In a recent report, the Cambridge Centre for Alternative Finance (CCAF) and the World Economic Forum (WEF) found that rather than observing AI as a single instrument for blanket application across the industry, AI can be viewed as a toolkit that is being used to tinker and build services in an abundance of ways to achieve a variety of objectives.
Using data collected in a global survey during 2019, the report analysed a sample of 151 fintechs and incumbents across 33 countries to paint a rich picture of how artificial technology is being developed and deployed within the financial services sector.
While 77% of respondents noted that they expect AI to become an essential business driver across the financial services industry in the near term, the report found that the way incumbents and fintechs are leveraging AI technologies differ in a number of ways.
A higher share of fintechs tend to be creating AI-based products and services, employing autonomous decision-making systems, and relying on cloud-based systems.
Whereas incumbents appear to focus on “harnessing AI to improve existing products. This might explain why AI appears to have a higher positive impact on fintechs’ profitability.”
30% of the fintechs surveyed indicated a substantial increase in profit as a result of AI, while only 7% of incumbents indicated such profitability.
As incumbents tend to leverage AI capabilities to foster process innovation within existing products and systems, fintechs are setting a wider trend of selling AI-enabled products as a service.
This approach presents a distinct new value proposition for firms (largely fintechs at this stage), “to achieve two-fold economies of scale.”
The firms can leverage both the prong of training AI and the prong of servicing new business areas, to offer superior services with unique selling points. The report refers to this as an ‘AI Flywheel’ where business innovation can become a self-reinforcing cycle.
Another key difference is that while incumbents expect AI technologies to replace almost 9% of jobs within their organisation by 2030, fintechs forecast that AI will expand their workforce by 19%.
Reductions are expected to be most numerous within investment management, noting an anticipated net decrease of 24% over the next 10 years. The report predicts that in line with these figures, 37,700 new fintech roles would be created within the pool of firms in the surveyed sample.
The report also highlights a topic that holds particular currency at present, being quality and access to data and talent required to interpret that data: “Regardless of how innovative an AI technology is, its ability to deliver real economic value is contingent upon the data it consumes,” the report says.
This concern is of huge importance for sustainable finance, as firms look increasingly toward AI technologies to drive investment returns in line with ESG policy.
The report says that responses illustrate “AI-enabled impact assessment and sustainable investing appears to possess the highest correlation with high AI-induced returns…however, real-world adoption may still be thwarted by data-related issues and a lack of algorithmic explainability.”
Given the central role AI is increasingly playing within the financial services industry, FCA and Bank of England recently established the ‘AI Public Private Forum’ (AIPPF) to explore the technical and public policy issues surrounding the adoption of AI and machine learning across the banking system.
Finextra Research and ResponsibleRisk will be focusing on sustainable finance in investment and asset management at the second SustainableFinance.Live Co-Creation Workshop in March 2020.