The financial services industry is highly technology-driven and organisations around the world are scrambling to take advantage of developments in Artificial Intelligence (AI) to enhance the customer journey. By harnessing AI, firms gain the ability to provide personalised services that ensure each customer’s journey is uniquely tailored to their individual preferences. 

We live in a consumer-centric world, which means most innovations are led by the customer’s demands, and that is apparent across many different sectors. The shift towards a more personalised journey not only enhances stakeholders’ trust in organisations in the financial services space, but it also positions companies that are doing this well at the forefront of innovation in an extremely competitive and fast-moving sector. 

For banks, there are three key business areas in which AI technology is being particularly explored, utilised and integrated to take advantage of the efficiencies it can bring. Customer operations are the first, especially Know Your Customer (KYC) and Customer Due Diligence (CDD) processes. Marketing and sales departments use AI to drive customer engagement through hyper-personalised, data-driven campaigns that adapt in real-time based on customer interactions. Moreover, AI can analyse customer sentiment through natural language processing (NLP) of customer feedback, social media, and service interactions. This allows financial institutions to identify at-risk customers and implement targeted retention strategies. Meanwhile, software engineers are using AI to speed up and streamline the construction and integration of complex IT frameworks and tools, increasing the perceived business value.

How will AI support this transition?

AI has opened the door to a wealth of customer data that helps financial institutions shape the journey. The analytical capabilities are dramatically enhanced, which allows assessment of much greater volumes of data on customer behaviour trends, such as financial history, spending patterns, and real-time transactions. For example, if a customer is approaching retirement age, their banking app might proactively offer retirement planning services. Similarly, AI can identify customers at risk of financial distress and provide them with personalised financial management advice, thereby preventing potential issues before they arise.

Most banks we work with use simple forms of AI, such as chatbots, and approximately 70 per cent use an advanced form of AI. This number skyrockets in the fintech market, with these organisations using AI wherever possible as they operate in a less regulated environment. However, they will be subject to compliance with the EU AI Act moving forward. Some financial institutions invest in more elaborate AI assistants tailored to specific corporate knowledge and documents including policies, offerings and terms and conditions. Tapping into the benefits of automated machine learning means organisations can continuously improve their responses to customer enquiries and tailor interactions for an immediate, more convenient service. 

When it comes to compliance and protecting customers from fraud, AI can enhance KYC processes by providing advanced identity authentication and anomaly detection, ensuring robust compliance and heightened security. AI and ML technologies can help detect fraud patterns or suspicious activities in risk profiles, automatically flagging high-risk profiles for enhanced due diligence and pre-emptive measures. 

What is the advice for financial services firms?

When it comes to building AI functions, the safest route is to prioritise consistency. Many firms are creating the same architecture in an agile environment across multiple departments to ensure security and data governance are at the core of all applications. 

Regarding data, banks need to develop sustainable data engineering capabilities. Also, there needs to be a key focus on compliance and governance to ensure no privacy concerns. For example, banks are exploring the use of AI within facial recognition systems specifically to enhance security measures and improve customer authentication processes. To make facial recognition AI successful, there needs to be a comprehensive audit trail of all facial recognition attempts, including timestamps, user identifiers, and the outcome of each authentication attempt. Logging this information ensures transparency, accountability, and compliance with data protection regulations.

In addition, as financial institutions increasingly rely on AI, it is crucial to address ethical considerations such as algorithmic bias and transparency. Implementing fairness and accountability measures in AI systems helps maintain customer trust and regulatory compliance.

Businesses in the financial services space have the opportunity to gain a competitive edge through AI and the opportunities are boundless. Still, they must also remain aware and in control of the potential risks of leveraging much greater volumes of personal data and increased data sharing. 

The Italian Trade Agency (ITA) is leading a delegation of institutional partners and business leaders from Italy’s financial technology community to Money 20/20 Europe. This premier FinTech event will take place in Amsterdam from June 4 to June 6, 2024. This year’s edition is expected to be a record-breaker, attracting over 8,500 attendees from more than 100 countries, serving as a key networking hub for those looking to stay at the forefront of FinTech innovation.

The FinTech industry is one of the fastest-growing sectors in Italy and a significant area for investment. Money 20/20 Europe presents a valuable opportunity for the Italian ecosystem to gain exposure and showcase its leadership in Europe to global businesses and foreign investors. According to a survey by the Bank of Italy, financial technology investments have surged over the past year, with total investment projects projected to reach €1.88 billion by 2025. These investments are primarily focused on deposits, lending, and payments, where the integration of new technology is driving efficiency and service improvements.

To maximize this opportunity, the Italian Trade Agency has partnered with other key institutions and players in the FinTech world. The Bank of Italy will have a dedicated space at the exhibition area, highlighting its commitment to promoting innovation in payments and finance. Additionally, Cassa Depositi e Prestiti (CDP) and other national partners in the FinTech ecosystem, including Fintech District, YesMilano, ItaliaFintech, and AssoFintech (in collaboration with SDA Bocconi), will be present.

Joining them will be a delegation of innovative Italian startups, providing them with the chance to form new connections with international stakeholders and expand the potential for innovation in Italy. The Italian Pavilion will also feature investment specialists from the Italian Trade Agency’s offices around Europe, who will offer first-hand knowledge about establishing a presence in Italy.

The Italian Pavilion will officially open on June 4 at 11:00 AM at Stand 8A110, marking the start of three days filled with networking sessions and interactive discussions. ITA – Italian Trade Agency continues to champion Made in Italy excellence, supporting national FinTech companies in their internationalization efforts and increasing their visibility in global markets.

Join the Italian delegation on June 4-6 at Money 20/20 Europe – RAI Amsterdam, Stands 8A110 and 8A120, and witness the future of financial technology.

Some of the most innovative, fast-moving ideas and companies have found their feet (and funding) on the show floor. From J.P. Morgan, Stripe, and Airwallex to HSBC, Deutsche Bank, and Checkout.com, Money20/20 is the place where money does business.

The Place Where Money Does Business

Money20/20 Europe is home to the industry’s boldest and brightest new voices – where the money ecosystem comes together to shape what’s next for the industry. Every year, Money20/20 provides connections, tools, knowledge and access to the innovations of the future. Check out the show highlights from last June in Amsterdam.

Ready for Money20/20 Europe 2024?

Dive into the fintech evolution at Money20/20 Europe! Uncover insights, cultivate connections, and fuel innovation in three unmissable days.

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The insurance industry’s traditionally conservative rate of progress has recently given way to a new, much more accelerated pace. The sector is digitalising rapidly, with an uptick in customised services. Personalised experiences, mobile platforms, and data-driven analytics have become integral parts of the insurer’s relationship to their customers. 

Now, generative artificial intelligence (AI) is emerging as the next pivotal driver of innovation for insurance. The technology promises to create new efficiencies, increase resilience, and help insurers better manage risk. 

Generative AI applications for insurance 

Generative AI has the potential to greatly enhance the delivery of personalised recommendations. Correctly applied, it can also contribute to the creation of new products customised to the individual. More traditional AI has already seen success as a way to deliver personalised services. Experts in a recent report by LeewayHertz, however, believe that traditional AI “may be limited in creating highly individualised content.” 

Generative AI, however, is capable of handling greater levels of complexity, and could therefore be capable of offering “truly personalised insurance policies, customising coverage, pricing, and terms based on individual customer profiles and preferences.” 

The technology can also enhance the virtual risk management process thanks to its ability to generate synthetic datasets used for threat assessment training. Generative AI models can generate high quality synthetic training data. This data can help train security teams, augment limited datasets, and enhance the performance of AI models. 

Lastly, generative AI is already playing a growing role in the automation of customer service and organisational tasks. Sebastjan Plavec, Chief Marketing Officer at Adacta, noted in a recent blog that “AI-powered Chatbots built on LLMs have proven highly effective in customer service.” The quality of conversation that LLMs like ChatGPT can achieve is “way above” what is achievable with traditional chatbots. 

On an organisational front, Plavec believes that Generative AI could have a key role to play in automating elements of the underwriting process, as well as document organisation and due diligence. “ChatGPT and similar models can be used for analysing large volumes of unstructured data to identify patterns and empower more accurate underwriting decisions,” he writes. 

Through the application of generative AI to the insurance sector, insurers have the potential to realise significant operational efficiency gains at speed.

Time and again, the fintech industry has defined itself in comparison to traditional banking. It’s part of the branding: famously conservative, slow-moving financial institutions versus agile tech powerhouses unencumbered by centuries of tradition and risk-averse thinking. 

This seeming philosophical opposition between banks and fintechs is, some claim, a very good reason for them to collaborate. Analysts working for Bain and Company argue that partnering with fintechs could help banks move faster on digital product design, time to market, and security. 

“Fintechs provided the technology, banks the funding and customers, with each augmenting the potential of the other,” note the analysts. However, they also note a successful partnership between a bank and a fintech is “not easy to source, implement, and manage.” 

One of the reasons this is the case could be the fundamental differences in how each type of organisation approaches risk.

Banks are “responsible” for fintech partner risk management 

Michael Hsu, the acting Comptroller of the Currency for the US government, has reservations about fintechs’ presence within the traditional banking ecosystem. As reported by Reuters, Hsu’s belief is that “Banks that work with financial technology companies to offer banking services should be actively managing risks associated with those relationships.”

A further report by the US Treasury department highlights the issue that “the presence of non-bank firms outside the bank regulatory perimeter—while offering a similar set of products and services that pose similar prudential risks as banks, such as deposit-taking and making loans and extensions of credit—poses a risk.” 

Increasingly, the US banking sector appears to be embracing fintechs. For example, 39% of US banks have already partnered with a fintech to support payment facilitation and money movement. For context, the same percentage are planning to partner in the future. Also, 34% have already partnered with a fintech on a mobile wallet, with 21% more planning to do so in the future. The benefits fintech can provide to traditional banks are clear. More importantly, the banks themselves recognise the benefits.

However, the regulatory hurdles which many fintechs have managed to avoid so far will not be waived when it comes to their participation in traditional banking.

As Hsu insists, “We will not… lower our standards, create a special regime, or take an overly expansive view of banking to entice new entrants or in the hope of bringing a particular activity into the bank regulatory perimeter.” It appears that banks may be forced to shoulder increased regulatory risk when partnering with famously risk-tolerant fintechs. If that happens, it may erode a good deal of the appeal that created these partnerships in the first place.

The insurtech industry—and fintech, more broadly speaking—is going through a time of transition. Venture capital funding has continued to diminish after the 2021 high point. This year, the industry will likely do some soul searching, although new technologies and macroeconomic pressures could make it hard to find the necessary breathing room for reflection and change.

Here are our 3 trends we see driving a year of self-analysis and change in the insurtech sector. 

1. Thinning of the startup herd 

A lot of Insurtech startups will go bankrupt this year. Less venture capital overall will make investors more skittish when it comes to investing for the first time. Likewise, existing investors will also be more likely to pull the plug on a struggling investment than they were a few years ago. 

Several insurtech startups have already folded quietly, but the trend stands to become a lot more noticeable in the months ahead. Quentin Colmant, CEO and co-founder of Qover, believes this will also spur the transition of the industry from being VC funded to supported by more strategic investors. “Insurance is a very slow business and a complex one. Yet it is also robust and resilient,” he writes. “That’s why I predict that in the coming years, strategic investors who are more patient and have a better understanding of the insurtech world will invest more and more.” 

2. ESG expectations are rising 

The devastating effects of the climate crisis aren’t going anywhere. At the end of one year defined by record temperatures and extreme, damaging meteorological events, we find ourselves at the start of another experiencing the hottest February ever. The crisis urgently requires action to protect global ecosystems and communities.

For insurers worldwide, these developments are driving both ESG policy revisions and investment into technology. Using machine learning and AI, insurtech will likely prioritise improvements in risk modelling to address uncertainties related to climate. Furthermore, insurers must focus on enhancing transparency and building trust in their communication with customers. 

3. Times are tough, y’all 

The insurance industry, notably in the US non-life market, is facing the least forgiving market conditions in a generation. Insurers are facing the formidable task of swiftly increasing prices to offset the substantial rise in expenses, a challenge that is projected to become even more demanding as the industry adapts to these harsh market realities. 

Moreover, reinsurance rates are expected to stay elevated, adding further complexity to the landscape for insurers. In this challenging market environment characterised by rising prices, insurers must carefully navigate between maintaining profitability and ensuring affordability for consumers. The heightened reinsurance rates may prompt carriers to reevaluate their approaches to risk-sharing.

Over the last decade, it often felt as though fintech startups had a licence to print money. 

In 2010, worldwide investment into fintech was $9 billion. Over the next decade, that figure skyrocketed, reaching $216.8 billion in 2019. Funding took a precipitous dip in 2020 thanks to the pandemic. The next year, however, funding bounced back with a vengeance, and fintech spending rose to an all-time high of $225 billion in 2021.

That year, startups like Klarna and C6 Bank raised $1.6 billion and $2 billion, respectively, in funding. It was a clear message. Fintech’s decade of growth was on track to be followed by another, possibly even more frantic one. But then, the story changed. 

The great fintech growth slump

The cocktail of technological progress and market-readiness that drove fintech’s decade of hypergrowth soured in 2022. According to analysts at McKinsey, “a market correction triggered a slowdown in this explosive growth momentum. The impact continues to be felt today.” 

Funding and dealmaking activity have decreased dramatically across the fintech sector in the last two years. US fintech funding dropped by 36% to $18.2 Billion in 2023, while the UK saw a 63% decrease to $4.2 Billion. A new report published by Tracxn notes that “with inflation, increased interest rates, geopolitical issues, and other macroeconomic conditions, activity across industries has been slow, making it challenging for the investment market.”

Unicorns are still emerging, with four new companies hitting a billion dollar valuation in the US last year. The change of pace is, however, can’t be denied. 

A new model for sustainable growth in fintech

Some analysts aren’t worrying about the slowdown, however. At McKinsey, authors of their report, Fintechs: A new paradigm of growth, believe that slowing growth isn’t the crisis some have painted it as. Even though the 2021 “funding surge proved to be a one-off event” and a return to “business-as-usual conditions” caused “fintech evaluations to plummet,” they insist that there are still opportunities to be unlocked in the future. 

Combined with generational leaps in data analytics and artificial intelligence (AI), “these trends are also coinciding with—and in many ways catalysing—the maturation of the fintech industry,” write the report’s authors. “The days of growth at any cost are behind the industry, for now at least. In a liquidity-constrained environment, fintechs and their investors are emphasising profitability, not just growth in customer adoption numbers or total revenues. 

One Africa-based growth equity investor told McKinsey: “In the past, the reward went to fintechs that showed growth at all costs, which led to healthy valuations. Now it is about the sustainability of the business, the addressable market, and profitability.”