Globally, the Fintech industry is being redefined by the emergence of digital applications, along with the key role of technologies like data analytics, cloud computing and Artificial Intelligence (AI). While the concept of data-driven financial services is not new, the recent explosion of data sources including mobile data and the Internet-of-Things (IoT) in the financial world is transforming this sector in an unprecedented manner. As that happens, the companies that build these products, platforms, and consumer tools are having to radically reimagine product features too.
As we speak, the Indian Fintech market is set to grow to $84 billion by the year 2025. Over the past decade, Indian Fintech startups like RazorPay and PayTM are transforming the way we execute our payments and other financial transactions.
How are data-driven technologies driving the new world of Fintech products? Let us explore further.
How AI technology is reshaping the Fintech industry
Right from personalized offers to digital lending, data analytics, AI, and machine learning technologies are revolutionizing the Fintech sector by using innovative methods that are derived from human intelligence. With the availability of Big Data, these technologies are providing fintech products and platforms the ability to crunch large and diverse datasets.
Here are some of the emerging use cases of AI in the Fintech sector:
- Data-driven product recommendations: that are accurate and can drive down business costs. For instance, machine learning (ML) algorithms are analyzing customer data and recommending them the right products to improve conversions and grow volumes. One such example is that of AI-based financial advisory, INDmoney that uses technology-based insights to advise investors on how to increase their earnings across investment avenues.
- Fraud detection: where AI tools can monitor user behaviour to identify any signs of fraud attempts. This helps the fintech company address such transactions early. It also allows them to inform customers of issues and preserve the bond of trust that exists between them. For instance, the AI-powered Thirdwatch solution from Razorpay helps in reducing fraud-related losses for eCommerce companies. Then, for genuine insurance customers, AI can also speed up claim settlements through algorithms that can detect data patterns and recognize any fraudulent claims.
- Personal finance where AI-based transactional bots (or digital assistants) are improving customer engagement. They guide prospective customers through a bouquet of personalized offerings in financial planning and savings. They provide the information required to move the buyer journey forward at just the right time. Through Natural Language Processing (NLP), digital assistants can now recommend financial products based on previous transactions. For example, the Ella virtual assistant from Sun Life is designed to benefit insurance consumers through personalized user alerts and reminders.
Among the leading “Buy Now Pay Later” or BNPL companies in India, Capital Float uses AI tools to perform a risk assessment of consumers and offer personal finance solutions.
Which are the financial product domains that are being reshaped by data-driven Fintech products? Let us find out next.
5 Areas where Data is driving Fintech growth
In addition to AI and ML technologies, the availability of data is delivering financial capabilities that is helping fintech companies attract more customers and improve operational efficiency. Fintech services are now touching multiple areas or customer touchpoints right from opening a bank account to underwriting an insurance policy.
Here are 5 areas where data-driven Fintech products are adding capabilities that are disrupting "traditional" financial models:
When it comes to retail banking, Fintech is changing the way we do our banking and payments. Apart from easy mobile banking, retail banks are now leveraging customer data to offer personalized services that were previously "unthinkable."
Among its flagship products, the YONO banking app from SBI has transformed account opening – with over 22,000 accounts being opened daily and digital transactions accounting for 80% of all transactions. Similarly, with over a million daily transactions, InstantPay is a digital-only bank in India that offers the complete gamut of banking services to its customers.
Using a customer’s online profile data to determine the insurance premiums? This is what data-driven innovations can bring to the insurance sector. Fintech companies are enabling the rise of digital insurance – with improved underwriting services, lower premiums, and increased coverage as compared to traditional insurance models.
For instance, digital-only insurers (or InsurTechs) like Acko and Go Digit are seeing better year-on-year growth in the Indian market, as compared to traditional insurance companies.
AI-powered recommendations are now impacting high-end wealth management services – with financial companies building and managing customer risk profiles with just a few questions. Wealth managers now act as “augmented advisors” by determining the customer’s wealth portfolio using intelligent video-calling apps that can interpret the customer’s facial expressions.
Zerodha founder, Nithin Kamath talks about creating an Indian version of the successful U.S-based investment firm, Vanguard, which is the pioneer in low-cost investing.
As highlighted by Deloitte in its “Bank of 2030: The future of investment banking” report, investment banks need to become data-centric organizations that stay focused on the customer journey. Enabled by AI and Blockchain technologies, investment banking is witnessing the rise of online trading platforms that is now available to more people with basic financial accounts.
Noted investment banker, Sunil Sanghai talks about reimaging a “seamless and paperless trading architecture that ensures immense transparency, reach, and growth in trading volumes.”
To facilitate "financial inclusion" in the Indian market, Fintech companies are enabling data-based lending systems like popular Peer-to-peer (or P2P) lending or digital lending. Fintech lending products reduce the time of processing the loan application and the amount of involved paperwork. These lending models also ensure better returns for lenders as they properly vet and pre-approve borrowers.
Bangalore-based KreditBee is one such case study of a financial company offering instant personal loans to eligible customers. EarlySalary is another financial lending company offering loan assistance to salaried individuals through its mobile app.
AI-based financial products and advisories are unlikely to replace the "human" expertise offered by an expert financial advisor but are gradually transforming the financial services industry regardless. According to Fintech Alliance , 97% of financial services companies have invested in AI and Big Data initiatives, while over 60% have hired a Chief Data Officer.
Through its expertise in AI and Business Intelligence technologies, OutsideThePC is one IT consulting firm that has been partnering with financial product companies to improve their digital capabilities. We enable our customers to streamline their long (but necessary) transformation of software products towards modernization.
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