Artificial intelligence had all the hype in the tech world last year, following the rise of large language models like ChatGPT that benefited different sectors in a multitude of ways.
There also seems to be a heightened readiness among business owners and founders to incorporate AI into their operations, but not particularly in the financial sector.
FinTech Companies are Reluctant to Implement AI
Though not entirely bearish about AI, fintech entrepreneurs and traditional banks are not pumped to use AI, at least in the meantime, even though they stand to benefit the most, considering they deal with a vast reserve of customer data.
AI algorithms are only as good as the data they’re trained on. Poor quality data or data containing biases can lead to inaccurate or discriminatory outputs, posing significant risks. So, in an industry as delicate as finance, is it wise to hand the reins to AI?
While automation has long played a role in finance, AI represents a qualitative leap. Imagine a chatbot not just answering your questions but crafting personalized investment strategies or tailoring loan options to your unique financial situation. This level of individualized, intelligent guidance holds immense potential.
However, in a heavily regulated industry like banking, the risks of letting AI run wild are simply too high, and most fintech companies cannot afford to have that.
“People have this kind of dream of a PFM–the personal financial manager,” says Mercury co-founder and CEO Immad Akhund, who still considers himself bearish on AI. “It just hasn’t worked out so far.”
FinTech Awaits Future Advancements in AI
Predictions are that a decade from now, AI technology will become advanced enough to warrant integration in the financial sector. However, it will not completely rule out human oversight of financial advisors.
“The reason why advisors are important is often the emotional side,” says the co-founder and CTO of Farther, Brad Genser. “People are very irrational about money, and they act as a guardrail.”
As seen in other sectors, AI can unlock immense value in the financial sector. In a recent study, McKinsey estimated that generative AI has the potential to drive about $340 billion in value annually in the financial sector, or a 15% increase in operating profits.