5 Use Cases of Machine Learning in Fintech

Applications of artificial intelligence (AI) in FinTech are predicted to be worth up to

$7,305.6 million by 2022.

AI and ML are the most impactful trends in the FinTech industry

Machine learning algorithms used in finance work best for pattern identification. They
detect valuable information that’s camouflaged among vast data sets. Such patterns
are often missed or simply can’t physically be detected by humans.

FinTech providers can recognize new business opportunities and work out coherent
strategies using this data.

Five notable uses of machine learning in finance

1. Machine learning in FinTech means more loan approvals with lower
risks
Machine learning use cases in finance give lenders better insights into a borrower’s
ability to pay by working with far more data and more complex calculations than
conventional models. Machine learning processes more layers of data, and isn’t
limited to FICO scores and income data. Such applications of machine learning in
finance open alternative data sources to lenders.

Thousands of factors, such as data from social profiles, telecommunications

companies, utilities, rent payments, and even health checkup records will now count.
Machine learning algorithms compare aggregated data points with those of
thousands of other customers to generate an accurate risk score. If a risk score is
under the threshold set by the lender, a loan will be approved automatically.

Machine learning algorithms at work for loan automation

Source: Tieto – How machine learning can improve accuracy in credit scoring

Here are several providers worth mentioning in this category:

• ZestFinance works on machine learning-based credit models to generate more

profitable underwriting.

• Deserve uses machine learning to provide users with credit cards even if they
have no credit score or need to rebuild their credit.

• Intellias has extensive experience in FinTech solutions. They’ve assisted a US-

based SaaS lending provider with developing an ML-enabled credit score
calculator and microservices software architecture. It runs with the help of ML
algorithms and a custom-built AWS-based fault-tolerant database to get the
most data about borrowers and their businesses.

2. Machine learning applications in finance can help businesses outsmart

thieves and hackers
A typical fraud detection process
Source: Maruti Techlabs – How Machine Learning Facilitates Fraud Detection

Machine learning in FinTech can evaluate enormous data sets of simultaneous

transactions in real time. Moreover, the ability to learn from results and update
models minimizes human input. Using machine learning techniques, FinTech
providers can label historical data as fraudulent or not fraudulent. By running ML
algorithms, the system will learn to recognize activity that looks suspicious. ML
models can detect unusual activity, for instance in the course of an online
transaction.

Comparison of rule-based and machine learning-based fraud detection

systems

Source: AltexSoft – Fraud Detection

Here are several providers worth mentioning in this sector:

• Feedzai is a startup that offers one of the most mature machine learning
engines, which is quick at taking advanced fraud prevention measures.
 • Biocatch combines behavioral biometrics with machine learning to recognize
and prevent human and non-human cybersecurity threats mainly in banking,
payments, and insurance.

• Ravelin is a London-based company that uses machine learning to prevent and

stop fraud in online payments.

3. Machine learning in banking and finance helps companies comply with

ever-changing regulations
The role of machine learning in regulatory compliance

Companies are spending an average of $1.34 million on

compliance-related technologies in 2017, up from an average of
$92,000 in 2011.
Among top machine learning use cases in finance are applications under the
category of Regulatory Technology (RegTech). Because ML algorithms can read
and learn from a pile of regulatory documents, they can detect correlations between
guidelines. Cloud platforms with incorporated machine learning algorithms used in
finance can automatically track and monitor regulatory changes as they appear.
Banking institutions can also monitor transaction data to identify anomalies
automatically. This way, machine learning can ensure that customer transactions
comply with regulatory requirements.
Here are several providers worth mentioning in this category:

• Pendo Systems is a FinTech company that works with unstructured data to

streamline the compliance process for their clients.

• Compliance.ai is a Silicon Valley startup that uses adaptive machine learning

models in FinTech to automate research and track financial regulatory content
and regulatory updates in a single platform.

• ComplyAdvantage is a US-based startup that uses machine learning to

accelerate FinTech compliance and enable online fraud prevention tools.

4. Providers enrich the customer experience using machine learning in

customer service
There are several reasons why people choose FinTech services over traditional
ones. With machine learning’s ability to delve into petabytes of data to find out
exactly what matters to a particular customer, financial institutions can create
personalized offers. Even better, machine learning algorithms in banking and finance
can analyze customer data and return predictions about a user’s preferences. This
way, companies can know what services or offerings a particular client is likely to
appreciate.

AI and ML platforms in the framework of customer service infrastructure

Source: CustomerThink – Customer Service beyond the Chatbot Hype

Another example of a rewarding machine learning use cases in banking is a chatbot.
Machine learning supports a new generation of chatbots that are more intelligent,
human-like, and client-oriented.

Chatbots will be behind 85% of all the customer service interactions

by the year 2020.
Here are several providers worth mentioning:

• Kasisto uses AI and ML algorithms to power omnichannel virtual assistants.

• Wells Fargo was the first US bank to launch an AI-driven customer chat
experience for Facebook Messenger.

• Bank of America’s Erica, an AI-based virtual assistant, was launched in March

2018 and helped more than 1 million users in the first three months.

5. Machine learning is the new superpower on the stock market

ML algorithms monitor data sources available in real time, such as news and trade
results, to pinpoint patterns indicating stock market dynamics. The task left to traders
is to determine which ML algorithms to include in their strategies, make a trading
forecast, and choose a behavioral pattern.

A typical workflow for a trading system using supervised learning

Source: A Machine Learning Framework for Algorithmic Trading on Energy Markets

Here are several providers worth mentioning in this sector:

• Sentient Technologies is an AI company that’s developing and applying

proprietary quantitative trading and investment strategies using distributed
artificial intelligence systems.

• Walnut Algorithms is a European startup that offers AI and ML finance

solutions for investment management.

• I Know First is an Israeli company offering stock forecasts based on predictions

of machine learning algorithms.
 Final thoughts
The world of financial services has entered the era of artificial intelligence and
machine learning. The number of uses of machine learning in finance is constantly
rising. The technology is beginning to play a significant role in various processes,
including loan approvals, stock forecasts, and fraud prevention. Yet not many
FinTech providers have embraced machine learning as a critical driver for financial
services. More accessible machine learning tools, a variety of algorithms, and decent
computing capacity will only increase the number of interactions between machine
learning and custom software product development in FinTech, so it’s high time to
catch up with this trend.

Credits

FinTech Practice Leader

Anna Oleksiuk