Trends in fintech

Generative artificial intelligence (GAI) is billed as presaging the most radical societal change since the printing press, and with first to market ChatGPT notching up an estimated 100 million users within two months of launch, GAI will likely see early adoption in the fintech sector and in more ways than you might think.

The sector has already seen the rise of the robo-adviser, machine-learning software that takes your details to provide automated investment advice, typically using passive index investment strategies. We’re unlikely to see ChatGPT take over our investment decisions any time soon (the two-year gap in its knowledge alone makes it a dodgy arbiter) and even if you do ask it an innocent question, such as how best to invest a spare €100,000, it is smart enough to send you to a certified financial professional or robo-adviser for the answer.

The financial services sector has long since employed chatbots in areas such as customer service. In retail banking it has already made the move from branches and call centres to apps and online, and is now, thanks to GAI, preparing to embrace the next phase of evolution: conversational banking.

The term refers to a bank’s ability to provide a highly personalised service across multiple channels at scale. In this arena fintechs, with their slick apps and sleek user experience, arrived fully formed with an advantage over legacy banks.

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But the line between them is increasingly blurring as banks move to embrace the tech bells and whistles that today’s financial services consumers expect. Legacy banks can also play to their own strengths now, namely their large customer bases and the enormous troves of historical financial data they generate.

Notwithstanding slight wobbles in the international banking sector earlier this year, traditional banks still also enjoy the patina of trustworthiness that tradition brings.

As the battle for market share is increasingly won via customer experience, expect smart, cheap and increasingly GAI-driven transaction features to grow. It will suit banks too, leaving more expensive personnel to look after complex and value-added cases in real life.

Speaking of which, one area GAI is expected to have a significant impact on is in relation to ongoing tech skills shortages. In the USA, investment bank Goldman Sachs is already reported to have been experimenting with the use of GAI to support its tech teams by writing and testing code.

A recent survey from AI chipmaker NVIDIA found that the top four use cases for AI in the financial services sector are evenly split between natural language processing and large language models; recommender and next-best action systems; portfolio optimisation and fraud detection.

It is perhaps in this last category that the quickest gains stand to be made, with GAI boosting anti-money laundering (AML) and know your customer (KYC) fraud prevention processes. Machine learning is already used in the sector for everything from credit risk analytics to automated underwriting.

One of the first pilots that GAI pioneer OpenAI undertook while developing ChatGPT was with US bank Morgan Stanley, which uses GPT-4 to organise its vast knowledge base. It quotes the bank’s head of analytics, data and innovation as likening the GAI “to having a chief investment strategist, chief global economist and global equities strategist and every other analyst around the globe on call for every adviser, every day.”

Despite the relative shallowness of their own historical financial data, fintechs retain a significant advantage over legacy banks when it comes to adapting to the brave new GAI world. Being in reality more techfins than fintechs, most were born with an agile tech culture that is used to change. Legacy banks, on the other hand, have had a mindset adjustment to make, often resulting in a drag on progress.

In the commoditised world of banking, where the customer journey is the increasingly important – and, indeed, often the only – competitive differentiator, it remains to be seen just how GAI will help provide one player with an edge over the next. But rest assured, it will.