Fintech and big technology companies could outpace
traditional banks in the race to develop AI tools that help personalize
services, evaluate credit risk and more, analysts and industry executives say.
While that could fuel new partnerships in banking, it also could lead to
increased competition that eats into the business of more established financial
institutions, industry observers said during a panel discussion this week.
“I think that AI innovation will be more and more
concentrated [with] the fintechs,” Gaia Bellone, senior vice president and head
of data science at KeyBank Corp., said on a virtual panel as part of the Ai4
conference.
Dr. Bellone said financial-technology companies tend not to
face the internal red tape that a traditional bank may have in advancing
artificial intelligence projects, such as having to get approval from multiple
parties. She also said they can leverage cloud-based AI and data resources without
incurring major capital costs.
“I really can see that kind of business booming and then big
organizations like ours kind of integrating their solutions in our processes,”
she said.
Fintech companies like Square Inc. and PayPal Holdings Inc.
digitize functions such as payments and lending. Companies in the industry
cover a variety of services, including wealth management, insurance and
mortgages.
When it comes to offering lending services, many fintech
firms tout their digital-first approach and willingness to consider alternative
data, such as utility bill history, that traditional banks may not, said Javed
Ahmed, a senior data scientist with education company Metis who has had stints
with Amazon.com Inc., the Federal Reserve and the U.S. Treasury. Those factors—as
well as their appeal to younger customers and the rise of e-commerce prompted
by the pandemic—are likely to help boost the market share of fintech companies,
he said.
Meanwhile, large tech companies, already heavyweights in AI,
are increasingly moving into areas served by traditional banks. “I think
they’re going to try and push further,” Dr. Ahmed said.
Big tech companies see financial services as a way to get
closer to users and glean valuable data, and see their edge as offering helpful
tools and technologies to those users. Alphabet Inc.’s Google plans to
introduce checking accounts next year, in a partnership with several financial
institutions. Apple Inc. rolled out a credit card last summer. Amazon.com has
talked to banks about offering checking accounts.
While fintech and big tech players may be able to move
faster on AI development, banks shouldn’t be counted out with respect to AI
development, said Ashit Talukder, head of AI and machine learning at Moody’s
Analytics.
“The larger institutions actually have a lot of initiatives
under way,” he said. He added that AI increasingly is being tapped to better
personalize customer experiences, such as offering services, information and
advice catered to individual customers. He also said banks are using it for
risk-and-compliance tasks, such as anti-money-laundering and politically
exposed persons screening.
AI initiatives at banks are gaining steam during the
pandemic as bank leaders look to step up digitization and automation efforts,
several panelists said. But that means increased regulatory scrutiny may not be
far behind, said Jose Murillo, chief analytics officer at Mexico City-based
Grupo Financiero Banorte .
“So people like us might be very happy that our data science
initiatives are really moving at a faster pace,” he said. “But probably the
rest of the world is going to be scared, and I think that regulation is going
to be ramped up, without any doubt.”
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