Financials Author: Tommy Mi Apr 05, 2022 09:00 AM (GMT+8)

This article analyzes AI's role in fintech by applications.

artificial intelligence

AI adoption rate has seen a massive increase across all sectors. Fields with a significant upside by implementing AI technologies are looking at even greater growth rates. The global AI in the fintech market was valued at USD 7.91 billion in 2020. By 2026, the market will reach USD 26.67 billion, a CAGR of 23.17% from 2021. Today, the North American region holds the largest share in the market, with 44% globally, and the Asia Pacific region is predicted to witness the highest growth rate in the forecasted period (2021-2026).

An unprecedented influx of data has provided a fertile breeding environment for developing AI technologies. Furthermore, fintech companies that leverage artificial intelligence can benefit from cost reduction, improved workflow efficiency and assessment accuracy. The applications of AI to fintech are continuously increasing, and the increasing application has been a vital driving force in the market. This article analyzes the role and impact of AI on fintech by applications. 

Decision-making

AI is helping fintech companies to automate the client profiling process, which results in improved AI-driven decision-making when assessing loans, investments, and more. AI utilizes human methods, but it enables far superior computation capabilities that humans cannot achieve. This feat has allowed AI to give recommendations on investing, savings, and borrowings accurately. Instant data-driven decision-making helps to quote the most accurate numbers for financial products. This, in turn, help fintech organizations to save time and cost. At Upstart, 70% of the loans have been made fully automated. Utilizing the capabilities of AI, Upstart can overhaul the outdated credit scoring system and make better loan decisions. As a result, the company would lend to less risky clients, making loans more accessible to customers. According to the company, four in five Americans have never defaulted on a credit product. Yet a surprisingly small portion of people has access to prime credit. AI's implementation in decision-making for the fintech industry would benefit the sector to achieve higher profits with lower risks. 

Fraud detection

The digitization of industries has led to an upsurge in fraud activities, and the fintech industry is no exception. The global fraud rate, according to veriff, increased by 15% in the first half of 2021. And fintech saw a rapid 21.24% increase in fraud rates from 2020 to 2021. With the industry becoming more susceptible to fraud as more companies move online, AI could help to cut the number of fraud activities significantly. Fintech companies are supplementing their traditional anti-fraud systems with AI. With technologies such as Machine Learning (ML), companies' systems can now recognize patterns in fraudulent activities through data input and make data-based decisions on whether something is fraudulent. Fintech giants Ant Group has already established a mature system for anti-fraud through AI. Per the company's 2021 Anti-Fraud Governance Annual Report, Ant Group's Alipay can use AI to detect over 50 different types of fraud automatically. The AI is essentially 'racing' with scammers by detecting and delaying suspicious transactions and intervening via questions, calls, or pop-ups to at-risk customers. 

Customer support

Having live agents to cope with customers' needs 24/7 is inefficient and expensive. AI-enabled smart FAQ allows customers to get faster and more accurate responses to specific questions. Moreover, AI provides tailored support based on customers' questions, usage, transactions, and interests. AI-driven customer service can streamline onboarding for new services and apps. SenseTime even rolled out a digital human named 'Xiao Ning' for the Shanghai branch of Bank of Ningbo. 'Xiao Ning' can greet customers and provide various business consultations and questions through professional and natural interactions. It can also conduct intuitive guidance and intelligent sorting according to customers' needs. At the back end, the digital human is connected to the bank operation management platform, which can realize the continuous update of the knowledge base and business data analysis and promote the intelligent management and operation of the banking system. AI features like a digital human can reduce the operating costs from agent hires and training. They further help gather and sort data to predict trends in service demands. Adding digital humans helps provide a coherent user experience. Although the extent of AI-driven customer service still rests on human endeavors, AI is likely to dominate and eventually edge out human labor in customer support. 

Outlook

AI will continue to be a driving force within the fintech sector. But concerns have arisen regarding data access. Regulations may intensify as AI and fintech progress and leverage more data. Pandemic accelerated the shift from physical to digital, which has affected the fintech industry in different ways. But the overall effect of transitioning to digital is advantageous for the sector. 

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AI in fintech promises tremendous benefits to individual customers and financial institutions. Countries will save millions wielding the capabilities of AI. Studies found AI will cut operating cost for banks by 22% by 2030, which is a savings worth approximately USD one trillion. AI will also help the industry in coping with the adoption of blockchain and its related products and services. And with a lead in almost every single category of fintech adoption, China should be on the watchlist for investment opportunities in AI in fintech.