Artificial Intelligence is Re-Shaping the FinTech Industry

Artificial Intelligence is no longer in its infancy. In an age where algorithms can comprehend complex language, drive safely on busy roads, and even diagnose illnesses, it is fair to say that the field has advanced far enough as to have genuine, real-world implications.

The maturity of this industry has also been noticed by the financial markets; according to CitiBank’s 2018 report, outside of technology, banking firms are the largest spenders of artificial intelligence programs.

In addition, the AI-in-FinTech industry has even been estimated at $5.53 bln. Clearly, the marriage of the two institutions is currently successful. 

Artificial intelligence complements the world of FinTech extremely well. This is mainly because many financial projects rely heavily on the analysing and manipulating of large datasets, which is something algorithms are highly efficient at doing.

Companies like Kensho and Peak.ai are being used by corporations to automate data collection, mining, and verification. It is also being used for trading, with companies like Neotic offering customized automation tools for individuals and businesses.

AI and Blockchain

Additionally, AI has found itself useful when combined with Blockchain technology. The two fields are a perfect match, as Blockchains rely on expansive quantities of numeric data which humans are often incapable of sifting through alone.

There are a plethora of companies using both together, such as Neureal which predicts and financial behaviour patterns, NumerAI which applies decentralized algorithms to hedge funds and Velas which uses AI to enhance its internal ecosystem.

Together, AI and Blockchain technology are reshaping FinTech by bringing automation to the forefront. 

Arguably, it is IBM who is leading the way by combining the two fields. They provide frameworks and tools in both areas, through their Watson AI program and Blockchain platform for businesses.

In February, they posted a discussion on building trust between AI and Blockchain technology. The main takeaway was that AI is extremely useful in automating the process of verifying data significance before it gets distributed to a Blockchain.

This can be done at a level and speed that humans alone cannot compete with. 

Crypto markets

AI has huge implications for stock and crypto markets. Through the use of machine learning and neural networks, AI can aid in the technical analysis department.

This is particularly important for the crypto markets as they are significantly newer than stock and FOREX markets, meaning there is less data available for use.

This is one of the reasons why crypto markets are so volatile and why people struggle to make reasonable predictions. It is the same with all reasonably new markets. AI can help with this by analysing data to build more accurate predictions. That is what companies such as RoninAI, TraderMindX and Neotic are doing.

Predictive tools could be at the heart of cryptocurrency trading in the years to come, especially if the markets continue to stay this volatile. Unstable markets make traders apprehensive, but reliable AI-based predictions could put an end to that. 

One big limitation

For the most part, financial institutions are actively embracing the use of AI into their projects; Goldman Sachs, J.P.Morgan and IBM all use AI in some way or another to handle money. However, there is still some scepticism surrounding the technology.

A report by Mark Fenwick, professor at Kyushu University in Japan, found that many professionals believe AI to be fundamentally limited due to its inherent lack of emotion. While FinTech may sound like a cold profession, it still requires the use of human experience and intuition to help make the right decisions.

This is not a controversial statement. In 2003 the Federal Reserve Bank of Atlanta published a document noting that “emotion has important influences on financial behaviour” even among professionals. 

The importance of emotion in decision making has been a contentious issue for centuries. It is often said that emotion gets in the way of rational decisions, but this may not be the case.

The philosopher David Hume famously argued that “reason is and ought to be a slave of the passions”. Soren Kirekegaard made a similar argument that subjective and emotional thinking helps us to reach truths. This may be accurate, Jessica Tracy, professor of Psychology at the University of British Columbia, seems to agree with this, saying that we developed refined emotions as tools to actually help with decision-making and survival.

This supports a study by Harvard Business School professor Gerald Zaltman who stated that 95 percent of cognition happens in the subconscious and emotional aspects of the mind. 

AI and humans

From this perspective, it sounds like a mistake to employ AI in FinTech. However, while its lack of emotion may be a limitation, it is by no means an argument for fully ignoring it.

It simply reveals that AI and human thought need to be used in conjunction for the best results. Artificial Intelligence is best at harvesting and processing data, and for the time being humans are best at making decisions.

This revelation was also found by AI entrepreneur Aaron Edell who used AI to solely predict markets without any human input, only to get a 54 percent success rate. Those results are not low because of AI, but rather because of the lack of unity between him and the program.

A fair conclusion to draw is that human thinking and artificial thinking are best suited together, especially in the world of FinTech. 

Blockchain technology may also be able to help with this. A 2018 study found that AI for swarm robotics made better decisions when in conjunction with a Blockchain.

This was partially due to how Blockchains can distribute information. If this is the case for robotics, it is fair to see how it could help with decision-making for market analysis too. 

Artificial Intelligence is adding a lot to the financial and crypto markets, and its significance cannot be ignored. These industries suit each other extremely well, and with them being valued at $5.53 bln in 2018, it is unlikely for this to change anytime soon.

In the future, expect to see the FinTech and crypto industries constantly evolve alongside AI.

(Disclaimer: The author is the Founder & CEO at Kick Ecosystem.)