Fintech is understood as automation technology in financial services, which consists of new digital technologies. It provides cost-effective products to increase the speed of transactions and improve customer experience. Fintech has initiated a number of technologies in the banking sector. Those are causing a shift from traditional branch banking to a more digital customer-centric ecosystem.
New cutting-edge technologies, such as blockchain and smart contracts have been utilized to produce Peer-to-Peer (P2P) Transactions. Through cryptocurrencies, people now have the ability to exchange money directly with each other, without the use of an intermediary. It has brought an evolution to the way that we make payments and it has made the whole economic world wonder whether they can be sustainable or not.
But fintech is even more than that…
Artificial intelligence (AI) is emerging as a new technology concept that has revolutionized the financial industry in recent decades. How has AI-enabled Fintech entered the new chapter? In this article, we would like to also highlight some advantages of AI in Fintech.
The leading countries in the provision of FinTech services are the USA and the UK in which most companies are established and major investments are made. In Europe, the dynamic sector in FinTech is Germany, despite the strict regulatory regime. The Nordic countries centered on Sweden also play a key role due to the low establishment rates. As friendlier to FinTech, due to the upheavals created by the upcoming Brexit and which cannot lead to Greece as well, are Lithuania, having adapted its financial system to attract FinTech, and Belgium adopting a more technocratic approach to licensing.
Of course, big banks at first “snobbed” fintech companies as “marginal” but now they have reached a point where they have to accept the new technologies entering the financial services sector. And while Robo-advisors and other apps can help banks better serve their customers, they also threaten thousands of jobs. Banks, brokerages, and other traditional players are also concerned that fintech companies are exploiting the fact that they operate in an unregulated sector to gain market share.
The introduction of fintech AI models
Apparently, it has come up to disrupt banking… and in our opinion, not in a negative way. The revolution of blockchain is forcing banks to ask themselves about their new role in the fintech ecosystem. In this way, banks are becoming more Agile and are adopting new technologies to create new products for their customers. They are trying to build new business models of innovation where they do not act as intermediaries of transactions, but mainly as a safe place to keep customers’ deposits.
Apart from blockchain, fintech has introduced a number of technologies that are increasing the efficiency of the banking sector. Machine Learning (ML) and Artificial Intelligence (AI) have helped banks transform their core banking structures. First of all, machine learning applications significantly improve the effectiveness of cyber security systems. Through leveraging data from previous learning exposures, the models are developing patterns that make them better and “smarter” over time. They are creating indicators to predict and defend against cyber-attacks, resulting in the prevention of customer data abuse. Secondly, AI has made it possible for banks to use personalized data to analyze their customers’ profiles allowing them to improve their products, offer better innovative solutions and react at a faster pace.
The done deal about AI Models
The most critical part of financial companies is risk management. AI helps these companies assess the level of risk and classify customers into different types of sectors. Artificial intelligence is a great tool for this task because it ranks customer profiles and identifies trigger events through customer transaction history in seconds. In addition, AI can recognize unusual activities or transactions. This feature helps Fintech companies protect their customers’ money and better improve security.
The done deal about AI models is that they always come with human explainability… What we mean is that there is an extent to which the results of such models need to be explained and further analyzed by humans to help overcome the AI bias. After all, technology is not for technology but technology is for people!
The levels of the positive impact of FinTech
The development of the FinTech industry can contribute differently to the national economy. FinTechs are an emerging sector in financial services that support technology providers, facilitating the development of the banking sector with new integrated services and introducing positive collateral synergies to the country’s competitiveness, as well as employment.
(a) strengthening the national economy from the development of the digital industry and attracting foreign investment.
(b) reducing the shadow economy and increasing tax revenues.
(c) improving the financing of small and medium-sized enterprises.
(d) boosting employment from the activity of innovative startups and attracting foreign FinTech research and development departments.
A new ecosystem is shaped…
Fintech is coming to drastically change the landscape of the financial services industry and shift the balance to the detriment of the bigger players. Already, bankers are using these services to connect borrowers with investors directly. In this way, they are reducing loan disbursement time to just a few hours. In the field of investment management, giants such as BlackRock and Vanguard use algorithms, the so-called “Robo-advisers”. They help to adjust portfolios according to clients’ risk preferences.
At the same time, some hedge funds are experimenting with artificial intelligence to “train” the algorithms to… learn from their mistakes. In capital markets, startups and established players such as Goldman, as well as institutions such as the Bank of England, are experimenting with the blockchain technology behind bitcoin that promises to change the horrors of asset and currency transfers. Some institutions use blockchain technology to simplify the processes of trading, clearing, and recording securities. All these services come under the umbrella of fintech.