. Most important of all, the use cases of AI in loan risk assessment can help in reducing biases that can affect decisions of humans.
Improved Access to Algorithmic Trading
The biggest impact of AI on the domain of fintech would refer to algorithmic trading. Artificial intelligence provides the flexibility for conducting stock trades according to a pre-defined set of instructions for decision-making. Algorithmic trading use cases of AI leverage the numerous data points and evaluate them in real-time to produce valuable insights.
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The review of the implications for AI in financial technology shows that AI is necessary for fintech. Without AI, you cannot imagine a landscape of technical solutions for financial services. Artificial intelligence helps connect the dots within the fintech industry while resolving common pitfalls.
For example, AI use cases in fintech can resolve security concerns while improving personalization. On the other hand, applications of AI must also face the challenges for adoption in fintech. Learn more about fintech fundamentals and how it works to identify the right place for AI in the fintech landscape.