The banking industry is beginning to integrate artificial intelligence (AI) and digital assets to implement innovative recognition systems and reduce employee workload.
Today’s financial institutions have evolved significantly over the past decade, offering a completely different experience than traditional banks. To keep pace with the demands of business and modern-day security threats, financial institutions have been forced to increase their efficiency and develop innovative protection measures. The COVID-19 pandemic has significantly accelerated the adoption of fintech solutions.
Growth of Fintech
KPMG calls fintech the biggest disruption of our time for financial institutions. In 2020, the global AI in fintech market was valued at USD 7.91 billion, with a forecast of USD 26.67 billion by 2026, representing a compound annual growth rate of 23.17%. Lex Sokolin, Global Director of Fintech Strategy at Autonomous Research, notes that digital lenders that have offered fintech products for at least a decade are already leveraging extensive AI applications, particularly in lending.
Factors for the acceptance of Fintech
Dmitry Dolgorukov, co-founder and CRO of HES FinTech, estimated in 2021 that the use of AI and machine learning (ML) for business purposes is divided as follows:
- 38% – cost reduction
- 37% – Customer insights
- 34% – Customer experience
- 30% – Automation of internal processes
- 27% – Fraud detection
- 26% – Customer satisfaction
Meet customer requirements
KPMG highlights that customer expectations of financial institutions have changed over the past decade. Customers now demand the same level of convenience and accessibility they enjoy in retail. In an era where retail products can be ordered and delivered the same day, customers also want their financial transactions to be real-time.
As a result, we’re seeing a rise in online and mobile banking, marketplace financing, and new digital payment options. AI and ML are being used to accelerate the loan application approval process.
Virtual Customer Assistants (VCAs)
The implementation of AI to increase responsiveness to customer inquiries has led to the adoption of virtual assistants. Bank of America launched its virtual assistant Erica in 2018, which grew from 6.3 million users in 2019 to 19.5 million in 2021. Gartner predicted that by 2022, 70% of customer interactions will involve technologies such as machine learning applications, chatbots, and mobile messaging.
The reality could be even higher, as digital solutions have seen wider adoption during the pandemic. This is a positive development for banks, which have been trying to encourage customers to use automated services for years.
Robots and automation
Banks are already using robotic process automation (RPA). For example, BNY Mellon began using bots to reduce costs and improve operational efficiency. According to Reuters, the bank estimated in 2017 that it could save $300,000 annually. A report by Autonomous NEXT suggests that AI could reduce operating costs in the financial sector by up to 22%, resulting in total savings of $1 trillion by 2030.
The role of blockchain
Blockchain is being adopted by fintech companies as a tool for improving security. The distributed ledger enables the secure storage and transfer of assets and increases transaction transparency. This technology forms the basis for cryptocurrencies such as Bitcoin and Ethereum, as well as for the tokenization of digital assets.
According to IBM, tokenization alone is estimated to reach USD 24 trillion by 2027, equivalent to 10% of global GDP. Renowned financial institutions such as JP Morgan and Citigroup are using blockchain to support their digital asset infrastructure.
Conclusion
Shopping models have shifted from physical stores to online searches, and the banking paradigm has also shifted. Today’s generation views banking as an online activity and expects to be able to use their mobile devices for information and transactions. Financial institutions must therefore adopt fintech applications and adapt to digital demands for payments, services, and security.
