- Anyone can be an investor
- An AI-powered credit card for Millennials
- ChatGPT for financial analysts
- Can AI predict the stock market?
The financial services sector, traditionally characterised by brick-and-mortar banks, paper transactions, and face-to-face interactions, is now at the crossroads of a digital renaissance. The seeds of this transformation were sown with the advent of the internet, but recent years have witnessed an explosive acceleration driven by artificial intelligence, blockchain technology, fintech startups, and shifting consumer preferences. One of the most significant drivers of change is the relentless march of digitisation. Financial institutions are racing to replace cumbersome, paper-based processes with streamlined, digital solutions. From mobile banking apps that allow customers to manage their finances from the palm of their hands to blockchain-based smart contracts that could revolutionise the way transactions are executed and verified, the digital revolution is reshaping the industry’s very infrastructure. Moreover, artificial intelligence and machine learning are poised to become the backbone of financial services. These technologies enable banks and investment firms to analyse vast datasets in real time, making more informed decisions, detecting fraud, and providing personalised financial advice to customers. As AI systems continue to evolve, they hold the potential to transform the sector’s operational efficiency and customer experience.
Meanwhile, the rise of fintech startups has challenged the dominance of traditional financial institutions. These agile, tech-driven companies are leveraging innovative approaches to payments, lending, wealth management, and insurance, often with a customer-centric focus that puts convenience and transparency at the forefront. This has sparked a wave of competition and collaboration between fintechs and established players, creating a dynamic ecosystem where innovation is the currency of the day. At the heart of this transformation is a renewed focus on customer-centricity. As financial services become more digitised and automated, the sector is reimagining its relationship with customers. Today’s consumers expect seamless, personalised experiences tailored to their unique needs and preferences. Financial institutions are grappling with the challenge of balancing the need for enhanced security and regulatory compliance with the demand for user-friendly interfaces and frictionless transactions. While this transformation is not without its hurdles and uncertainties, it promises to deliver a financial landscape that is more accessible, efficient, and customer-focused than ever before. This article will explore these themes in depth, shedding light on the exciting possibilities and potential challenges that lie ahead for the financial services sector in the 21st century.
Anyone can be an investor
Historically, investing has been a rich man’s game. To get your foot in the door and find a wealth manager who would be willing to take over your portfolio, you needed to have at least a million dollars to spare, if not tens of millions. However, this is now starting to change, thanks to the emergence of a new generation of fintech startups whose innovative propositions are democratising the act of investing itself, allowing just about anyone to become an investor. One of these startups is Sarwa, a Dubai-based robo-advisor firm that aims to make investing simpler and easier for everyone, with a particular focus on people in the Middle East. “We found that the main issue with investing here for people that live in the Middle East was that, first of all, you don’t have a culture to save, you’re not really taught to invest in school, we don’t really know why we should do it — there was a big gap in getting people to invest”, explains Mark Chahwan, co-founder of Sarwa. A general lack of education on the culture of investing was another issue people were often faced with, even if they wanted to get involved in this world. Clearly, there was a gap in the market that needed to be filled and Chahwan set out to close that gap.
Sarwa enables anyone to open an account within minutes without having to leave the comfort of their homes. After answering a few simple questions designed to get to know them and determine their risk profile, each user will get a globally diversified portfolio that covers a wide range of assets across many different industries. This helps them maximise their returns while keeping the risks down. Best of all, it requires virtually no effort on the part of the user — the app does everything automatically, including smart balancing and dividend reinvesting. It also offers free financial education and personalised investment advice, as well as access to expert advisors. All of this is available for as little as $5 per account. “But the reality is that users end up putting 50+ times more than that on average once they start investing”, adds Chahwan. “So it’s not that they don’t have the capital — it’s just that they want to get started and then increase their investment gradually as opposed to making this big decision”.
“Millennials don’t care about meaningless points and lounge access hiding amongst hundreds in fees, they care about becoming financially stronger, technology and features on the cutting edge, and companies with values they align with”.
Tim Armstrong, one of the investors in cred.ai
An AI-powered credit card for Millennials
Millennials are notoriously difficult to please, in large part because their needs and interests are very different from those of earlier generations. The same thing applies to their finances as well. For instance, it’s estimated that only one-third of Millennials today own a credit card, something that would have been unimaginable for their predecessors. The Philadelphia-based fintech startup cred.ai has set out to change that by launching an AI-powered credit card aimed specifically at Millennials. “Millennials swipe a lot on social media, but this is a major swipe at disrupting banking”, says Tim Armstrong, one of the investors in cred.ai and the founder of the investment firm DTX Company. “Millennials don’t care about meaningless points and lounge access hiding amongst hundreds in fees, they care about becoming financially stronger, technology and features on the cutting edge, and companies with values they align with”.
Named the Unicorn Card, the Visa-licensed new card runs on a proprietary platform and can be obtained even if you don’t have a credit score. It offers a wide range of cutting-edge features, such as the Stealth Card, which allows users to generate a virtual account number that can be used for some of those risky transactions all of us engage in from time to time, like signing up for free trials, ordering stuff over the phone, or buying from sketchy websites. The Flux Capacitor feature enables users to get their paychecks up to two days early and even to see upcoming charges before they happen so that they can allocate their budgets accordingly. Another interesting feature is Friend & Foe, which allows users to create a list of approved and unapproved merchants. When a merchant is designated as a Friend, a charge from them will clear even if the card is locked. On the other hand, when a merchant is designated as a Foe, any charge from them will be declined automatically. Best of all, all of these features are available free of charge, with no annual fees or hidden interest. .
“Banking is so regulated, so antiquated, so daunting, it’s understandable why consumer card products have barely changed over the past decade. Thankfully, we’re a crew of hackers, artists, and scientists, with just a couple of recovering bankers in the mix”, says Ry Brown, cred.ai CEO and co-founder. “Our outsider perspective has been one of our greatest assets. We’re not imprinted with traditional concepts of what’s possible or expected, so we get to believe we can tackle any idea we dream up, as long as we have enough coffee”.
ChatGPT for financial analysts
One of the biggest pain points in the life of a financial analyst is having to go through hundreds, or sometimes even thousands of documents manually in order to find the information they need. It’s a very time-consuming process that can take multiple days, if not even weeks to complete. To address this issue, a new fintech startup named Finpilot recently released a new chatbot tool aimed specifically at financial analysts. Similar to ChatGPT, it allows financial analysts to enter queries in natural language in a user-friendly chat interface, after which it automatically scours through publicly available financial data, including filings from the U.S. Securities and Exchange Commission, earnings transcripts, and investor presentations, significantly reducing the amount of time it takes to find the relevant information. What’s more, Finpilot allows financial analysts to interact with the data and visualise it, as well as to verify the sources. They can also compare companies based on multiple metrics and visualise trends across companies and different time periods.
By delegating these repetitive tasks to an AI, analysts can dedicate more of their time to more important tasks, significantly increasing their efficiency and productivity. One potential issue related to the use of generative AI in finance is the propensity of large language models (LLMs) like ChatGPT to ‘hallucinate’, that is produce information that sounds factual but is actually completely made up. For obvious reasons, that’s not the type of information you would want to base your investment decisions on. To get around this issue and make sure the AI provides users with reliable data, the company developed an in-house LLM tailored specifically to finance. “Large language models are notorious for making up information and are too slow for many tasks”, says John Alberg, co-founder of the Seattle-based hedge fund Euclidean and one of the founding board members at Finpilot. “We developed many techniques to address these issues”.
Can AI predict the stock market?
Founded by South African mathematician Richard Craib, Numerai is a blockchain-based hedge fund that uses artificial intelligence and machine learning algorithms to make better-informed investment decisions. What makes Numerai different from conventional hedge funds is that it uses crowdsourced market predictions from a global community of data scientists to inform its investment strategy. Each month, Numerai organises a competition that invites data scientists to make stock market predictions, rewarding the most accurate predictions with Numeraire (NMR) tokens, the hedge fund’s own cryptocurrency. Each participant is given access to historical financial data and tasked with developing their own machine-learning algorithms that can find patterns in the data and predict future movements of the stock market. To ensure data privacy and security and eliminate personal biases, all data is encrypted. Data scientists then upload their predictions to the hedge fund’s website, using their own NMR tokens as stakes. If their prediction turns out to be accurate, they get their tokens back and receive additional tokens as a reward. If not, the staked tokens are destroyed. To this day, Numerai has paid out more than $25 million to data scientists for accurate predictions. The hedge fund analyses each submission using AI algorithms, incorporating the most promising models into its own meta-model, which is then used in stock market trading. If this approach turns out to be a success, it could give rise to a whole new breed of hedge funds. “The web and internet services has figured out how to harness the network effects to build Goliath companies like Uber and Facebook, but the financial services industry never figured out how to do that”, says Olaf Carlson-Wee, the CEO and founder of Polychain Capital, a hedge fund that invests in blockchain-based assets. “So Richard may have created this unprecedented mechanism to get network effects around money management”.
In closing
The financial services sector finds itself at a pivotal juncture, undergoing a profound digital transformation that transcends traditional boundaries. The journey toward digitisation, catalysed by the advent of the internet and propelled by fintech innovation, artificial intelligence, and blockchain technology, is reshaping the industry’s very core. This seismic shift is manifesting in the replacement of archaic paper-based processes with streamlined digital solutions. Mobile banking apps and blockchain-driven smart contracts are just a few examples of this transformation, redefining how transactions are executed and verified. Artificial intelligence and machine learning are poised to become the bedrock of financial services in the years ahead, enabling real-time data analysis, fraud detection, and personalised financial guidance.
Moreover, the rise of agile fintech startups is challenging the supremacy of traditional financial institutions. These newcomers prioritise user-centricity, offering transparency and convenience that democratises access to financial services. They bridge gaps in financial education, empowering a broader demographic to participate in investing. At the same time, innovative financial products tailored to the unique needs of different generations, such as AI-powered credit cards, are emerging. They cater to changing consumer preferences and expectations, while AI-driven tools ease the burdens of financial analysts by automating data gathering and analysis. While uncertainties and regulatory complexities persist, this ongoing metamorphosis promises a financial landscape that is more inclusive, efficient, and focused on delivering value to customers.
