When it comes to fraud detection, customer service, and improving financial products and services, AI is making a huge impact on fintech. But while AI and machine learning are revolutionizing financial services, human intelligence is still needed.
“I think that the ability to educate people and really help people based on their situation is going to be where AI can help and also where you’re going to always need that human element,” says Michelle Gabor, who teaches courses for the University of Wisconsin Emerging Technologies in Fintech and Leading Fintech Transformation graduate certificates.
The market for AI in fintech is anticipated to be worth $42.83 billion in 2023 and grow to $49.43 billion by 2028, according to Uvik.net, which means a lot of job opportunities for those working in financial services. Uvik reports that “fintech companies can leverage AI-driven insights to improve their marketing and business decisions. They can provide individualized products and services, optimize marketing plans, and create cutting-edge solutions that cater to the unique demands of their customers thanks to data-driven decision-making enabled by AI technologies.”
While the opportunities seem endless, it’s important to keep in mind what customers actually want from your company.
“I would really encourage students to think about their own experience,” Gabor says. “In a different class that I teach on financial services, I have them do a discussion where I’m like, OK, what do you want from your bank or your credit union? And then say, OK, now put the hat on and pretend you’re the CEO of the bank. How do you satisfy everything all these people want, which is everything under the sun? We want good rates. We want great service. We want great tech tools. We want great apps, all of that. How do you do that? How do you sustain that? How do you afford that? And also, by the way, nobody wants to pay any fees. So how do you do that? So as the world continues to evolve, how do you monetize things? How do you operationalize them?”
“And we think about the apps and the flashy stuff, but really, where a lot of the money is in financial services,” she says. Many of those services are managed by third parties who specialize in a particular area, like fraud detection. “In my credit union, I have an app where I can control my card. [I can say:] ‘I don’t want my credit card used here. I don’t want my debit card used here.’ Well, there’s a whole company with a whole other structure who sells that app to my credit union.”
AI is also increasingly becoming standard in financial fraud prevention services. Juniper Research reports that AI fraud detection methods will save businesses more than $10 billion globally in 2027, up from $2.7 billion in 2002. “The research recommends vendors focus on access to transaction and trends data, as gaining the best level of network intelligence will allow businesses to benefit from fraud information from beyond just their own transactions; significantly improving fraud prevention,” Juniper says. Vendors can also partner with credit bureaus and payment networks to increase data coverage.
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Machine learning algorithms can help improve the fraud detection process over time, according to Prasad Nadhavajhala, who works at Paymentus and is an instructor in the fintech graduate certificate programs at UW Extended Campus. Supervised ML algorithms are trained by historical data marked with indicators to distinguish fraudulent transactions from authentic ones. AI models then use these patterns to understand customer behavior. When a customer uses a credit card, the model looks at the data against established norms. If the transaction looks different than the anticipated pattern, a red flag is raised.
These systems are frequently updated with new data so they can acclimate to shifts in fraud patterns, which makes them better at detecting fraud. These technologies ultimately prevent financial institutions from losing money, which also bolsters consumer confidence.
Using AI to recognize a consumer’s pattern of withdrawals can be helpful for detecting fraud, especially in recent cases where thieves stole IDs from consumers who looked like them, and then went to the bank or credit union to make large withdrawals. Because they had the ID and account numbers, and they looked similar to the person they were presenting as, the financial institution may not have known to turn them down for their request, Gabor adds.
AI can assist with credit scores and risk assessment, which helps lenders make more efficient and informed decisions, and offer loans to more people. However, the principles of banking still apply, like the 5 C’s of credit, Gabor says.
“Does that person have capacity? Do they make enough money (capital) to repay you? Do they have any collateral or what’s the value of the collateral, if it’s a home or business or car loan?”
Character is another ‘C.’ Consumers who had positive relationships with their financial institutions could be relied on to repay a loan. But in the case of a consumer who has no relationship, credit history is used.
“You can see that this person does or does not pay people back, so that makes me feel confident about lending or not lending to them, whatever it might be,” she says.
Affirm offers point-of-sale financing by assessing consumers’ creditworthiness in real-time. POS financing helps consumers by offering them point-of-sale loans, which gives them the ability to make incremental payments (another ‘C’ – conditions) on their purchase. With Affirm financing, AI algorithms look at data to determine loan eligibility and terms, which simplifies the financing process for buyers.
Are you working at a bank, credit union, or other financial institution and want to get educated on the latest technologies? Staying on top of the latest trends in fintech can be a full-time job in itself. Subscribing to technology news publications, networking with others in the industry via LinkedIn or in-person events, and attending conferences can help you understand the latest applications of AI in fintech and how they can potentially impact your organization. But education may help you even more.
The Emerging Technologies in Fintech certificate will help those on the ground actively implement new technologies in their workplace.
If you’re already working in fintech and want a leadership role, perhaps at a financial services company, consider the Leading Fintech Transformation graduate certificate. This program will help you meet the needs of today’s workplace while learning skills you can use to lead implementations in your organization.
If this sounds like a good fit for you, read more about our 100% online, flexible learning approach and how it can benefit you here.