Unlocking the Potential of AI in the Fintech Industry

Table of contents

How is AI Changing the Financial Industry
Challenges and Solutions in AI-powered Fintech
1. 2.1 Data Privacy and Security
2. 2.2 Scalability and Integration
Why Embracing AI is Important in the Field of Fintech
1. 3.1. Improved Customer Experience
2. 3.2 Regulatory Compliance and Reporting
3. 3.3 Market Insights and Trading
Future of AI in Fintech
Case study: Wealthfront
Bottom Line

Financial technology (FinTech) is an example of how innovatively the financial sector has transformed over the years. The explosion of data and new technologies in this industry have started embracing the use of artificial intelligence (AI) to manage and analyze the data. Read on to learn more about AI’s contribution to the financial entities that have revolutionized the industry.

1. How is AI Changing the Financial Industry

Artificial intelligence is a new wave in the fintech industry, as banks and financial institutions are using it to overcome repetitive and hectic tasks that were earlier conducted manually. As per sources, the global fintech market with AI has a market size that is valued at $8.23 billion in 2021. In the upcoming ten years, the industry can reach $61.30 billion and experience 22.5% CAGR growth from 2022 to 2031. Alexander Peh, the Vice President and Head of Innovation at RBC said, “The major winners will be financial services companies that embrace technology.” When finance and AI come together, it helps both financial institutions and end-users focus better on accessibility, efficiency, and customer-friendly experiences.

2. Challenges and Solutions in AI-powered Fintech
After the implementation of AI, financial managers, team leaders, and advisors tend to face some common challenges that can bottleneck financial services. However, there are solutions to these problems, such as:

2.1 Data Privacy and Security
Protecting sensitive financial data using AI tools and techniques in fintech can be risky and privacy-violating. Fintech entities such as banks, financial institutions, and fintech partners need to prioritize the security of their customers’ data from unauthorized access.

Solution: Financial entities can implement encryption, multi-factor authentication (MFA), and firewalls as security barriers and monitor incoming and outgoing traffic based on security policies and rules.

2.2 Scalability and Integration
Data is essential in the financial sector; there might be instances where the AI platforms fail to handle the increasing transactions due to no updates in the existing infrastructure that they have.

Solution: With the help of advanced data analytics and cloud-based solutions, the scalability and integration issues can be eliminated, increasing productivity.

3. Why Embracing AI is Important in the Field of Fintech
AI has allowed better market insights, boosting customer experience, and familiarizing new dynamics on regulatory compliance and reporting in the financial industry. Financial enthusiasts believe that AI and fintech are the best combinations to empower the industry. Here is why:

3.1. Improved Customer Experience
Nowadays, customers are very tech-savvy. Thus, financial institutions have come up with better UX and chatbots that are available 24 hours a day to answer all queries and ease digital transactions. For example, HSBC has embraced an AI-generated chatbot called Amy to upscale its customer support operation. Amy solves customer queries 24×7 and is available in different languages. This chatbot constantly learns from its customer interactions to get better at query handling.

3.2 Regulatory Compliance and Reporting
Financial institutions and banks often face issues while processing data manually; however, with artificial intelligence, the anti-money laundering (AML) and know-your-customer (KYC) processes are streamlined properly with the help of tools and techniques used by financial professionals. One such instance is FIS, a technology solution provider for financial businesses and institutions that uses a machine learning-based platform to analyze and aggregate customers’ data to improve the AML and KYC processes in real time for effective processes and customer satisfaction.

3.3 Market Insights and Trading
AI-powered algorithms can guide traders in executing trades based on current market data, pre-identifying strategies, and optimizing trading outcomes. For example, TD Ameritrade has an AI model that forecasts market trends and enables it to make data-driven strategies for its customers. It provides traders with access to real-time market data and analysis tools with a range of customized options suitable for beginner and experienced traders.
Till now, we have discussed how AI plays an important role in shaping various financial sectors with the help of tools, techniques, and solution-based platforms. Let’s take a look at how fintech will look in the future with an example of a real-life case study.

4. Future of AI in Fintech
The fintech industry has undergone an incredible transformation in recent years. The evidence here is that market value has increased drastically, making artificial intelligence a potential choice in the future. In the past few years, the fintech industry has witnessed a huge investment of $134 billion. In the upcoming years, it can reach more than $188 billion when new technologies are implemented to enhance financial services and provide customers with a better understanding of their money.

Here is a quick glimpse of Wealthfront’s unique platform for investors and financial enthusiasts, which has increased the company’s revenue by $117 million.

5. Case study: Wealthfront
Wealthfront is a powerful asset under management (AUM) that has introduced robo-advisory platforms for investors and financial enthusiasts that recommend investments and portfolio management. Using AI algorithms, the company analyzes vast data on market trends, investment goals, and risk tolerance and personalized investment advice to all investors.

Bottom Line
AI has created a significant impact on the financial industry, and this connection has a long way to go. The concept of digitization has helped in reducing costs, improving customer service, and increasing efficiency among financial professionals. However, a few challenges can bottleneck the financial sector, but with the help of experienced and trained professionals, these issues can be mitigated easily at every stage.