Fintech in the age of AI: 4 trends to watch out for

By Yuvraj Thakker : Fintech has gained popularity due to advancements in technology, making financial services efficient, accessible, and user-friendly.

It is a constantly evolving industry driven by new technological developments and trends.

Here are the four most important fintech trends in the age of artificial intelligence (AI) to watch out for!

Embedded finance

Embedded finance is a relatively new concept that has been gaining traction in recent years.

Essentially, it refers to the integration of financial services into non-financial products or services. This can include everything from banking services integrated into e-commerce platforms to insurance offerings built into ride-sharing apps.

One of the main benefits of embedded finance is that it allows companies to offer a more seamless and convenient user experience for their customers.

By integrating financial services directly into their existing products or services, companies can reduce friction and make it easier for customers to access the financial tools they need.

It can also help drive growth for both the companies offering these services and the financial institutions providing them.

For example, by partnering with fintech start-ups or other non-financial companies, traditional banks can expand their reach and tap into new customer segments.

AI-driven experiences

Revolutionising the banking industry, AI technology is providing hyper-personalized customer experiences.

Traditional banks are struggling to keep up with fintech companies that use AI to offer better customer experiences. Open banking APIs allow fintech companies to access bank accounts and debit cards, giving them an advantage over traditional banks.

Adopting AI-driven customer experiences is becoming a norm in the financial services industry. By using AI to analyse customer data, banks can offer tailored recommendations and solutions to their customers.

Personalised lending models

Enabling financial access for underserved populations is vital for achieving financial inclusion. Traditional financial institutions have often fallen short in this regard, leaving many individuals without access to loans and credit.

Enter alternative lending start-ups, revolutionising the industry with personalised loan and credit options.

Through the power of technology and data analytics, these start-ups tailor loans to meet individual needs and circumstances.

For example, some start-ups consider unconventional criteria like rental history or utility payments when providing mortgage loans, expanding opportunities for home ownership beyond traditional lenders.

In addition, alternative lending models leverage machine learning (ML) to effectively detect and prevent financial fraud.

Such fraudulent activities can have severe consequences for individuals’ financial information and savings. By embracing ML models, these start-ups protect consumer interests while ensuring the availability of reliable financial services.

A notable initiative benefiting both consumers and institutions is the adoption of alternative credit scoring systems.

Unlike traditional systems that heavily rely on factors like income level and credit history, these alternative systems accurately assess borrowers’ risk profiles by analysing diverse data sources such as social media activity or mobile phone usage patterns.

Consequently, lenders can extend loans or credit lines to applicants who may not meet conventional requirements, fostering greater financial inclusivity.

Neobanks meet embedded finance

Neobanks are gaining popularity among young consumers due to user-friendly interfaces, innovative features, and flexible payment options. Embedded finance, integrating financial services into non-financial platforms, further fuels this trend.

Let’s take a closer look at why neobanks and embedded finance are appealing to young people around the world.

Neobanks and their advantages

Neobanks are online-only digital banks that provide services like checking accounts, savings accounts, and loans.

Compared to traditional banks, they offer lower fees and user-friendly interfaces, attracting tech-savvy young consumers who prioritize convenience. Neobanks stand out by prioritizing mobile banking, and offering dedicated apps for managing finances on the go.

These apps often include tools for budgeting, tracking spending, and other features to help users stay in control of their financials. Another key aspect driving their appeal is their affiliation with buy now, pay later (BNPL) services.

BNPL allows users to make purchases without immediate payment, instead of spreading the cost over multiple installments.

This feature is particularly attractive to young individuals with limited disposable income, enabling them to make purchases while managing their cash flow effectively.

Quantum computing and fintech

Quantum computing is poised to revolutionise the fintech industry, solving problems that traditional computers cannot handle.

It enables real-time fraud detection, preventing losses by staying ahead of sophisticated fraud techniques.

Quantum computing also enhances the security of biometric authentication, making it more robust against hacking and spoofing.

Moreover, its energy-efficient nature contributes to reducing carbon emissions from data centers, aligning with sustainability efforts in fintech and other industries.

Quantum computing is a game-changer with unprecedented speed and capabilities, reshaping the future of financial technology.

(This article has been authored by Yuvraj Thakker, MD, StoxBox. Views expressed are personal.)