The FinTech revolution is on the verge of finally delivering on some of the longstanding promises of artificial intelligence. Most of us grew up hoping for a world where robots would do repetitious work for us, but the future is never what we expect it to be. Even though we are unlikely to get mechanical robots in the next few years, banking chatbots and other forms of artificial intelligence will soon eliminate many chores from the lives of consumers and transform the financial industry.
External spending on AI in the banking and securities sector is projected to grow from 1.9 billion US dollars in 2016 to 7.5 billion dollars in 2019 according to Citigroup. PwC estimates that AIs and robots will be able to perform more than half of all current employee tasks in the near future. In finance, many simple transactions and bookkeeping tasks are easy to automate. All told, Capgemini predicts that intelligent automation could increase global financial service revenues by 512 billion US dollars by 2020.
Chatbots can already instantly answer some customer questions, and they are likely to become much more useful in the near future. Only 20% of banking chatbot interactions were successful in 2017, but Juniper Research estimates that the success rate will climb to 93% by 2022. Chatbots like Cleo can also help customers to manage their personal finances by automatically categorizing expenses. This is just the beginning. As the number of financial products increases, the confusion among customers also increases. The situation is similar to what happened in the entertainment industry 20 years ago when the growth of viewing choices made printed schedules and catalogs obsolete. The solution was computer generated recommendations from companies like Netflix and Amazon. Chatbots are the first step. As FinTech AI improves, businesses and consumers will begin to trust machines with more important matters.
Robo-advisors from FinTechs like Betterment and Wealthfront are the most visible examples of AI helping investors to make significant decisions. However, this technology is still in the early stages, and we need to maintain perspective. Robo-advisors managed less than 1% of all financial assets at the end of 2017. More importantly, they usually only decide between index funds rather than trading in and out of individual stocks. Of course, FinTech AI is also used by frequent traders, and that technology is making its way to the general public. Financial firms must keep up with consumer demand for these new technologies as they evolve.
The net effect of AI in FinTech is to improve services, reduce costs, and eliminate many existing jobs in the financial industry. At the same time, technology creates new businesses as it destroys traditional forms of employment. Many scribes probably lost their jobs after Gutenberg invented the printing press, but it eventually created incredible new opportunities for authors, publishers, and even paperboys. The key was that the printing press greatly expanded the total amount of printed material, and AI could dramatically increase the number of financial transactions. Higher volume is the only way to make substantial profits as AI drives down margins.
It is all too easy to dismiss new FinTech developments like banking chatbots as fads, but investing in a fad is rarely fatal. Today’s technologies are the building blocks of tomorrow’s economy, and financial firms that fail to upgrade today run the risk of having no tomorrow.
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