Before modern technology and Artificial Intelligence (AI) advent, all the work was done through manual labour.
Every banking activity including opening an account, reviewing loans and even investing money took time since it was largely done by humans.
Fraud detection was inadequate due to reliance on human inputs instead of real-time monitoring, which subsequently caused many financial losses.
The customer service was highly centralised and even simple tasks such as checking the account balance required the customers to visit the branch in person or call during banking hours.
Bank employees would then go through all the physical records to extract the necessary information which not only took time but also involved a high probability of making mistakes.
Loan applications were very slow and may take weeks or even months to process as every information was processed manually.
These processes have now changed with the advancement of AI, which is currently the most renowned technology in the fintech sector.
AI performs repetitive operations and real-time analysis and decision-making, increasing effectiveness, precision, and security in the financial industry.
The global AI in the fintech market is experiencing rapid growth and is projected to increase from USD 13.5 billion in 2024 to USD 58.7 billion by 2034, with a CAGR of 15.9%.
This expansion highlights the increasing importance of AI in transforming financial services, optimising banking operations, and enhancing customer experiences.
Market Size and Growth:
| Historical size (2023) | USD 11,750 million |
| Estimated size (2024) | USD 13,515.7 million |
| Projected Size (2034) | USD 58,701.4 million |
| CAGR (2024-2034) | 15.9% |
Some of the important economies such as the United States, Brazil, China, India and Germany are expected to register decent growth during the given period. Importantly, India and China take the leading position in terms of a very impressive CAGR rate of 20.1% and 20.4%, respectively due to favourable policy framework and a high level of emphasis on digital transformation. On the same note, the United States (15.7%) Germany (15.6%) and Brazil (12.4%) are also expected to have a significant rate of contribution to the expansion of the industry according to a report published by Future Market Insight Inc.
Thus, AI’s influence in the fintech industry is not only in the technological aspect. It is also on course to create significant new economic value and this study by Future Market Insight Inc. indicates that AI financial services could deliver more than $1 trillion to the world economy in the next thirteen years.
These growth factors include the demand for automation and customised financial services, and the government’s support of Artificial Intelligence.
For example, India is experiencing progress in this field with the help of such programs as the Digital India initiative and a National Strategy for Artificial Intelligence to build a favourable environment for AI development in the fintech segment.
Rising adoption of AI, changes in regulation, and growing investment is predicted to further strengthen this market’s growth in the future.
What is Fintech?
Fintech stands for financial technology and refers to the application of technology in the delivery of financial services. It includes a broad range of topics, including Internet banking and mobile money payments, cryptocurrency, and online lending. Fintech is the process of using technology to enhance, optimise, and expand the provision of financial services.
Here are some examples of fintech services:
- Digital wallets: Apps like PhonePe and Google Pay let you make payments with your phone.
- Online banking: Instead of going to a bank branch, you can access your accounts and manage your finances online.
- Online lending: Platforms like KreditBee and LendingKart connect borrowers and lenders without going out of their homes, cutting out traditional banks.
What is Artificial Intelligence (AI)?
Artificial intelligence (AI) is a technology that enables machines to think and learn like humans. It is a process of making computers intelligent enough to perform human-related tasks such as thinking, learning etc.
Think of it like teaching a computer to be smart. Just like you learn from your experiences, AI can learn from data and information. This means it is capable of improvement over time.
For example, have you ever used a voice assistant like Siri, Alexa or Google Assistant? They use AI to understand what you say and respond helpfully.
AI is all around us, making our lives easier and more efficient. From recommending movies on Netflix or showing the feeds we are more interested in watching on Youtube or Instagram.
How AI is used in fintech?
The fintech industry is undergoing a major transformation due to artificial intelligence (AI), which is also greatly improving the delivery of financial services. Fintech is the application of contemporary technology to improve and automate investing, banking, and other financial operations. AI is essential to this change, especially when it comes to preventing and detecting fraud in digital banking systems. Many services are covered, such as asset management, digital loans, insurance, mobile banking, and credit scoring. Artificial Intelligence (AI) can identify user behaviour by monitoring consumer interactions and transactions. This helps financial institutions improve risk management and accelerate customer service.
How AI is Currently Used in Fintech
AI has now well-established itself in the fintech industry, as a tool for increasing efficiency, cutting costs, improving customer interactions, and managing risks.
Let us have a look at how AI is making an impact today in the Fintech space:
Detecting Fraud
Probably the most significant use case of AI in fintech is in fraud analysis and mitigation. The frequency of fraud in digital transactions has increased day by day, and in India with the help of UPI, the need for proper approaches to prevent such incidents has become crucial. By having AI-powered systems, huge transaction data can be analysed in real-time to identify potentially fraudulent transactions. For instance, Paytm, and Razorpay, employ AI algorithms to identify the probability of fraud cases and report them.
Personalised Customer Experiences
Personalisation of customer experience is also another area where AI is extensively adopted in fintech. Business models such as Zerodha and Upstox are some of the Fintech firms that have incorporated the use of AI-based chatbots and virtual assistants to offer customised recommendations, investment advice and real-time customer support.
Automated Chatbots
The use of chatbots in the fintech industry helps in customer support throughout the day and night, customer account services, transactions, and also consultations on finance. They also facilitate targeted operations such as loan application, fraud identification, and KYC, which makes applications more user-friendly, faster, and less costly to financial institutions.
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Credit Assessment
Through the use of AI, credit scoring and loan approval have been enhanced greatly. In India, the process of credit scoring was performed in the traditional way, which is not always effective as it does not include many people in the list due to a lack of credit history. Companies such as CASHe, LoanTap, KreditBee and others utilise artificial intelligence and machine learning to evaluate factors such as; social media, an individual’s mobile phone usage, and e-commerce data in determining the credit scores of an individual.
Algorithmic Trading
Another form of trading that has gained popularity in fintech is algorithmic trading where AI is used to make quick and efficient trading decisions based on data collected. Some of the firms that are using AI and machine learning models include Graviton, Quadeye, and Alphagrep Securities which makes use of machine learning in identifying trade opportunities and optimisation of portfolio management. AI can help to analyse historical data, even the positive or negative tone of the news and make trades at a faster rate than a single human being.
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Areas of Fintech that may be impacted by AI in the Future
Due to the improving technologies, we can see more development space in the fintech domain in the coming future.
Here are some future possibilities:
AI-Powered Advisors
Today’s robo-advisors will continue to become smarter and more advanced with the use of Artificial Intelligence in the future. While these digital advisors are already implemented with the fintech startups like 5Paisa in India to offer automated, algorithm-based and fundamental financial services, the coming future will witness them integrated with a superior level of AI functions. They could use deep learning and advanced natural language processing for market change analysis to provide further customised, and advanced natural language processing for market change analysis.
Quantum Computing to Read Big Data
Quantum computing, which is still in its infancy, can play a powerful tool in the development of AI in fintech. For instance, utilising big data for training algorithms may allow the identification of potential market crashes or systemic risks. This would help the financial institutions to be in a position to control risks and make the right decisions.
AI use in Biometric
In the future, AI can extend opportunities for the simplification of the customer onboarding process through interaction with future biometric technologies of identification. For instance, when integrated with facial recognition, voice recognition and even behavioural biometrics AI can slash the ‘Know Your Customer’ (KYC) process dramatically in terms of time and effort while raising the bar in terms of security.
AI-Driven Financial Inclusion
AI is more important to the growth of the financial sector, especially in developing countries such as India. As the technology progresses, there may be opportunities for fintech companies to gather even more specific details about their clients, and therefore extend micro-loans, insurance and other financial services to the unbanked population.
Challenges of Using AI in Fintech
Currently, around 32% of Indian financial services are using AI technologies such as voice recognition, predictive analysis and others as per Elets News Network but AI comes with its challenges like any other powerful tool.
Let’s see the challenges faced by AI in implementation of its technology:
Data Quality
AI models use a lot of data. The AI will generate incorrect results if the data that was utilised to train these models is incorrect, biassed, or insufficient. This can lead to discriminatory outcomes, such as unfair lending practices or biased investment recommendations.
Security and Privacy Concerns:
AI often requires the collection and processing of large amounts of personal data. This raises concerns about data privacy and compliance with government regulators.
Transparency:
A lot of AI models are complicated and challenging to comprehend, particularly deep learning models. This makes it difficult to understand how the model came to a specific conclusion. When decisions have big consequences like when making investments, this lack of transparency can be challenging.
Regulatory Challenges:
There is strict regulation of the financial sector. The development of suitable regulations and standards may provide a challenge for regulators as AI technology progresses.
Human-AI Collaboration:
The increasing use of AI in fintech raises concerns about job displacement. As AI can automate many tasks, it is important to find different ways to integrate AI so that the workforce is not lost.
The Bottom Line
AI has already revolutionised the fintech industry; it helps organisations design better customer experiences, manage and mitigate risks, and work more effectively. As AI technology continues to evolve, its consequences will only intensify, leading to further personalised, safe, and accessible financial products. However, continued integration of AI will not only make the fintech industry more competitive but also play a great role in the overall evolution of the larger financial landscape. It is important to note that AI in fintech is not a trend, but rather the future of finance. With the advancement of technology, the advancement of financial services is also expected, which will deliver a better prospect for a better future for everyone.
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In particular, AI in fintech focuses on using artificial intelligence techniques like machine learning and pure language interpretation in the financial services area. It combines huge data sets for decision-making, controlling processes and delivering personalised content.
Yes, this is right; AI analyses one’s worthiness very quickly through unconventional means like transaction activities or social media behaviour alone.
Yes. With regards to trading and investing, this can be achieved through the use of algo-trading, which employs several machine learning models that analyse past market trends as well as predict future price changes. AI-powered robo-advisors advise clients on their investments based on risk profile, goals and market conditions for best performance.
AI will not eradicate the human financial advisors and bankers and their roles in the global financial systems. However, it will help them by offering statistical information and completing repetitive functions, freeing up time for human experts to address higher-level decision-making.
Leading companies in fintech have highly developed security systems including encryption protocols for safeguarding customer information Nevertheless, users need to act smartly to take services from reputed companies.
