The Chain of Algorithms: AI and Blockchain as Catalysts for FinTech Innovation

The development of Blockchain marks a new era in the FinTech industry. Though it has been around for over 13 years, it only started gaining momentum in recent times, much like AI which bloomed last year. When combined, these technologies can bring a massive shift to the financial industry, completely transforming the way we interact with banking services and financial applications.

Both Blockchain and AI are transforming the financial services industry by enabling trust, removing friction from multiparty transactions, and accelerating the speed of transactions. For example, consider the loan process. Applicants grant consent for access to personal records stored on the blockchain. Trust in the data and automated processes for evaluating the application help drive faster closings and improve customer satisfaction.

Key Insights into AI's Impact on the BFSI Market

• The AI sector is anticipated to witness a staggering 13-fold increase over the forthcoming eight years.
• Forecasts show the US AI market reaching an impressive $299.64 billion by 2026, with a growth rate of 38.1% CAGR projected through 2030.
• Industry experts predict the AI market will expand to $190 billion by the year 2025.
• The AI industry is expected to employ as many as 97 million individuals by 2025.
• Year-over-year growth in the AI market size is projected to be at least 120%.
• Reports suggest that global expenditure on AI technologies will surpass $110 billion by 2024.

These statistics indicate a rising demand for AI specialists in the booming FinTech market. Finding the right talent can be time-intensive for companies, leading many to opt for staff augmentation and outsourcing services. Similarly, the technical complexity of blockchain also drives businesses towards these services for specialized expertise.

Turning to the Blockchain in FinTech Market, the following figures are noteworthy:

Combined values of blockchain and AI

Authenticity

Blockchain's digital records clarify the workings behind AI and the origins of its data, tackling the challenge of explainable AI. This enhances trust in the integrity of the data and, consequently, the reliability of AI's recommendations. Storing and distributing AI models via blockchain provides an audit trail, while combining blockchain and AI bolsters data security.

Augmentation

AI's ability to rapidly analyze and correlate data at remarkable speeds infuses blockchain-based business networks with new intelligence levels. Blockchain's access to extensive data sources, both internal and external, enables AI to scale up, offering more insightful actions, managing data use, model sharing, and fostering a transparent and trustworthy data economy.

Automation

The integration of AI, automation, and blockchain introduces new efficiencies in business processes involving multiple parties. This combination reduces friction, adds speed, and increases overall efficiency. AI models in blockchain's smart contracts can, for instance, identify products for recall, automate transactions like re-orders or payments based on specific thresholds, resolve disputes, or choose the most eco-friendly shipping methods.

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Use Cases

There are numerous ways in which AI and Blockchain are employed in the financial industry, including market and predictive analytics, robotic process automation (RPA), personalization and customer behavior analytics, trading automation, credit scoring, and risk assessment. However, there are also some fascinating uses that are worth highlighting.

AI and Blockchain for Advanced Security and Fraud Prevention

AI and blockchain can be integrated for advanced security and fraud prevention. AI analyzes user behavior patterns to authenticate and identify security threats while blockchain provides a secure and immutable transaction record. The combination of the two creates a powerful tool for security. Additionally, AI can detect payment fraud in real-time while blockchain's smart contracts aid in verifying user identities. This synergy can facilitate financial audits and reduce crime rates, making it a formidable tool in contemporary security and fraud detection strategies.

Revolutionizing Financial Auditing and Compliance

AI and blockchain are revolutionizing the landscape of regulatory compliance and financial auditing. AI can now automate the auditing of blockchain transactions, ensuring regulatory compliance and minimizing human error. By scrutinizing blockchain records, AI can identify suspicious activities on an immutable ledger, making it indispensable in sensitive areas like anti-money laundering (AML) and know-your-customer (KYC) protocols.

Real-time monitoring of transactions ensures continuous compliance with various financial regulations, particularly in identifying and mitigating complex financial crimes and money laundering schemes. Blockchain technology provides robust accounting and auditing services, enabling financial auditors to access decentralized transaction records, expediting the auditing process. The synergy of AI and blockchain is pioneering a new era in financial auditing and regulatory compliance, ensuring greater accuracy, security, and efficiency.

Stress Testing Using AI Simulations

AI can simulate economic scenarios to test financial portfolios, including extreme market conditions, providing insights into investment performance under stress.

Automated ESG (Environmental, Social, and Governance) Investing

As socially responsible investing gains popularity, AI can evaluate companies using ESG (Environmental, Social, and Governance) standards, aiding investors in creating portfolios that reflect their ethical and environmental principles.

Enhancing Insurance

The combination of AI and blockchain technology is bringing a significant revolution in the insurance sector. AI is automating and speeding up claims processing, while blockchain ensures the authenticity and integrity of claims and records. This synergistic use of AI and blockchain not only curtails fraud but also enhances the overall efficiency of claim processing. Moreover, AI is playing a crucial role in customizing insurance policies. By analyzing vast amounts of data such as driving behavior for car insurance or lifestyle information for health and life insurance, AI can provide highly tailored insurance solutions. This approach represents a significant shift towards more personalized and accurate insurance policy offerings that cater to individual needs and circumstances.

What FinTech companies use AI?

AI in Fintech has significantly boosted productivity, with improvements like 80% faster and more accurate data entry. This efficiency has led to the fusion of industries, evident in InsurTech (insurance and technology) and RegTech (regulations and technology), resulting in widespread AI adoption in financial services.

Examples of AI fintech startups include Singapore's Active.Ai, which creates AI chatbots for banking and insurance, and Token Metrics from Texas, USA, specializing in cryptocurrency analysis. Italy's Axyon AI automates asset management and trading, while Germany's Kreditech focuses on AI-driven credit scoring.

French startup SESAMm excels in AI and big data for investment, offering rapid AI insights through its TextReveal® platform and utilizing advanced technologies like NER for multi-language entity recognition.

Affirm, a consumer app providing loans for retail purchases, stands out with its machine-learning algorithms for swift and accurate credit underwriting. It's notably partnered with Amazon for a buy now, pay later service, offering features like transparent pricing and a user-friendly mobile app.

Bottom Line

In a data-driven industry, companies are leveraging technologies to develop adaptable solutions, enhance product experiences, and address common challenges faced by customers in traditional banking.

Innovative startups have already implemented these solutions, demonstrating success in streamlining operations for both businesses and customers.

As more organizations innovate with Blockchain and AI, new applications and customer segments are emerging. Companies exploring AI and Blockchain can seize this opportunity to find solutions that align with their strategic goals.