Technology stack to develop Fintech

products
Artificial Intelligence
• AI by dividing it into two high-level categories:
• General AI or strong AI’,
• Narrow AI, sometimes called ‘weak AI
• General AL or Strong AI: the idea of a machine that fuses a human
being’s ability to perform a wide variety of tasks by apply common
sense, and solve problems creatively
• By contrast, narrow AI is capable of effectively addressing a highly
specific problem, such as playing chess at a high level, or recognizing
if there is a cat in a photo.
Application of AI in financial institutions
• Four categories of strategies that are particularly relevant to financial
institutions today:
• automation,
• customization,
• improved decision-making, and
• new value propositions.
Application of AI in financial institutions
• AI-Enabled Automation :
• Automation allows a financial institution to improve the speed and efficiency with
which a process can be completed by reducing or altogether eliminating human
intervention in the process.
• This can significantly reduce operational costs and may at the same time improve
users’ experiences.
• RPA (Robotic process automation): Robotic Process Automation can enables
banks & finance companies to reduce manual efforts, offer better compliance,
mitigate risks, and enhance the overall consumer experience.
• Ex: automatic reports generation , customer on boarding, KYC verification,
mortgage lending , loan processing etc
• https://www.comtecinfo.com/rpa/use-cases-of-rpa-in-banking-industry/
Application of AI in financial institutions
• AI-Enabled Customization :
• customization has traditionally required the attention and thus the cost of delivering
a customized product are expensive to the extent of degree of customization.
• a trade-off between customization and cost. It is possible to receive highly
customized financial products and services, particularly in the realms of wealth
management and wholesale banking
• algorithm that upsells and cross-sells products based on customer tastes and
personality.
• Artificial intelligence technology enables financial institutions to break this tradeoff,
theoretically enabling the deployment of fully personalized financial products
services at zero marginal cost once a system is in place.
Application of AI in financial institutions
AI-Enabled New Value Propositions
• A financial institution may find that it is in possession of a unique set of
data streams that place it in an advantageous position either to deploy
monetizable insights
• They help to understand the
• Growing threat of losing clients to new entrants
• Delivery of a set of ancillary products and services around
commoditized core offerings may help meet customer retention goals.
• more detailed macroeconomic report to understand the economy and
customer behaviour
Application of AI in financial institutions
• Financial services-lending, insurance, wealth management, and payments, are
using AI as part of a broader strategy to achieve business goals.
• AI is giving the capability to incorporate much broader and less structured sets of
data into their analytics processes
Specific application of AI in FS
• AI in lending: Automation techniques have been used to significantly reduce the cost of
processing loan applications and to improve the speed with which loans can be deployed.
• Technologies such as natural language processing and machine vision are now being used to
support the verification of a prospective client’s documentation, accelerate the KYC process, and
reduce fraud
• AI can also support efforts to improve decision-making around lending activities by allowing the
ingestion and modeling of a universe of alternative data sources.
• The underwriting models built from this data can potentially reduce the number of
nonperforming loans, by including more forward-looking indicators about a prospective
borrower’s ability to repay.
• In the case of new immigrants the historical data many not be available, in that case include a
range of sources, such as bill payments, data on shopping behaviors, and social media posts in the
underwriting process.
Specific application of AI in FS
• Chinese lender Ping An is using an innovative new feed in their underwriting
process- initiate video calls with some prospective borrowers and use AI-enabled
micro-gesture facial recognition technology to evaluate the truthfulness of their
responses to questions about how they intended to use the loan
• An Integration of AI enabled software with the ERP systems is enabling proactive
anticipation of customers lending needs and the offering of more customized
lending products for small and medium sized firms.
• Ex: HSBC partnered with QuickBooks, this is called QuickBooks Capital, it aimed
at writing loans to QuickBooks users
• OakNorth has now launched a service called AcornMachine, this platform
provided AI enables tool set for the lenders at a cheaper cost . OAKNorth
provides underwriting model to its users.
Specific application of AI in FS
• Applications of Artificial Intelligence in Wealth and Asset Management: (WM)
is a data rich business. Whether its data about markets or data about clients,
combining the two in an intelligent way and communicating them to clients is a
key part of the WM business model.
• Robo Advisors already are a good example as to how AI can be used in WM to
enhance financial services end to end.
• a majority of clients don’t want to delegate their portfolio management, they
want to be guided but maintain control over their assets- would probably prefer
the Advice from a Robo over the Advice from a human being
• Reasons could be : Convenience (24/7), objectivity, lower inhibition levels as well
as lower costs resulting from automation
Portfolio Management – Robo-Advisors
• Robo-advisors are an online application that provides automated
financial guidance and service
• They provide portfolio management services that use algorithms and
statistics to automatically establish and manage the investment
portfolio of a client
• These services are also much cheaper than consulting a human
financial advisor.
• To set up an account with a robo-advisor, you complete a
questionnaire about your financial situation and investment needs
(for instance you might want to retire at 55 with 5 cr in savings)
Portfolio Management – Robo-Advisors
• The robo-advisor then allocates your assets across a range of investment
options (e.g. stocks, bonds, real estate) based on your specific goals and risk
tolerance profile and uses algorithms to monitor and periodically rebalance
your portfolio.
• Betterment and Wealthfront are two online investment companies whose
robo-advisors provide financial advice or portfolio management services
online or via a smartphone application.
• Betterment uses algorithms to suggest an appropriate asset allocation for
investors.
• The Wealthfront software can implement a variety of strategies, including
tax-loss harvesting, which lowers the tax investors pay.
Portfolio Management – Robo-Advisors
• Their software is programmed to follow and execute proven
investment strategies, to automatically look for better investment
opportunities, while keeping the optimal investment mix over time.
• The robo-advisor automatically reinvests any dividends on
investments and automatically rebalances a portfolio as needed.
Portfolio Management – Algorithmic
trading
• Algorithmic Trading :This is another example of how companies make use of
machine learning in finance, Algorithmic trading is the use of algorithms to
conduct trades autonomously.
• In algorithmic trading, computers execute programmes with a predetermined
set of instructions (an algorithm) for placing a trade on behalf of a trader.
• These instructions usually involve parameters like timing, price, quantity or
other constraints.
• algorithms are not sentimental or emotional, which are attributes that so often
sabotage human aspirations when it comes to investments.
• Algorithmic trading, therefore, simplifies the decision-making process by
sidestepping human emotions.
Portfolio management- high frequency
trading
• High frequency trading: Algorithmic trading that happens at high
speeds beyond human capability gave rise to high-frequency trading
(HFT)
• Hundreds of thousands of trades per day executed by complex
algorithms that analyze multiple markets to execute orders based on
market conditions.
• HFT is a subset of algorithmic trading and an excellent use case of
machine learning in finance.
Portfolio management- high frequency
trading
• Investment banks and hedge funds leverage automated trading
platforms and algorithms that are able to track multiple financial
markets to execute vast orders.
• Algorithms make it possible for these big players to benefit from
minute price differences that might exist only for a fraction of a
second.
AI in fraud detection
• Fraud Detection: Fraud is a massive problem for financial institutions
and one of the foremost reasons to leveraged machine learning in
finance
• False Positives : ML is also the perfect candidate to tackle the problem
of false positives -wrongly decline legitimate financial transaction
requests.
AI in insurance
• Applications of Artificial Intelligence in Insurance :insurtech firm are using deep
learning algorithms to deliver faster and more accurate damage assessments for both
home and automotive claims
• Chinese insurer Ping An uses AI techniques, to enable its ‘Smart Fast Claim’
process which automatically assesses automobile damage and estimates repair costs
based on images uploaded by the policyholder. It could significantly reduce both
claims leakage and customer disputes
• AI-enabled analytics are well positioned to identify complex fraudulent activities by
analyzing the similar claims filed by connected networks of doctors and lawyers
involved in facilitating the frauds.
• Chatbots are also playing an important role in the automation and streamlining of
insurance processes, particularly when it comes to customer onboarding.
AI in insurance
• San Francisco–based insurtech Lemonade uses machine learning
and chatbots to deliver services from handling insurance claims,
obtaining quotes right down to streamlining back-office
administration.
• Customers can use Android app on their smartphone to take out a
policy, pay premiums, make changes to their policy, report an incident
or file a claim.
• Lemonade claims that it only takes 90 seconds on the app to get
insured and 3 minutes to get a claim paid out.
AI in insurance
• Cape Analytics uses machine learning to take existing geospatial
imagery to create a proper property information database.
• The company uses images of a home, obtained from a partner like
Nearmap, to establish the value of the home and so speeds up the
quote process for insurance companies.
• This also helps insurance firms don’t need to send someone out to
physically inspect a property.
AI in insurance
• Bay Area–based insurtech Zendrive captures detailed data on an
individual driver’s behavior and detects patterns associated with
dangerous activities such as aggressive driving or phone use while
driving.
• This kind of analytical data is used to create personalized insurance
pricing, focuses on delivering ongoing driver coaching to improve
drivers performance.
• RISK mark is an application analyzes the likely locations of accidents,
thefts, cyclones etc
AI in payments
• Applications of Artificial Intelligence in Payments :
• anti-money laundering and financial crime regulations is a growing challenge for
financial institutions involved in the facilitation of payments.
• Machine Learning algorithms are helping to recognize suspicious behavior and
automate the process of identifying, scoring, triaging, and resolving alerts.
• HSBC partnered with Google cloud ; Citibank partnered with Feedzai to improve
real-time detection and response to payment fraud
• a data partnership between Mastercard and Google, wherein a stockpile of
payments data purchased by Google allowed a trial subset of their advertisers to
better track when their online advertising lead to sales at physical locations within
the United States
AI in payments
• Google reportedly paid millions of dollars for this data, it represents an interesting
potential revenue source for payment services providers