People are responsible for technological growth. On the other hand, the presentation of automation, AI, and machine learning concepts has made our jobs easier in some ways.
Workflows, customer service, and business practices are changing to make room for new possibilities and get rid of old ways of doing things. This is basically paving the way for a safer and more secure future.
The banks and finance industry is a good example of how companies can change to fit new ideas. This piece will talk about why fintech and machine learning go together so well, what machine learning is used for in fintech, and how it can make things better in the industry.
Table of Content
- The Difference Between AI and Machine Learning
- AI and ML in Finance and Banking
- What are the pros of using AI and ML in fintech?
The Difference Between AI and Machine Learning
To make the story more clear, we need to understand that AI and machine learning are not the same thing.
AI stands for “artificial intelligence.” It is the process of giving machines data, knowledge, and human intelligence.
The goal of AI is to create self-sufficient systems that can act like people. AIs that can solve problems, also known as task-reward systems, are used to reach goals and complete jobs.
Most AI systems try to answer hard problems by acting like humans. In the picture below, you can see some popular ones.
AI uses around the world
Computer algorithms and data are used in machine learning (ML) to make predictive models that can solve business problems, such as those in the fintech industry. ML is based on algorithms that don’t need rule-based code to learn from data.
As a side point, rule-based programming uses a set of already-defined rules to build the logic of actions that are done automatically. Its purpose is to change some kind of info source.
The rule-based approach is more popular in AI because it makes it easier to make systems that behave like humans: trigger→processing (based on the set of rules)→decision→action.
ML looks at a huge amount of data, both organized and unstructured, and learns from it to guess what will happen in the future.
The words can be used for a lot of different things. But not all AIs use ML, and not all ML systems try to reach the goals of AI. Also, deep learning and big data won’t come up in banking. This text will never end if you don’t.
So why did banks and finance companies be some of the first to use AI and machine learning in fintech? Let’s talk more about that.
AI and ML in Finance and Banking
We already talked about how machine learning is used in fintech to make predictions and decisions based on data. Companies that work in finance and customer service linked to that field had to notice these benefits sooner or later.
There are never-ending amounts of numbers and streams of data in fintech companies. This is because the market changes all the time, millions of customers use their services, and people try to do illegal things all the time.
It would be very hard to keep track of all the processes by hand and make good notes about such large operating systems in this kind of setting.
Here are a few examples of how ML and AI are used in banking services:
- Dealing with risks
- Analysis of fraud
- Trying to guess sales
- Help for customers
- Management of assets
- Customization of service
- Advice on what to buy
- Guessing the price of a stock
Now, let’s take a closer look at how machine learning and artificial intelligence work and how they can be used in fintech.
What are the pros of using AI and ML in fintech?
There is no doubt that smart solutions have been creeping into fintech companies for the past ten years. There are uses for machine learning in fintech and AI in almost every area, from the front end to the back end.
There are a lot of different types of fintech. However, when it comes to the use of AI and machine learning, it’s hard to miss because it’s almost everywhere.
AI and machine learning tools are always at work, from a banking app on your phone to fintech startups to huge foreign companies with huge amounts of money coming in and out.
An independent fintech newswire called Finextra says that the need for machine learning solutions will not go away any time soon because they are useful.
Statista, which is another reliable source, says that AI is used in a wide range of situations around the world. AI tools improve financial operating systems from both the developers’ and users’ points of view, in areas like security and customer service.
Statista is the source.
So what precisely can the financial industry do better with ML and AI?
In general, the list of perks is what all companies, not just fintech ones, would like to see in their product. People who use services are always ready to pay for ones that are effective and make them happy.
- better cost-effectiveness
Automated processes need fewer people to work on them.
- better ways to stop scams
An operating system that is set up correctly can’t miss any problems.
- fewer biases
Predefined checks make the system steady and able to predict what will happen.
- raised customer interest
Customers are more likely to use a product if it has personalized choices.
- better growth
Your method is easy to change to fit the needs of your business.
- better handling of time
There’s no doubt that the program works faster than you.
Finally, let us take a look at some important uses that can’t miss the benefits that machine learning and AI bring to fintech.
Making choices and credit scoring
Machine learning technology has a lot of benefits for the business world. One of the best is predictive analytics. As time goes on, it helps people make decisions and score their credit more and more.
Banking institutions and other fintech companies use machine learning algorithms to improve the flow of money by using ML-based credit scoring systems instead of just rule-based ones to control loans.
But what makes these two methods different? Credit scoring systems that were based on rules used to use an applicant’s age, gender, job, and other general details. ML-based score systems, on the other hand, can now work in more delicate situations and make more accurate decisions about people.
ML Credit Scoring: The Basics
Digital tracks that show how much someone spends and saves, along with other information, can help people make more informed choices about how to handle their loans.
Or put another way, software that uses machine learning algorithms might decide that a reasonable senior citizen is a better borrower than the average teen. And the computers can now find this a lot more easily.
Security, managing risks, and finding fraud
For fintech companies and banks, fraud, security, and safety are without a question the most important things. Risk management goes hand in hand with trading. You should know exactly when and what to buy, sell, and put on hold in the market.
These jobs are a lot easier to do with AI and ML in fintech because they can predict and analyze things. They get the most out of the resources they have and make operations run more smoothly.
Here are the main reasons why using machine learning to find scams is a good idea.
Major benefits for finding fraud
Using machine learning in fintech to spot fishy behavior and stop fraud has also become a strong tool in the fight against money laundering, financial crime, and pretty much any kind of fraud.
For clients to stay with banks, stock markets, and the fintech business around the world in general, they need to be able to trust and rely on them. In this way, the rise of AI and ML in fintech can be seen as a major turning point for the field.
Trading using numbers and algorithms
Trading firms and even people can use mathematical models and machine learning algorithms to come up with plans for how to make money in the market. By looking at old data and making statistical models, you can find deals that could make you money faster than your competitors.
Here are the key ways that our team has found that machine learning can be used in trading.
Trading machine learning apps
Machine learning techniques have made this way of trading possible, which has given fintech companies new possibilities they didn’t expect. It lets them place as many orders as they want on many markets, effectively lowering the risk of loss.
The expected trades may also change from short- to medium- to long-term, depending on how the market is doing at the moment.
We’ve already said that machine learning in fintech helps banks get to know their customers better on a “personal” level. But how does it work in real life?
Banking apps may “guess” which service or product is best for a customer at any given time by keeping track of their location, time, and spending habits (with their permission, of course).
McKinsey & Company, a global advising firm with a lot of experience, says that banks will have to change how they do things from 2030 onwards to stay in business. These days, banks should get ready to give their customers more personalized, one-of-a-kind, and advice-based value.
The financial magazine The Financial Brand used the “next best action” method in banking, which you can see below. You can see here that this kind of process needs both historical and real-time data analysis, which AI and ML can do.
Automation and improvement of work flow
Using AI and ML in banking could cut down on a lot of work that needs to be done by hand. Instead of twelve people doing things, one well-trained worker with an ML program watches what’s going on. It saves money and lets people know faster about any kind of problem, scams, or strange behavior.
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No matter what part of your life you’re in, 99% of the time you’ve dealt with ML and AI in banking services, at the very least as a bank customer.
As part of the fintech industry, AI and machine learning algorithms act as a system’s executive brain, which is always hungry for new data to process. Also, scams can’t happen because AI/ML tools would quickly spot anything that doesn’t seem right.
On our Technology page, you can read about machine learning solutions in fintech and other methods that might help you decide if you want to use them for your project. You can also look at our Portfolio to learn more about real-life running projects that the Appic Softwares team has worked on.
Appic Softwares has great services for making financial App which makes it easy for businesses to add money to their websites. They can grow when they use embedded finance because it makes their financial processes run more easily.
So, what are you waiting for?