Fintech companies can benefit and complement each other by using technological tools like artificial intelligence to improve their services and increase their performance, says software company Provenir.
According to data from Finnovista’s Radar Fintech and Incumbents 2021, there are more than 1,100 fintechs across Latin America, making it one of the sectors with the most registered startups in countries like Colombia, Chile, Mexico and Peru.
The growing needs of the population for economic activities have promoted the use of services related to the financial technology sector beyond traditional banking.
“Artificial intelligence has changed the fintech business tremendously. Research by the Cambridge Center for Alternative Finance found that 90% of these institutions around the world are already using this technology at various stages of their operations,” says Provenir’s Executive Vice President for Latin America, José Luis Vargas.
“This shows that it is an essential link for growth in the industry, which benefits from access to big data to generate new insights and apply them to business strategy,” he adds.
Some of the key benefits Provenir has identified from the use of artificial intelligence (AI) and alternative data, especially in emerging projects, are:
1) Risk reduction
One of the biggest uncertainties in the financial sector concerns the accuracy and transparency of customer data when granting or refusing credit.
With the use of AI, the likelihood of fraud decreases, as the technology allows the creation of much more precise risk models, which together with machine learning (ML) are constantly being perfected with the results obtained from previous experiences.
With this, it is possible to maximize the detection of false positives that can bring companies losses.
Many startups have managed to establish themselves as major competitors to traditional financial institutions thanks to the fact that artificial intelligence enables efficient automation of information, allowing fintech companies to make much faster and smarter decisions.
For example, traditional risk decision models have a limited degree of action that can be easily overcome through the use of AI.
3) Creation of new products
The range of financial services is often limited to the information available on the market and only reaches population groups with a specific credit history.
Facilitating real-time consumption and feedback of alternative data, AI and ML gives fintech companies the opportunity to create new products that are much more diverse and accessible to different customer profiles and gain a significant advantage in the market.
4) Financial inclusion
According to the World Bank, only 55% of adults in Latin America are bank users.
Implementing strategies using AI to process unconventional data types enables fintech companies to gain more information about people who have never had access to lending services or products before.
In this way, the use of artificial intelligence helps to fill this gap in the region and opens the door for more people to benefit from financial institutions.
5) Monitoring and Evaluation
One of the greatest contributions of AI, ML and the use of alternative data in fintech is the ability it offers organizations to track the development of a product in the market, giving them the opportunity to learn and constantly improve as it evolves is about previous decisions -making models.
“AI has proven that it has the power to take the financial sector to another level as it is the beginning of much more effective strategies to mitigate risk, reduce fraud levels and maximize value in lending. Undoubtedly, the application of this technology has resulted in many fintechs around the world going from startups to unicorns,” explains Vargas.
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