By Chirag Shah, founder and CEO of Nucleus Commercial Finance and Pulse.io
The fintech landscape has changed dramatically during the last five years, primarily due to the developments in artificial intelligence (AI) and machine learning (ML). The change has happened rapidly, revolutionising how financial services operate, including customer engagement and decision-making, across all regions of the financial sector – from front-end interactions to back-end processes. In the space of the last five years, the value of the AI used within Fintech has ballooned by a breathtaking £12.57 billion, and its impact has been transformational. But where have AI and ML made the greatest impact in Fintech?
The Core Impact of AI and ML on the Development of Fintech
Robo-Advisors
Robo-advisors have changed significantly since the introduction of KaChing (now known as Wealthfront) in 2008. Back then, simple online questionnaires powered simple fund management, supporting the work of financial managers but not coming anywhere near replacing them. Now, sophisticated algorithms can manage entire investment portfolios, providing tailored advice based on each user’s unique circumstances. While ML is laying the path for increased automation.
Process Optimisation
Process optimisation is where AI and ML have shown their fintech prowess. They’ve provided new, more efficient, effective ways to enhance productivity and reduce manual labour. And it’s this, probably more than anything else, that has expedited fintech’s development in recent years.
Right now, the core focus of process optimisation is automating repetitive, time-consuming tasks, delivering significant time savings, cost savings, and a perceptible boost in productivity. Once this has been achieved all around, the next step is likely to be Big Data analytics, helping businesses to gain the granular level insights they need to keep their customers happy and their organisation moving forward.
Credit Scoring
AI and ML have made a significant impact on credit scoring. Removing the blanket approach of the traditional credit scoring methods, AI and ML are being used to evaluate multiple data points for every credit application, enabling businesses that may once have been excluded from accessing credit – because of their age, lack of capital and assets, or limited credit history – to be assessed on their true potential, at the same time as minimising risk for lenders.
Through AI and ML, we’re seeing the dawn of a more inclusive and accurate credit scoring system based on individual realities. All of this has significantly impacted loan approvals, making decision-making faster, fairer, and more effective.
Security
Security has become a principal focus for fintech brands. Robust security is paramount with more businesses moving towards digital platforms and scammers becoming increasingly sophisticated. And AI and ML have become the most important tools in that battle to protect brands and their customers against fraud and theft.
Working to dissect account activities, detect anomalies, and identify potential fraudulent actions, AI and ML have become the first line of defence for fintech, reacting to threats and taking proactive steps to prevent them.
Customer Service
Customer service and customer experience have become key differentiators for almost all business sectors. Social media has provided consumers with a voice, and it’s increasingly loud, making the delivery of impeccable service of vital importance, especially within the financial industry. AI and ML are playing a significant role in supporting this. With chatbots able to provide a rapid, personalised response, businesses can immediately answer customer queries, fight frustration, and meaningfully engage customers, supporting retention and encouraging repeat custom.
On top of that, AI and ML are providing reams of hitherto inaccessible data, allowing businesses to understand their customers better and better create solutions and services to suit their needs – including customised financial advice.
Personalised Marketing
Personalised marketing is an essential component of fintech customer service, but AI and ML have made this possible. AI and ML use customer data, like transactions and search histories, to create personalized marketing strategies. They analyze past activities, including social media, for tailored recommendations. This approach offers custom recommendations for every customer. Not only making marketing materials more engaging but also making them valuable and relevant to every customer.
AI enables in-house strategy, personalising all customer interactions beyond just the inbox. It revolutionizes engagement across all touchpoints. AI and ML build unique profiles, helping businesses understand each customer’s needs, financial journey, and contact expectations.
Predictive Analytics
AI and ML can analyse more data in a single day than a person could do in a lifetime. And this ability is significantly shaping the future of fintech. Technology now predicts customer behaviors and preferences more accurately, allowing businesses to segment them into unique categories. This approach tailors to individual needs and inclinations. This allows for the effective tailoring of financial products and services. And helps fintech businesses to forecast demands as the industry evolves.
The integration of AI and ML into fintech has signalled a paradigm shift. It has changed all of the most vital aspects of the sector, from customer service to security. And these technologies are continuing to evolve.
About the author
Chirag Shah, founder and CEO of Nucleus Commercial Finance and Pulse.io has over 20 years of experience in the financial services industry and a deep understanding of the needs of UK SMEs.
In 2011, he founded Nucleus, a leading alternative finance provider, to offer flexible and tailored solutions for SMEs across various sectors and stages of growth. With an understanding of the challenges that UK SMEs face in the current economic climate, Chirag launched Pulse in October 2022, a free-to-use service that helps businesses and accountants gain insights into financial performance with AI-powered data visualisation and personalised dashboards. Chirag is not only committed to driving growth and innovation in the UK business ecosystem, but he’s also helping SMEs better understand their data to boost their profitability and guide them towards success.