Why are we still talking about AI?

By Noam Zeigerson on 16th September 2019

A new generation of neo banks is disrupting the financial space, growing at pace and exploring a range of new opportunities through new application architecture, using AI to grow, adapt and thrive.

Why are we still talking about AI?
Image source: Tandem

The financial industry is one sector that has been going through continuous technological disruptions, with Artificial Intelligence (AI) becoming the latest hot topic. However, is AI the disruption that will help drive fintechs to the top? Or can we expect another wave of technology claiming to be the next best thing?

In the last five years, we have seen the number of fintech banks rise dramatically. There is no legacy bank that is not paying attention to what the challengers are doing, especially when they offer competitive rates that are luring customers away to test new waters. In the hope of keeping up with the competition, the incumbents have tried to partner with the digital banks, however, they soon realised that the Open Banking environment and regulations were unable to support these partnerships.

At this point many decided to join the movement themselves, creating their own challengers to compete with the new wave of neobanks. A prime example of where we can see this is Goldman Sachs, who launched digital bank Marcus in 2018 and J.P Morgan who is said to be creating their own competitor to go up against it. 

The digital era has required legacy banks to move beyond their traditional business models and adopt new technology. They did not anticipate such a stark change in the industry, especially not at such a rapid rate, which is one of the reasons they weren’t prepared to update their systems and have continued using an infrastructure that dates back to the 1970s. Their sole concern was to keep their lights on, not to tailor their services to benefit customers.

What is often forgotten in these scenarios is that banking as a service is essential rather than the bank itself. Even if legacy banks start implementing AI, not all of them have the infrastructure in place to immediately support it. The business models of the big banks, on the whole, are dated. Their data is spread across numerous databases and not easily accessible, making it even harder to understand. Trying to incorporate AI in an outdated system, would result in having to reinvent their underwriting models and services. On top of this, there would be a need to hire and train staff to support the new procedures and move decades of stored data. This sort of restructure creates an enormous risk for both the bank and its customers. 

Fintechs have the advantage as their systems have been built with data in mind from the ground up, not dragged down by dated legacy IT systems. They feature the latest technologies and are built using cloud-based systems, such as Amazon Web Service (AWS) to store data. All of our data and information is stored and organised in one place. This gives us the ability to better utilise our information by manipulating changes and implementing new strategies effectively. Generally speaking, neobanks are focused on values such as user experience, transparency and innovation, which is what customers expect in the digital age. 

AI is the latest technology creating a buzz globally. For fintechs, it is a business solution that can autonomously serve, and create benefits for customers. It is capable of running hundreds of algorithms in a variety of technologies, some more mature than others. Fintechs continuously develop their AI, creating new technologies to challenge existing algorithms.

This ensures that the technology controlling AI will continuously evolve and get better. As AI continues its journey within the financial industry, we can predict it will play a more prominent role in helping to reinvent the system. With the ability to be moulded to individual businesses, AI can continuously evolve and adapt as services change. AI has the potential to challenge new innovations that may arise, matching its services. Proving that it will remain a leading technology 

This new generation of neo banks is disrupting the financial space, growing at pace and exploring a range of new opportunities through new application architecture, using AI to grow, adapt and thrive. But is its success due to the technology itself or the people who are behind it? It’s safe to say that AI can be better than humans in certain aspects. Being a robust machine that has the ability to work 24/7 and crunch petabytes of data, it certainly can do a better job of analysing data.

However, when it comes to business knowledge and decision making, humans are required to continuously teach the AI the significance of data and create a decision making spectrum for it. From there, the AI is able to analyse what the data means, creating responses based on the knowledge input by humans. Which shows that AI without humans holds far less value. 

Challengers know customers aren't looking for a one-off solution for individual financial services, they are looking for an end-to-end journey that is simple and secure.

This is exactly what most if not all, challenger banks are offering; a suite of services that are meeting customers’ growing expectations. Also keeping in mind customer lifetime benefit, but it is safe to say that not every challenger has this as a core focus. Incorporating AI capabilities in their systems is giving fintechs the ability to grow in the financial industry and compete against the incumbents. With seemingly endless opportunities, AI has arrived at a vital time.