Can we stop naming AI as a trend in fintech? Probably not yet, but we should. That’s because trends ebb and flow, but AI isn’t going anywhere. Banks and fintechs aren’t going to let up on leveraging AI within the decade. In fact, the number of times we’ve seen the adjective “AI-powered” has only increased.
Depending on how you define it, fintech has been in existence for around 20 years. That’s a long time for themes to rise and fall. Below is a look at transitory trends, lasting trends, and AI’s place in the mix.
Fleeting trends
As regulation, technology, and consumer habits and tastes have changed throughout the years, so have fintech trends. However, many ideas in fintech never took off. While some were overhyped, others were simply a solution looking for a problem or were an idea before their time, offered to the market too soon.
A recent example of a transitory trend is card-linked offers (CLO) Also called merchant-funded rewards, these customer loyalty and rewards tools reached their peak in 2012. Similar to the buy now, pay later craze that is happening right now, there were multiple launches of new CLO companies each month. Even large banks were getting on board. In fact, in 2012 Bank of America debuted a CLO product, BankAmeriDeals, powered by Cardlytics.
It’s worth noting that card-linked offers are still around. It is only the growth rate and hype around CLOs that have decreased. In fact, Cardlytics, Cartera Commerce, Cachet Financial Solutions, and others still exist and serve customers today.
Lasting trends
The list of lasting trends in fintech is short. In fact, there are only a handful of trends that have been introduced over the last two decades that have become table stakes for every bank and fintech across all sub-sectors. Not surprisingly, because these lasting trends are now standard throughout the industry, they all seem quite obvious.
Three solid examples of these stronghold trends include having a digital presence, providing a mobile app, and offering digital payment/money transfer capabilities. The evolution began, at the dawn of fintech, with banks just starting to establish their online presence. The next adaptation of that was SMS banking, which evolved into to mobile apps and digital money movement.
Today, the application of AI is becoming so standard across the fintech industry that it can be added to the fintech trend hall of fame.
The current state of AI
In case you haven’t been paying attention, AI is being used across the entire fintech industry. Its applications are almost limitless, but here are a handful of current examples.
- Lending– Underwriters can use AI to enhance the decisioning process to reduce risk, as well as to monitor for unseen biases in the lending process.
- Payments– AI can enable biometrics-activated payments and can also create smooth payment processes by analyzing past transactions before approving or declining transactions on an issuer’s behalf.
- Wealth management– Wealthtech companies can empower users with self-driving money, a concept that describes moving funds into and out of different accounts and investments based on fund performance, cash flow, and bill due dates.
- Insurtech– AI can enhance predictive data modeling to create better pricing models around policies.
- Security– Fraud detection in financial activity relies heavily on AI, as do both identity detection and verification.
Funding for AI fintechs has been on the rise since 2016. According to CB Insights, the total amount of funding in 2021 for AI startups in fintech is at the same level as last year’s year-end total, with $3.1 billion raised across 161 deals. This year, the average investment size clocked in at $25 million. There has also been an increase in M&A activity for fintech AI startups. So far this year there have been 12 mergers and acquisitions in the space, compared to eight last year and two in 2016.
Photo by Volodymyr Hryshchenko on Unsplash