The coming democratization of financial services thanks to artificial intelligence

The coming democratization of financial services thanks to artificial intelligence

The coming democratization of financial services thanks to artificial intelligence

The financial revolution is here. Here, we delve with one of the world’s top FinTech venture capitalists, Spiros Margaris, founder of Margaris Ventures, into how AI and related technologies are transforming a key industry. Spiros is a senior advisor and investor in several fintech, insurtech, cybersecurity, healthcare and artificial intelligence companies, including two over $1 billion FinTech startups.

Q: What problems, shortcomings or inequities in financial systems are potential areas for transformation?

Margaris: The financial technology industry – FinTech – seems to stem from the need to provide a democratized financial system, at least for the FinTech companies that interest me. The long-term impact of these companies will be the true legacy of our industry. By democratizing the financial system, I mean an industry that caters to the unbanked or underfunded – people with disabilities, minorities or marginalized groups – by giving them access to basic and fair financial services. Many financial services that most of us take for granted are inaccessible to low-income and rural populations due to a lack of physical infrastructure, internet, smartphones and computer access.

In addition, financial products are often too expensive for the less privileged and lack transparency and terms that are easily understood. This makes it difficult to understand the true costs and risks associated with these products. Technology such as AI is a great enabler to help the financial industry transform faster, in a more diverse and democratizing way that overcomes or mitigates these shortcomings. In this way, artificial intelligence can reduce disparities in access to financial services between the rich and the poor.

Q: What work is underway and what are the visible successes?

Margaris: AI is already widely used in the financial industry and is expanding to additional sectors such as banking, commerce and lending, for example in more detailed and accurate credit scoring systems implemented through AI and big data. Artificial intelligence is enabling companies to make more informed decisions and improve fraud detection and risk management systems, as well as deliver more personalized and tailored offers to individual customers.

AI chatbots are also being used to provide customers with a more efficient and personalized customer experience. Automation enabled by artificial intelligence can streamline processes and improve the efficiency of financial services, further reducing costs and improving the customer experience. In addition, artificial intelligence and big data can help identify and combat systemic financial market problems, such as money laundering and terrorist financing, which have the potential to threaten the stability of the financial market as we know it. Thanks to continuous and rapidly improving capabilities, artificial intelligence is successfully reducing the cost of financial services and accessibility for those who have been overlooked or had limited access to traditional banking options.

Q: Are banks and financial institutions ready for this – or are new, tech-savvy players gaining ground?

Margaris: With financial institutions and fintech companies already adopting AI to improve services and stay competitive, the more tech-savvy players in the industry are likely better positioned to take full advantage of the huge opportunities and be more successful. However, as we know, the competition does not end with traditional financial players, but is instead enriched by others, such as tech giants, who also want a piece of the pie.

Tech giants like Amazon, Apple, and Google have the technical expertise, vast resources, and customer base to gain a foothold in the financial sector. In a technology-driven world, the problem with the financial industry is that the DNA of tech companies is based on embracing cutting-edge technology and driving innovation to drive their growth strategies. That said, while the financial industry is at a technological disadvantage compared to the tech giants, it is supported by the inherent and deep trust of customers in banks and established financial institutions.

Nevertheless, the DNA of the financial industry needs to be rapidly strengthened with cutting-edge technologies and innovations to remain competitive in the future. We must remember that tech giants will never want to be banks; want to serve their customer base and increase the efficiency of their solutions. In the case of financial institutions, tech giants have the potential to grab a big slice of the business pie, often quite tasty and profitable.

The future competitive landscape will be determined by how much each player is willing to invest in technology and innovate to provide customers with a better deal. Fintech companies have understood this much better than most banks, but increasingly everyone understands that pushing technological progress is the only game in town, at least for those who want to stay in it.

Q: What are the challenges facing implementing artificial intelligence to democratize the financial system?

Margaris: No matter how great current and potential future AI solutions seem, there are challenges to be faced in order to ensure continued success. AI models require extensive data—both accurate and up-to-date—that must be diverse and unbiased to avoid inaccurate results. We need to be able to explain AI models so that they can be improved if necessary, as well as ensuring fairness, privacy and security. Another challenge in implementing AI models is data storage and in Europe – and similar global forms and initiatives – access due to the General Data Protection Regulation, GDPR.

Effective security measures are essential to ensure the security and integrity of AI-powered models. What’s more, implementing, maintaining and scaling AI solutions is expensive, and many companies are boldly transforming their business models into full technology. Developing the necessary technology and training employees in the use of the system is an investment that companies must make.

In addition, AI-based systems may not be designed to integrate with existing processes, potentially requiring significant customization prior to implementation. The financial industry is also rightfully highly regulated, with an environment of ever-changing regulations designed to protect consumers, which presents another challenge for AI. Therefore, we all need to understand how deployed AI models work and what the implications are, including regulators.

Therefore, AI models must be considered trustworthy for use in the financial system. The better everyone understands AI models, the more we can trust fair implementation, privacy protection, and non-discrimination. Much work remains to be done to continue to educate people and customers about the enormous benefits of such complex technology. We need to make sure people believe and understand that AI will benefit them when it reaches its full potential, and we need to remember that trust is still the core DNA of any business model, including banks.

Q: What advice do you give to the companies you finance about the future ahead?

Margaris: I remind my companies that even established companies with a strong focus on technology can have offerings that seem outdated compared to current innovation and technological advances. The race is never over, and each player can become only a memory if he rests on the laurels of his previous initiatives.

Finally, explainable AI needs to be deployed to reduce costs and provide greater transparency and access. Everyone will benefit and, most importantly, real progress in the democratization of the financial sector, which should be of interest to us all.

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