AI | Oct 10, 2024
Image: OECD – FSB Roundtable on AI in Finance: Summary of Key Findings
Generative AI and 3rd Party Services are Transforming Finance
Artificial Intelligence (AI) in all of its flavours are changing the banking sector and financial services from advancements in everything from fraud detection to customer support. There is an increasing reliance on third-party AI services providing fintechs new opportunities but requiring strong governance. The Organisation for Economic Co-operation and Development (OECD) and Financial Stability Board (FSB) held a public-private round table in May earlier this year to discuss the latest risks and challenges. A summary of key findings was recently published (12 page PDF). This article focuses on new AI trends and implications for financial technology firms.
1. From Streamlining Internal Processes to Customer Facing Apps
While it’s largely known that financial institutions (FIs) are using AI/GenAI for automating and optimizing a wide range of internal processes to free up resources, such as code creation, generating regulatory documents, and translating legal materials, FIs anticipate that GenAI will be a major factor in customer facing applications.
See: How AI is Shaping the Future of Financial Services in Canada
AI powered financial advising services can provide a highly customized customer experience. Fintechs that innovate and gain early adoption of individualized client services can remain competitive and also attractive to the banks.
We are finally arriving at the day where AI financial planning tools can instantly recommend the best solutions for unique client needs with a simple ‘optimize’ button, which will transform the customer journey and experience (not to mention their level of satisfaction and trust).
2. Third Party AI Services Must Balance Innovation and Risk
The financial sector is becoming increasingly dependent on third party AI service providers for cloud infrastructure, data analytics and the latest AI models. While outsourcing or integrating these services boosts innovation, it increases the risks of concentration (working with a limited vendor), accountability and transparency.
See: Industry Resists SEC’s Oversight on AI in Finance | California’s AI Safety Bill Veto and Its Impact
Fintechs and FIs must monitor and control these embedded AI services, especially critical functions. This means that both fintechs and FIs must carefully manage their relationship with these third party AI vendors to avoid becoming overly dependent on a single vendor and to remain flexible. Diversifying service providers while also building internal AI capabilities is advised in most cases to avoid vendor lock-in.
Further, increased regulatory compliance requires that firms ensure proper governance and accountability when working with third party vendors, so striking the right balance of controls and innovation is key.
3. Generative AI’s Competitive Advantage Will Disrupt
The roundtable discussed how early AI fintech adopters might outperform established financial institutions in niche sectors and industries. GenAI has proven to be a game changer in asset management, trade analysis, risk assessment and portfolio optimization. This means fintech startups can use AI tools to disrupt traditional financial services by being agile, scaling quickly, and deploying these solutions in less liquid markets.
The panel focused on how early AI adopters might outperform established financial institutions, especially in specialized industries. By automating intricate processes like trade analysis, risk assessment, and portfolio design, GenAI in particular is revolutionizing asset management, trading, and portfolio optimization.
Fintechs now have more chances to compete in markets where conventional companies are taking longer to develop as a result of this change, levelling the playing field against larger competitors.
4. Human Oversight is Critical for Accountability and Trust
According to the expert panelists participating in the roundtable, human monitoring is still essential, so AI decisions can be reviewed and evaluated to ethical principles to avoid mistakes made by AI that can have huge negative implications like in fraud detection.
See: AI’s Ethical Dilemma Grows as Innovation Surges
Transparent AI is key for building and maintaining consumer trust. Fintechs can differentiate themselves by highlighting strong governance frameworks and ethical AI use that keep ‘humans in the loop’ while also creating efficient, fair and accountable outputs.
Harnessing AI’s Potential in Canadian Fintech
Based on the latest discussions at the OECD-FSB AI in Finance Roundtable, it’s pretty clear that AI is changing the landscape of financial services. Fintechs and financial institutions should embrace AI for operational efficiencies to earn a competitive edge while reducing risks of third party dependency, governance, and ethical AI. NCFA Canada’s community, whether they are a new business or established firm, should think about how they can use these insights to lead and innovative in the fast paced and evolving AI powered financial services industry of the future. And if you haven’t heard the news, the ‘Godfather of AI’, British-Canadian Geoffrey Hinton was just awarded the Nobel Prize in Physics for his foundational work in AI neural networks.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada’s Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org