According to Gartner, by the end of 2020, 20% of citizens in developed nations will use AI for everyday operational tasks and a whopping 85% of CIOs (Chief Information Officers) will be piloting AI programs for their organizations through buy, build and outsourcing efforts. By the end of 2018, use of AI is predicted to be widespread through commonly used applications like cloud office suites.

PwC predicts that by 2018, the top 10 trends for Artificial Intelligence will be:

1. Mimicking the human brain (Deep learning method and Deep neural network)
2. Visually processing information like a human brain (Capsule Neural Networks)
3. A neural network that learns by interacting with the environment (Deep Reinforcement Learning)
4. Pairing opposing neural nets to enhance learning and lighten the processing load (Generative Adversarial Networks)
5. The ability to learn through synthesized data where real historic data is not available (Lean and Augmented Data Learning)
6. High-level programming language that can accommodate uncertain or incomplete information (Probabilistic Programming)
7. Deep-learning models that can account for uncertainty like Bayesian approaches (Hybrid Learning Model)
8. Enabling non-programmers to develop machine learning models (Automated Machine Learning or AutoML)
9. A virtual model that can analyze and monitor physical or psychological systems, like predicting customer behavior (Digital Twin)
10. AI that is transparent and provides reasoning behind the recommendations made by it as opposed to “Black Box” AI that doesn’t provide reasoning (Explainable AI)

So where do all these AI trends fit into the Fintech industry?

There are 4 major areas where AI is going to make game-changing impact in the fintech industry.

1. Game-changing insights and explainable predictions

Firstly, the biggest use of AI in FinTech would be in generating insights that can accurately predict customer behavior. For example, there is already an AI named Mindcraft in existence, that can learn your customers’ past behavior and make accurate recommendations on the customers’ credit-worthiness. Most machine learning algorithms existing today cannot provide reasoning behind how a decision was reached. PwC predicts that by 2018, Explainable AI will be widely adopted by enterprises either as best practice or requirement, and governments may make it a regulatory requirement.

2. Early detection and prevention of cyber-security threats

Security is a big issue, especially when it comes to online transactions. Using Generative Adversarial Networks (GANs), fintech companies can build robust security systems into their solutions. The GAN works with two opposing networks, one generator and one discriminator. The generator network creates fake data that looks exactly like the real data set. The discriminator network analyses both fake data and real data. Each network learns from the other and gets better over time. This system can be especially useful in detecting fraudulent behavior, suspicious transactions and early detection and prevention of cyber security threats.

3. Visual identification and verification

Using capsule neural networks to visually identify customers and documents could provide a huge leap in streamlining functions like account creation, loan and insurance origination and documentation. An AI could visually verify if the documents fed to it are authentic, and whether a customer trying to apply for a loan is the person who he or she claims to be. Coupled with a credit admin software that handles loan documentation for all parties (lawyers, evaluators, bankers), AI could provide degrees of automation that was previously thought impossible.

4. Chat-bots that are more “human”

Also, paired with a customer engagement platform, an AI could power next generation chat-bots that can intelligently answer customer queries, effectively reducing load from customer services department. Chat bots can be integrated with social networking sites, and accept requests for application and orders directly from social media channels. Gartner predicts that by 2018, more than 2 billion people will be regularly using conversational AI to interact with virtual customer assistants on smartphones and connected devices.

The total funding for Fintech projects worldwide reached US $8.2 billion in the third quarter of 2017. With massive funding and intense competition, AI is the only way Fintech companies can stay ahead in the race in 2018.

First Published in FinExtra on 26th December, 2017