Tempered adoption of AI tools may spell greater leap for fintech firms

Expert underscores generative AI’s strength in streamlining front-of-office work, but banks on human expertise for in-depth development.

Whilst financial technology companies in the Asia Pacific region are expected to be catapulted by the adoption of artificial intelligence (AI) tools, this is only to an extent.

The latest forecast figures published by ResearchAndMarkets.com show that AI in the Asia Pacific fintech market is expected to experience a compound annual growth rate (CAGR) of 17.7% between 2022 and 2028.

In the banking sector, AI is utilised to assess an individual’s overall financial health, provide real-time updates, and offer personalised advice by analysing various financial accounts.

 Banks and fintech firms benefit from AI and machine learning by efficiently processing vast amounts of customer data to understand their preferences and needs, ultimately enhancing customer relationships.

“That’s one, at least one, level I’ve seen of technology partnerships, even if they don’t partner with each other directly. I think through commonality and platform, that’s where you see a whole ecosystem of technology and business partners working together,” Justin Tan, partner and head of financial services, Southeast Asia (SEA) and Taiwan at Arthur D. Little (ADL) said in an exclusive interview with Asian Banking & Finance.

Working with tech

Recent data from an S&P report revealed a decline in global fintech funding, with the APAC region experiencing a 25% downturn.

“Against the high watermark [during the COVID-era], you will see… a drop,” said Tan. “But I don’t think this signifies over the long term that… people like losing faith in fintech.”

Tan said whilst these numbers may seem alarming at first glance, it is crucial to analyse the context behind this trend, especially since the dip in funding is expected with the reopening of the economy.

So, this does not imply a loss of faith in fintech. Instead, it signifies a move towards a more stable, sustainable investment environment.

In an S&P Global Ratings on-demand webinar with Jordan McKee, research director, and Sampath Sharma Nariyanuri, APAC research analyst, both experts emphasised the continuous adaptation of fintech companies toward their target market.

“As younger segments of the population mature and gain enhanced spending power, really, they serve as growth catalysts for all the trends,” said McKee. “And just to kind of underscore the significance of the movement that we’re beginning to see in the market here, 70% of Gen Z and millennials tell us that digital technologies are essential to their daily lifestyle compared to 31% of baby boomers.”

In recent years, the fintech industry has witnessed exponential growth, reshaping the landscape of financial services. One prominent trend emerging from this transformation is the increasing number of partnerships between fintech companies and traditional banks or financial institutions.

These partnerships are not mere happenstance; rather, they are driven by common demands and needs within the banking sector.

“Fintechs are increasingly playing a big role in terms of being the primary intermediaries for facilitating financial growth. And because of the fact that these markets are massively underpenetrated, fintechs have the greater urge to build all the products themselves because there is really so much to do,” Narinayuri said.

One significant driving force behind the surge in fintech-bank partnerships is the technology revolution in the financial sector.

Both traditional banks and newcomers in the industry are increasingly working with technology giants like Microsoft and Amazon to harness cloud-based solutions and AI, said Tan separately.

Advantages of AI

These technologies provide scalability and security, allowing institutions to tailor their services to diverse client segments.

Whilst fintech firms have made substantial contributions to streamlining back-office operations and automating processes, there are areas where they have yet to fully realise their potential.

ADL’s Tan said generative AI technologies like ChatGPT – an AI chatbot that uses natural language processing to create humanlike conversational dialogue – have untapped potential, especially in front-office functions.

Whilst some believe that certain tasks must remain in the realm of human expertise, there is room to leverage such technologies to provide comprehensive financial advice to a broader audience.

The adoption of AI and generative technologies to augment human capabilities in delivering personalised advice is an evolving area within the industry.

“But how do you use such technologies to augment humans in terms of delivering better, more comprehensive in a more tailored way to more people? And I think that's something that we have seen a bit a bit less often. But I think that's changing. And there's an improvement,” Tan expressed.

Where is AI headed?

The adoption of cloud technology in banking, particularly in various jurisdictions, continues to face regulatory concerns related to security and privacy.

To establish industry standards and gain regulatory confidence, fintech companies and banks must collaborate to address these challenges. Whilst significant advances have been made on the retail banking front, there remains untapped potential in wholesale banking, Tan said.

“What continues to be a work in progress is the wholesale banking side. We have seen a lot of advancements on the retail side. We’ve seen how the [Monetary Authority of Singapore] has been working with banks to create some advancements in trade finance,” Tan stated.

Collaborations between central banks and commercial banks, such as those involving trade finance and blockchain technology, have begun streamlining processes and reducing manual interventions.

However, these advancements have yet to reach their full potential in wholesale banking. There is a vast scope for further innovation and efficiency gains in this segment, offering opportunities for fintech firms and banks to deepen their partnerships.