Artificial Intelligence (AI), two words that struck fear in the minds of the masses as it came into existence. People were scared that the reign of the machines would soon commence leading to loss of jobs, failed careers, and much more. Though some of these fears were not farfetched, AI has been more boon than a bane. AI is propelling the digital revolution, especially in the financial sector.
AI’s rise to prominence in finance
AI isn’t just a technology for forward-looking financial institutions; it is a new way to do business, driving strategic, operational, and financial performance. From customer engagement to R&D to cyber-security and back-office operations, AI can optimize every aspect of an institution. A Capgemini Research Institute survey found that AI is used in over 58% of customer interactions globally. In India, 44% of customers contact financial services companies daily using AI. Over 10% of Indian banks and insurance companies have applied AI at scale across all areas.
A combination of AI/ML capabilities can accelerate transformation for banks and other financial institutions. AI can profoundly impact financial services institutions in various ways:
- Prevent fraudulent transactions: AI-powered solutions are now helping FIs gain real-time insights into transactions. It detects suspicious patterns and makes it easier to react on time.
- Predictive Analytics: Helps financial experts generate more sales, optimize resource use, and improve operational efficiency.
- Management of the workforce: Prioritizes customer requests according to their importance and then directs them to chatbots, online forms, or call centers.
- Process automation: Leads to a better customer experience, reduced human error rates, and faster back-office operations.
- Credit scores risk: Helps identify credit-worthy applicants who lack extensive credit histories.
To optimize the use of AI/ML, financial institutions should take various steps in the digital transformation process, including hiring people with the right skills and capabilities. However, building the right partnerships with firms can help banks succeed in digital transformation. One way to get it right is to work with fintech startups.
Partnerships with fintech startups are all the rage these days. Fintechs use AI and ML to do everything from digitally lending money to large-scale data analysis, especially in India. Startups like RazorPay, Mswipe, and Lendingkart are utilizing the power of AI to the fullest [**analyticsindiamag.com].
- Razorpay’s AI-powered system Thirdwatch helps reduce Return-to-Origin (RTO) fraud losses in e-commerce.
- Mswipe uses AI in its Field Force Automation Application (F2A2) and has successfully reduced onboarding time for new merchants from around three days to half an hour.
- In comparison, Lendingkart uses AI to access working capital finance options easily. By 2026, AI in fintech is expected to reach USD 26.67 billion, with a CAGR of 23.1%.
A NASSCOM report on AI’s impact on the Indian economy found that companies that use AI can contribute to the Indian economy at a rate of US 67.25 billion dollars per unit increase in AI intensity. These statistics represent just India; one can imagine how much impact AI will have on the world.
Deploying AI in SCF
AI has been touted as a game-changer in supply chain financing. With AI supporting its growth, SCF is reaching new heights. Small and medium businesses (SMEs), in particular, have benefited from AI and other technology-based solutions that have helped cut costs and optimize working capital requirements.
SCF provides finance to MSME sellers and significant corporate purchasers based on the underlying trade connection. Lenders don’t have to take on many risks because reputable and well-known huge business owners handle the deals.
Due to high onboarding and transaction costs, SCF was previously only available to big organizations. With the advancement of technology, it is simpler to advance funds to small companies without requiring many resources. SCF is increasingly being considered a cure for MSMEs and lenders alike in lowering operating costs.
AI will continue to improve manual and repetitive processes that characterize much of the financial sector. According to Statista predictions, the global artificial intelligence market will reach approx. $126 billion by 2025, while PwC reports state that AI is set to boost global GDP by $15.7 trillion by 2030. AI will help create a better, more engaging economic environment for financial institutions, enabling new financial and banking products and enhancing cost-effectiveness across the industry.