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How AI is Transforming the Fintech Industry

Overview

Financial technology ("FinTech") refers to businesses that aim at providing financial services by making use of software and modern technology. With revolutionary shifts in Internet and mobile technology in recent years, the FinTech industry has witnessed explosive growth by being a pioneer in embracing advanced technologies. Artificial intelligence (AI) has become a promising technology for enterprises from various sectors of the economy. The market for AI in FinTech is estimated at USD 42.83 billion in 2023. According to the Mordor Intelligence report, it is expected to reach USD 49.43 billion by 2028, growing at a CAGR of 2.91% during the forecast period 2023-2028 [1]. Forrester estimates that about half of the world's banks and insurance agencies use intelligent algorithms in their transactions, and the demand for FinTech development services continues growing [2].

Data Digitization Accelerating Fintech

FinTech companies benefit from AI. FinTech players use technology to streamline standard business processes as digitization becomes inevitable. They are doing away with manual work, and technology is rapidly taking over, making business processes more efficient. Technology helps to work with data, which is a rich competitive resource. Businesses use only 0.5 percent of 44 zettabytes of data generated annually [3]. The financial industry has a lot of information: browser specifications, transaction history, images, confidential information, etc. According to research by Mordor Intelligence, process automation was one of the most significant drivers of AI in financial organizations. It rapidly evolves to cognitive process automation, whereby AI systems can perform complex automation processes [4].

Automated Financial Analysis For Increased Throughput

Employing robotic process automation (RPA) for high-frequency repetitive tasks eliminates the room for human error. It allows a financial institution to refocus workforce efforts on processes that require human involvement. It reduces the burden on finance professionals, particularly around the cornerstones of traditional activities, such as transaction processing, audit, and compliance. Amidst the COVID-19 pandemic, FinTech built contactless methods and AI-assisted businesses to automate financial analysis. Artificial intelligence-enabled software verifies data, generates reports according to the parameters, reviews documents, and extracts information from forms. It emphasizes financial analytics and forecasting, strategic risk and resilience, compliance and control, and better data-driven financial management. Ernst & Young has reported a 50 percent to 70 percent cost reduction for these tasks [5]. Forward-thinking industry leaders look to RPA to cut operational costs, enhance user experience and boost productivity.

Human-Like Chatbots For Advanced Customers Engagement

Personalization is becoming increasingly crucial in FinTech to deliver a banking experience that provides an accurate answer in natural language to the customer. AI-powered chatbots help minimize the workload placed on call centers as they tackle the most typical and frequent user problems. The chatbot market is predicted to amount to 454.8 million dollars in revenue by 2027, according to a Statista report [6]. Each chatbot uses a complex sentiment analysis that focuses on understanding the customer’s experience with their service/application, identifying ways it falls short, and training the chatbot to address those shortfalls. Communication between customers and FinTechs is becoming easier and more accessible with AI-based systems. Providing 24×7 banking services is the best way to show availability for bank service providers. With machine learning, AI enhances customer engagement with the ability to respond instantly, resulting in more customer acquisition.

Enhanced Decision Making With Data-Driven Insights

A decision is always informed if it is data-driven. Customers can utilize FinTech apps that have data visualization tools. These tools can break down complex data into a simple form that everyone can understand and digest insights. It improves their financial decision-making. At the corporate level, data-driven decisions have substantially transformed how different issues are handled. Instead of recommendations from human experts, managers are basing their decisions on machine-generated information. For instance, the COVID-19 pandemic has strongly affected FinTech and its consumers, who have shifted now to employing mobile apps more actively. So it has become a golden chance for enterprises to get significant insights into customers and their user experience. That data can be used to fortify their market reputation consequently. AI and data visualization tools can analyze data and provide the most viable and practical recommendations.

Predictive Analytics Reducing Errors

The success of many FinTech companies depends on how well they can analyze current business trends and predict the trends of tomorrow. According to a recent study by the Entrepreneur, AI offers predictive analytics, which is a significant game-changer since it enhances business operations and improves internal processes, giving financial organizations a competitive advantage. It also helps stock traders make decisions by predicting fluctuations in the market. Good analytics in FinTech affects sales growth, business development, and competitiveness. It may depend on predictions of whether a loan will be issued to a reliable person or an insolvent one, what financial products will be helpful to customers in the future, and so on. Studying a vast amount of data is necessary to find a pattern in processes and draw reasonable conclusions, as is learning how to store and protect it. Artificial intelligence examines stored customer data, "tells" managers how to use the information profitably and can reveal complex and unexpected variables.

Secure Your Organisation With Fraud Detection & Enhanced Security

Fraud is one of the most pressing problems the finance industry faces nowadays. According to Javelin, users and businesses experienced a 56 billion dollar loss in 2020 due to fraud [7]. It hampers the companies' reputation, customer experience, and financial loss. Hence, banks, enterprises, and financial institutions employ AI to react to suspicious activity before the fraud happens by blocking a user's request or accessing their account if the system detects potentially fraudulent activity. Over the years, artificial intelligence has significantly boosted data security in the FinTech sector. AI offers a variety of solutions via chatbots designed to enhance security precautions, such as resetting forgotten passwords and granting additional access. Another way AI improves security in finance is through speech, facial, and fingerprint recognition. This added layer of security makes it more difficult for trespassers to bypass than traditional passwords. While these types of processes are still being perfected, AI-backed security solutions may completely replace usernames and passwords in the near future. 

Automate Reconciliation, Underwriting & Claim Management

AI is beneficial in corporate finance as it can better predict and assess loan risks. For companies looking to increase their value, AI technologies such as machine learning can help improve loan underwriting and reduce financial risk. AI technology can increase efficiency and automate workflows by accelerating underwriting processes, delegating tasks for human attention, offering better data-informed banking policies faster, and improving customer experiences. With AI, underwriters can accurately pinpoint optimal rates based on the individual customer for optimal risk management. AI-based pricing models also help reduce the time it takes to introduce new pricing frameworks across the underwriting lifecycle.

Summary

Fintech is one of the rising businesses, and its success depends solely on the technologies being deployed by industry experts. As technology advances rapidly, AI use in the FinTech industry will soon be more adapted for enhanced efficiency, improvised precision levels, and high-speed query resolution. AI in FinTech drives innovation, leading to personalized, fast, and secure services with higher customer satisfaction and global reach. Thus, artificial intelligence is digitizing finance like never before. With integrations, digital finance is reaching new heights as they create a better economic environment for banks and their clients.

Author Bio:

Rithvik is an analyst at ScryAI developing AI products. He received his bachelor's in Data Science from the IIT-Madras.

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