AI in Fintech and the Future of Financial Services

People often throw around the term artificial intelligence or AI. Businesses use it as a trendy phrase to gain attention, create customer interest, and boost sales. But the reality is that artificial intelligence is frequently misunderstood and misused. Let’s set the record straight on common misconceptions — and preconceptions — about artificial intelligence as well as take a look at the top use cases of AI in financial services.

AI glossary: Machine learning, deep learning, natural language processing

Before we go into too much detail, let’s take a minute to talk about AI-related terms that are often used interchangeably but have particular meanings. People tend to call lots of things artificial intelligence, but in fact AI is an umbrella term that embodies many subsets of technologies including machine learning (ML), deep learning (DL), and natural language processing (NLP).

Top use cases of AI in financial services

Finance and banking have embraced artificial intelligence for a long time. In 1989, computer scientist Yann LeCun made important contributions to the AI world in banking, specifically with convolutional neural networks (CNNs), an area of deep learning that specializes in pattern recognition. Yann built the base for lots of AI technologies we now take for granted. One of his early projects was a neural network that helped computers recognize images and even handwritten characters. Did you know that by the end of the 1990s, 10% to 20% of all US checks were already processed by computers? At the same time, financial services institutions started using AI to detect credit card fraud.

Companies in the financial services industry and the retail industry invested more in AI in 2023 than did companies in other industries. in AI-powered technologies. In particular, banks spent $20.6 billion on AI in 2023, and annual AI investment is estimated to surge to $84.99 billion by 2030, growing at a CAGR of 55.55% according to Statista.

No doubt artificial intelligence is transforming financial services. Let’s see how AI is used in the industry today and what its future potential is.

Fraud detection

For businesses, fraud is especially scary — it isn’t only about the company losing money but also about customers losing trust in the company or its services. That’s why detecting fraud and finding effective ways of fighting financial crimes is a critical priority for the fintech industry.

Today, many financial institutions benefit from machine learning for their fraud detection processes. ML can see beyond what human analysts can. It has the potential to make nuanced distinctions between normal and suspicious behavior and thus find red flags.

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