How AI is transforming the fintech industry

Kate Leaman, chief market analyst at AvaTrade

The fintech landscape is currently in the midst of a transformation, powered by artificial intelligence (AI). AI is changing how we manage money, invest, and secure our financial transactions. As AI technology evolves, it is increasing the efficiency and accessibility of financial services in addition to revolutionising the way we interact with our finances.

From sophisticated robo-advisors offering personalised investment strategies, to developed technologies that detect and prevent fraud in real-time, the fintech landscape is leading the charge in the adoption AI. In fact, AI is anticipated to continue its upward trajectory as the market size for the technology in the fintech landscape is estimated to reach 44.8 billion dollars in 2024.

AI trends in 2024

AI is an evolving technology and despite being in its infancy, industries are increasingly embracing its use across all aspects of the business. For instance, personalised AI applications are redefining the entertainment, healthcare, and education industries. As such, AI will enrich user experiences, driving customer satisfaction to new levels.

Kate Leaman

The evolution of AI will centre around hyper-personalisation, transforming how businesses interact with consumers. Additionally, AI algorithms will become progressively more attuned to individual preferences, behaviours, and needs across various sectors. In the financial realm, this means tailored financial advice, investment strategies, and risk assessments based on nuanced customer profiles.

The impacts of AI on the fintech industry

As AI is becoming ubiquitous in all industries, the technology has proven itself to be a game changer across a range of sectors, including fintech. The fintech industry is currently one of the leading industries when it comes to implementing AI, with 36 percent of the sector using or trialling the technology. From delivering improvements in risk management, trading, investment decisions and customer service, AI can optimise services to increase accuracy and efficiency across all business operations. These advancements will not only streamline processes, but also enhance accuracy and efficiency.

What’s more, neobanks – digital-only banks – are increasingly offering personalised services through the use of AI. These banks are utilising the technology to analyse customer data and provide personalised recommendations for financial products and services. A rise in the number of neobanks offering these user-friendly, cost-effective banking solutions which utilise AI is expected to take place this year.

Adding to this, AI-driven algorithms will continuously learn and adapt, optimising financial strategies and customising services for individual consumers. Ultimately, the fintech sector will witness improved user experiences, innovative financial products, and more accessible and personalised services, resulting in increased competitiveness and market growth. Nevertheless, the benefits of AI do not stop there.

AI and security

Looking ahead, AI is set to be a pivotal technology in the fintech industry. The technology has the potential to strengthen security as financial institutions can implement AI and machine learning for risk management purposes. For instance, these technologies can analyse large volumes of data to predict and manage credit risks, market risks, and operational risks more effectively. According to Moody’s research, 9 of every 10 early adopters of AI reported benefits such as enhanced risk identification, tighter fraud detection, cost saving and error reduction.

As digital transformation continues in financial services, the need for maximised cybersecurity strategies is more critical now than ever before. Financial organisations each suffered approximately 50 known attacks in 2023 – more than any industry. As a result, companies will have to invest more in advanced security technologies to protect themselves against cyber threats and guarantee data privacy for their employees and customers.

The UK financial sector also spends approximately £34.2 billion each year on financial crime compliance (FCC), emphasising the need for improvements in cybersecurity. The use of AI will undoubtedly make cybercrime such as fraud easier to identify. Though AI will revolutionise the fintech sector in more ways than one, it needs consistent oversight.

The need for regulation

While AI undoubtedly brings numerous benefits, the fintech industry must proceed with caution. The rapid pace of AI development requires careful consideration and regulatory oversight. While the innovation potential of AI is immense, the ethical implications and potential risks should not be ignored. Strides in this have already been taken with the recent parliamentary AI and fintech summit in the UK calling for AI regulation and investment.

Regulators across the globe need to adopt a proactive approach by collaborating and sharing information with AI developers, businesses, and experts to create and establish widespread frameworks that balance innovation with ethical use. These frameworks should encompass standards for AI transparency, accountability, and fairness.

Ultimately, AI possesses vast potential to redefine the fintech realm in areas such as personalisation, business operations and security. But like all emerging technologies, regulation is needed to align its evolution with ethical implications.


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