Artificial Intelligence (AI) in fintech refers to the use
of advanced computer systems that can perform tasks typically requiring human
intelligence. These systems can learn, adapt, and make decisions based on data
analysis. In the financial sector, AI has become a game-changer, transforming
how financial institutions operate, interact with customers, and manage risks.
India is currently home to over 100 generative AI startups.
These startups have also attracted a lot of investor interest. The Indian AI
startups have raised over
$600 Mn in funding since 2019 — a growth fuelled by increasing funding
and government initiatives like the National AI Strategy and Startup India
program.
The Rise of
AI in Fintech
The GenAI market in Indian fintech is projected to surge
from $1.1
Bn in 2023 to $17 Bn by 2030 covering areas such as customer service,
fraud detection, credit scoring and investment management. It’s reshaping
traditional banking processes, making them more efficient, accurate, and
personalized. AI-powered solutions are helping financial organisations to
streamline operations, reduce costs, and provide better services to their
customers.
It is pertinent to note that in a bid to leverage AI to
foster growth, many Indian fintech startups are actively experimenting with
GenAI to automate their customer support systems, offering tailor-made
investment recommendations to end-users, underwriting insurance, among others.
At the heart of this push is the country’s fast-growing
fintech market, which is expected to become a $2.1
Tn opportunity by 2030.
Market
growth and projections
According to recent projections, the global AI in fintech
market is expected to expand from USD 13,515.7 million in 2024 to USD 58,701.4
million by 2034, reflecting a robust CAGR of 15.9%.
This growth is driven by several factors:
- Increasing
digitization of financial services
- Rising
demand for personalised financial solutions
- Need
for improved risk management and fraud detection
- Government
initiatives promoting AI adoption in finance
Enterprise AI/ML transactions soared nearly 600%, jumping
from 521 Mn a month in April 2023 to 3.1 Bn by January 2024. The US accounted
for 40% of enterprise AI transactions, while India
was second with 16% of global AI transactions, driven by the country’s
increased focus on fostering innovation. The APAC region saw a 135% (1.3 Bn)
jump in AI transactions, also attributed to India’s widespread adoption and
usage of AI tools.
The software segment of AI in fintech has gained the
highest traction due to its transformative capabilities in automating financial
processes and enhancing decision-making. This growth is expected to continue as
software solutions provide scalable and adaptable solutions that address the
dynamic needs of the fintech industry.
Transforming
Financial Services with AI
Automated customer service
Banks are now using AI-powered chatbots and virtual
assistants to handle routine inquiries and transactions. These tools provide
24/7 support, allowing customers to get help outside traditional banking hours.
They can quickly process and respond to customer queries, replacing manual
processes and freeing up human agents for more complex issues.
Virtual assistants offer a more advanced, interactive and
personalised experience. They use sophisticated AI technologies like machine
learning and natural language processing to understand user preferences and
provide context-aware responses. While chatbots might help customers check
their balance or report lost cards, virtual assistants can analyse spending
habits, offer investment advice, or help plan budgets based on the user’s
financial history and goals.
Fraud detection and prevention
AI has become a game-changer in fraud detection and
prevention for the financial industry. Machine learning algorithms can analyse
vast amounts of data in real-time, identifying patterns and anomalies that may
indicate fraudulent activity. This proactive approach to monitoring
transactions protects banks and their customers from cyber threats and fraud.
AI-powered fraud detection systems have shown remarkable
results. For instance, some banks have reported a 75% reduction in false alerts
and an increase in detection rates to over 90%. The ability of AI to process
enormous volumes of data in real-time allows it to stay ahead of emerging
threats.
Risk assessment
AI-powered models present a more holistic picture of an
applicant’s financial behaviour, revealing aspects that traditional methods
might miss. They can factor in multiple income streams and nontraditional
careers, leading to more accurate assessments of creditworthiness. This
approach has enabled financial institutions to serve previously underserved or
unserved populations, expanding their customer base while managing risk
effectively.
The Future
of AI-Powered Fintech
Emerging trends
Inc42’s
conversations with several GenAI investors in the country revealed
that the GenAI-based applications and models for specific sectors are one of
the key areas of interest for the VCs currently. In that, most investors are
expecting a breakthrough in GenAI usage in enterprise SaaS and fintech.
According to Inc42’s latest report titled India’s
Generative AI Startup Landscape, 2023, the country’s GenAI market will be
growing exponentially in the next few years. It is projected to surpass $17 Bn
by 2030 from $1.1 Bn in 2023, growing at a CAGR of 48%.
Doubling down on the artificial intelligence (AI) play,
fintech major Paytm said it has appointed its CTO Manmeet Dhody as “AI Fellow”
to drive its projects related to AI innovation in business. Banks are also
exploring its use in drafting personalised emails to customers, assisting
software engineers in writing better code, and creating more effective
upselling and cross-selling messages for marketing teams.
Another trend is the growing importance of personalised
financial services. AI algorithms are analysing vast amounts of data to provide
tailored recommendations in real-time, from investment opportunities to
optimised spending patterns and suitable insurance policies. This level of
personalization enhances customer experience and increases the likelihood of
successful cross-selling.
Preparing for an AI-driven financial landscape
As the financial sector moves towards an AI-driven future,
it’s crucial for professionals and institutions to prepare accordingly.
Continuous learning and skill development are essential, with a focus on
acquiring technological expertise, analytical talents, and financial
understanding. Professionals should strive to develop a diverse skill set that
combines these areas.
Financial institutions need to invest in AI technologies
and foster a culture of innovation. It’s important to view AI as a tool to
augment human capabilities rather than a replacement for human roles.
Investing in fintech powered by AI is the most advisable
startup investment deal at the moment. If you’re ready to explore the world of
startup investing, consider using a trusted platform like Creddinv, where you
can connect with innovative startups and make informed investment decisions.
Seek professional financial advice, evaluate your risk appetite and take the
first step toward transforming your investment strategy.
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