In this article by Jeremy Baber, CEO of Lanistar, we explore two major technologies that are transforming the finance sector. From security to customer experience, Artificial Intelligence and Banking of Things are elevating processes and improving outcomes for FinTechs globally.
Artificial intelligence (AI) and the Banking of Things (BoT) are taking the FinTech industry by storm, bringing together data and relationships to offer a more personalised service, improving customer service, boosting safety transactions, reducing missed payments and tackling financial crime. As the payments market continues to digitise, consumers continue demanding streamlined real-time interactions with banks to remove friction whilst delivering personalised experiences anytime, anywhere.
The lasting capabilities and limitless potential of AI and BoT remain pertinent even as we approach the year’s end. Addressing these advancements for FinTech is key to understanding how far the sector has come and what the future holds.
Advancements in AI across FinTech
AI solutions are enabling banks and providers to enhance customer experience and develop a generation of products and services to suit customer needs. These enhancements include chatbot use, providing customer service anytime, anywhere, and identifying specific user consumption patterns to remain aware of criminal activities. As AI continues to dominate, banking and FinTech professionals are aware of the emerging technology and how it will shape the industry in the near future.
Traditional banks have started introducing AI-powered chatbots, guaranteeing around-the-clock access to customer service. As AI chatbots continue to advance, new levels of conversational banking have appeared, responding to queries instantly through real-time conversations and supporting customers in their decision-making.
A recent report from IBM revealed that AI-powered chatbots reduce customer service costs by as much as 30%. These chatbots enable banks to answer basic, frequently asked questions from customers, such as branch opening times, account-related issues and how to unfreeze credit cards.
Finance and banking professionals will be keen to discover how AI can generate and save money during day-to-day operations. So far, the financials are in favour of AI investment, although unanswered questions remain of how AI will reshape the sector for not only those working within it but its customers too.
AI for secure banking
New AI models have enabled banks to identify specific user spending patterns, facilitating faster action when suspicious transactions are detected. So, it’s no surprise to see AI tools that combat financial criminal activity are being integrated by banks to bolster security. These tools are constantly learning, analysing transactions and recording suspicious cases to give banks the data they need when they need it. This includes analysing transaction amounts, the currency, the destination and the type of transaction, resulting in a more proactive approach.
According to Statista, 93% of the UK population used online banking in 2022, increasing the risk of attack as demands for the banking industry to optimise its fraud detection efforts continue to rise. AI and Machine Learning enable banks to pinpoint fraudulent activities by tracking systems loopholes, reducing risks and improving security.
Banks such as TSB, Lloyds, Halifax, NatWest and Bank of Scotland have adopted AI tools from Mastercard to tackle fraud. Such models have helped to prevent identity theft and flag criminal activity such as money laundering, with 33% of AML professionals stating that AI and Machine Learning are the most effective methods for preventing money laundering, according to a recent survey from Feedzai.
The untapped capabilities of The Banking of Things
The Banking of Things (BoT) is an infrastructure generated from billions of existing connected devices, known as the Internet of Things (IoT). Data from these connected devices, from fridges to lightbulbs, can offer improved financial services between people and businesses, enabling rich, frictionless and personalised interactions with customers and contributing to the modernisation of retail banking. BoT allows FinTechs to capture and leverage customer data to affect actionable insights – crucial when delivering better banking customer experiences – with a range of drivers that will lead to the expansion of BoT as its importance grows.
With the IoT boom comes greater potential for BoT. This infrastructure has the potential to create new products, services, and business models, ushering in a new era where products are designed not by banks but led by customers. This will strengthen partnerships between banks and industry players inside and outside the financial services ecosystems.
Potential challenges for the FinTech industry
There are some challenges to the wider adoption of IoT and the potential of BoT. Some IoT devices are manufactured and sold with poor security, potentially exposing people to data and financial security, privacy and physical security problems.
It is no secret that wireless networks present multiple vulnerabilities and can be used to access smart devices, including sensors and cameras. This also includes other devices on the network, the infrastructure of the IoT provider or the financial institution. Another issue includes connected device visibility as people cannot protect what they cannot see.
FinTechs and banking in general need to be aware of the threats that AI brings to the sector, ‘deep fake’ technology needs to be monitored to ensure it does not reach a level to breach smartphone and facial recognition software, additional PIN code entry maybe needed to counter this risk.
The future of AI and BoT across the FinTech industry
AI solutions present opportunities for improved processes and services whilst confronting criminal activities head-on across the banking sector with the innovative and cost-efficient solutions AI models provide being better understood by banks. In the coming years, we should expect to see an increase in the use of AI in the banking sector, both for business growth, security and customer relations.
BoT has the potential to create a range of possibilities for consumers and banks alike if teething problems are tackled. It is crucial that if FinTech is to benefit from BoT, device manufacturers and leading tech developers work together to standardise and improve IoT practices to pave the way for a bright future for BoT.