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2023 Marks The Beginning of the Fintech and AI “Merge”

As 2023 draws to a close, the DSF reflects on a year of progress for the AI and Fintech sectors. Read more from our founders, Paolo Tasca and Nikhil Vadgama, on the year’s defining breakthroughs and the future of our industries.

For obvious reasons, 2023 has been “the” pivotal year for AI. The fundamentally transformative nature of the AI revolution the world has undergone this year means that, by extension, 2023 will constitute a milestone in the history of basically any other sector in the economy. This general truth, however, should not obscure the very specific achievements of concrete sectors this year. This is the case for Fintech, where 2023 has marked a notable period in the acceleration of technological integration and innovation, the reshaping of the landscape of financial services, and the emergence of new products and sectors.

Born of the synergy of Fintech and AI, we can find a number of striking developments. One of them is the degree to which adoption of generative AI (Gen AI) has become widespread across financial institutions. A survey by Ernst & Young revealed that 99% of financial service leaders reported deploying AI, with Gen AI being a prominent use case. Naturally, challenges persist, such as inadequate data and technology infrastructure, leadership commitment, and clarity in governance and ethical frameworks surrounding Gen AI​​.

The Brainstorm AI 2023 conference also highlighted AI’s transformative power in the Fintech sector, emphasising its role in enhancing operational efficiency, risk management, and customer experience. At this conference, there was a clear recognition of how AI technology is revealing to be key to advance financial inclusion, breaking down barriers to financial services, particularly for underserved populations. The conference also brought to light the regulatory challenges and opportunities that accompany AI integration in Fintech​​.

The year also saw significant advancements in regulatory technology (RegTech), with cutting-edge technological solutions being deployed for compliance-related issues in the highly regulated financial industry. The integration of AI, blockchain technology, and alternative finance is attracting government attention worldwide. RegTech is evolving to streamline the compliance process using cloud technology, machine learning, and big data analytics​​. At the same time, there is concern about how criminals may use AI. The U.S. market, especially the banking sector, has shown substantial growth in RegTech adoption, driven by the sector’s need to meet diverse and evolving regulatory requirements efficiently. This growth is characterised by significant investments in RegTech solutions, not just in the U.S. but globally, with key market players like Ascent, Chainalysis, Broadridge, Deloitte, and IBM innovating continuously to remain competitive in this evolving landscape​​​​​​.

In terms of funding, there was a notable divergence in the fundraising performance of Fintech firms based on their maturity and segments. Early seed and pre-seed stage Fintechs showed resilience and increased funding, while growth-stage companies faced a sharp decline in funding. B2B fintech segments, particularly those focused on Banking as a Service (BaaS) and embedded finance, displayed more resilience than business-to-consumer segments​​.

AI-driven personalisation in investment recommendations, particularly through robo-advisors, has been a significant trend. These advisors analyse clients’ financial situations and goals to provide tailored investment advice, adjusting recommendations based on changing circumstances or market conditions​​.

The financial industry has also embraced AI-powered credit scoring models for underwriting processes, elevating transaction security and efficiency, particularly in AI-driven smart contracts and risk management. Robo-advisors have gained popularity, offering personalised investment guidance and democratising access to sophisticated financial advice​​.

Hyper-personalisation in Fintech, enabled by AI, has also shown to be a trend, allowing for more tailored financial offers and products. This approach enhances customer satisfaction and brand loyalty. Smart contracts, combining AI with blockchain technologies, increase transaction security, transparency, and efficiency​​.

We are in a position to say then, that 2023 marks a watershed moment in the fintech and AI landscape. We are witnessing the beginning of a profound integration of advanced technologies. A growing emphasis on more tailored, efficient, and inclusive financial services, and on financial services that are more adaptive and personalised, sets a precedent for future innovations, potentially leading to the emergence of new products and industry verticals, and reshaping the financial landscape in ways that prioritise personalisation and efficiency​​​​.

About the Author
Paolo Tasca & Nikhil Vadgama
Paolo Tasca and Nikhil Vadgama are the founders of the DLT Science Foundation.