The world of finance, as we know it, is changing. From new currencies to new possibilities in trade, innovation has been unlocked with a single key: artificial intelligence. Almost all new approaches to managing money have AI in their DNA.
Globally, the AI financial technology (fintech) market is forecast to reach $22.6 billion by the year 2025.
AI is key to fundamentally changing the way people interact with and use money. Because currency is used every day, and impacts literally every market and industry, the impact of financial innovation through AI cannot be underestimated.
There are two key points: the world of finance is becoming more user-centric, but every single fintech company faces a major threat.
The Digitization and Decentralization of Finance
The primary ways fintech has become user-centric are through digitization and decentralization. In case you haven’t seen an online statement or used contactless payment to checkout, you should understand that finances are now digitized. The entire cryptocurrency industry is one of the least concrete systems imaginable, and its products are certainly intangible.
This reality has changed some forms of financial transactions. The digital nature of finances means some power is taken away from big banking institutions and given it straight to people. Even historically interactive financial transactions, such as stock trading, were several steps removed from a portfolio holder. Now, however, a simple app can give a trader full access to their holdings, and the autonomy to do whatever they want with them.
An Illustration: Price Prediction Games for Cryptocurrencies
A good illustration of user-centricity in trade is found in the company YOLOrekt. Funded in February, YOLOrekt leverages gamification by offering price predictions (essentially intelligent gambling) in three minute cycles. They are launching round two of their platform with prices for ETH, WBTC, Tesla, GameStop and others. Made by degens for degens, this approach flies in the face of the old-school, painfully data-driven approach of traditional trading. It’s fun, it’s user-friendly and it’s built on AI.
Co-founder Yogesh Srihari explains, “We were trying to build a cross-chain protocol, like other companies, but with a lot less capital. Other companies had raised hundreds of millions of dollars, and we had less than a million.
“We realized, though, that those companies don’t have adoption, even after raising so much capital. We had to go more user-facing. Binary options and nadex were two interesting things I used to do all of the time. That basically gave me the idea for how to take traditional option trading and gamify it.”
AI fintech is typified by these kinds of start-ups, and Srihari’s efforts are a good example of how a little idea can make a big splash, as long as it’s what people really want.
The world at large has bought into both digitization and decentralization. People playing games with money is the antithesis of the old-school, “wear a tie to the bank” mentality. But irreverent approaches and novel platforms do have one major problem. Thankfully, there’s an AI solution for that.
Finances as a Service + Cutting-Edge AI Tools
Online, user-owned financial services are great: until they’re plagued by fraud. Unfortunately, they often are: the Federal Trade Commission (FTC) reported 4.7 million incidents of identity theft, imposter scams, and online shopping scams in 2020. This amounted to $3.3 billion in fraud losses. It’s great for the people to hold the power, but what about their protection?
Financial services are demonstrably plagued by fraud, and one company is facing the challenge head on.
Fraud Prevention as a Service (FaaS)
We’re all familiar with SaaS (software as a service), but Sardine.ai is here to embody a new term: fraud prevention as a service, or FaaS. Sardine.ai is built on AI and provides intelligence that catches fraudsters based on their intrinsic behavior.
Picture this: a fraudster has a stack of fraudulently obtained (ie stolen) credit cards. They start using those cards to spend money online. The algorithm built by the team at Sardine.ai can identify someone using real credit card numbers and information as a fraudster.
It achieves this by tracking everything: the device, the location, the VPN, and even the behavior. The latter gets down to a granular level: the system can measure how hesitant or distracted the behavior is, compare typing patterns against that of legitimate users, and observe how someone is tapping or scrolling. In other words, it sees everything and is an effective line of defense against fraud. This first of its kind platform, built especially for financial institutions, is a game-changer.
Most fintech start-ups are so preoccupied with raising funds, they forget the real and present threat of fraud. In fact, Sardine.ai co-founder and CEO, Soups Ranjan, saw this firsthand: “I was heading up data science and risk for CoinBase and heading up financial crime for a UK-based bank. In both of those places, every time there was a new product or territory launch, there was fraud. In fact, a U.S. launch got delayed more than six months because of fraud.
“They were careful and exercised great caution, but fraudsters are very diligent. They sign up on a waitlist years in advance, waiting to hit as soon as the fintech platform launches. We started Sardine.ai to ensure that fintech and crypto companies in either launch or growth mode can operate successfully without fraud.”
All this innovation is widening doors of entry across the entire financial sector, and most companies in the world can be a part.
Every Company is a Fintech Company
Any financial organization that wants to remain relevant must transform itself into a fintech company of sorts. This means infusing technology into every aspect of the business to create a better, more streamlined customer experience. AI is just one technology that’s a part of the wider fintech movement: others include the blockchain, robotic process automation, and big data analysis.
Funding of fintech companies is exploding. The COVID-19 pandemic so reanimated the market that some analysts are calling it the 2nd wave of fintech. In order to compete, traditional players need to make major investments in technology and human capital in order to set themselves up for success.
Not all fintech companies are able to secure massive rounds of funding however, but this does not necessarily mean their ideas are less valuable. Often times, minority small business owners struggle to secure funding due to systemic bias and lack of resources.
David Price is the CEO of the financial services company Biz Pay which is levelling the playing field between big and small businesses by enabling small businesses to meet all their service provider payment needs, thereby enabling small businesses to hire higher quality service providers - that previously only big businesses have been able to afford up until now.
"When a company is able to afford a better recruiter, accountant, lawyer, management consultant or digital marketer, it improves its business quickly. More money comes in and/or less goes out- usually much more so than the cost of the service. So the problem is just cashflow- its timing." David Price went on to say "As Bizpay gives companies more time pay, by just needing to come up with a quarter each month, the cashflow or timing issue is solved, so they can use that better service provider and get those benefits.”
This innovative service ensures a more democratic and even distribution of talent in the job market and is one of the few stabilizing forces that counteracts the perpetuation of powerful and wealthy companies cornering top service providers as they have previously done for centuries.
This also provides a framework for how other B2B ventures can help buttress and protect the American small business market, which has never been at more risk than it is currently today.
Who’s In? An Era of AI Innovation in Finance
Analysts at Deloitte describe three common traits of AI frontrunners in financial services, which are:
Embedding AI in strategic plans, with a focus on organization wide implementation
A focus on applying AI to customer engagement opportunities and revenue
Adopting a portfolio approach for acquiring AI
AI is available, and early adopters have a leg up on the competition. It’s safe to say that the evolution of AI for fintech is less a trend and more a new state of reality. Innovation in the financial world will continue at a fast pace, and it’s exciting to think about where the financial sector might be 5 or 10 years from now. One thing is clear, a range of new technologies powered by AI are advantageous to consumers and retail investors alike.