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The future of fintech according to AI + BONUS
The future of innovation is global. We discuss it here.
This piece was originally published on my Forbes column here.
There has been an explosion in the computational power of artificial intelligence. To much fanfare, Open AI, a startup that raised $1 billion from Microsoft, released Chat GPT, an interface to interact with their AI model.
So this naturally felt like an opportunity to learn about the future of fintech - according to AI (particularly since we’re at the end of the year, the customary moment for future looking predictions).
At the end, we’ll dive into what this means. Here we go.
PS: Scroll to the bottom for a little bonus :-)
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A conversation with Chat GPT on the future of fintech
Lazarow: Starting with the basics: what is fintech?
Chat GPT: Fintech, short for financial technology, refers to the use of technology to improve and automate financial services. This can include a wide range of applications and technologies, such as mobile banking apps, online payment platforms, and artificial intelligence-powered investment advice. Fintech has become increasingly popular in recent years as technology has advanced and more people have embraced digital financial services. The goal of fintech is to make financial services more efficient, accessible, and user-friendly.
Lazarow: Where will we see the most fintech innovation going forward?
Chat GPT: It is difficult to predict exactly where we will see the most fintech innovation in the future, as the industry is constantly evolving and new developments are always emerging. However, some areas where we are likely to see significant fintech innovation include:
Digital payments and money transfers: Fintech has already had a major impact on the way that people make payments and transfer money, and this trend is likely to continue. We can expect to see more innovations in this area, such as the development of new payment technologies and the expansion of existing services like mobile banking and peer-to-peer payment platforms.
Blockchain and cryptocurrencies: Blockchain technology and cryptocurrencies have the potential to revolutionize the financial industry, and we can expect to see more innovations in this area in the coming years. This could include the development of new applications for blockchain technology, the creation of new cryptocurrencies, and the growth of existing cryptocurrency markets.
Artificial intelligence and machine learning: Fintech companies are also starting to make use of artificial intelligence and machine learning technologies, which have the potential to improve the efficiency and accuracy of financial services. We can expect to see more innovations in this area as well, such as the use of AI to automate processes and make more accurate predictions.
Overall, the future of fintech is likely to be driven by a combination of these and other innovations, as companies continue to develop new technologies and find new ways to improve financial services.
Lazarow: Why artificial intelligence and machine learning?
Chat GPT: Artificial intelligence (AI) and machine learning are increasingly being used in the fintech industry because they have the potential to improve the efficiency and accuracy of financial services. Some of the key ways in which AI and machine learning are being used in fintech include:
Automating processes: AI and machine learning can be used to automate repetitive tasks and processes, such as data entry and analysis. This can help to reduce the amount of time and effort that is required to complete these tasks, and it can also help to reduce the risk of errors.
Improving decision-making: AI and machine learning can also be used to make more accurate predictions and decisions. For example, machine learning algorithms can be trained on large datasets to identify patterns and trends that can be used to make more informed decisions about things like credit risk or fraud detection.
Enhancing customer experience: AI and machine learning can also be used to improve the customer experience by providing personalized recommendations and advice. For example, AI-powered chatbots can be used to provide customers with instant answers to their questions, and machine learning algorithms can be used to provide personalized investment recommendations.
Overall, the use of AI and machine learning in fintech has the potential to improve the efficiency and accuracy of financial services, and it can also help to enhance the customer experience.
Lazarow: What is embedded finance and where will it be applied?
Chat GPT: Embedded finance refers to the integration of financial services into non-financial products or services, such as retail goods or technology platforms. The goal of embedded finance is to make it easier for consumers to access financial services in a seamless and convenient way. For example, a retailer might offer its customers the option to pay for their purchases using a digital wallet or a mobile payment app, or a technology platform might offer its users access to financial tools such as budgeting and investment tracking. Additionally, embedded finance can also be used by businesses to access financial services such as loans or payment processing.
Lazarow: What are some of the most enabling regulations for fintech?
Chat GPT: There are a few regulations that are often considered to be particularly enabling for fintech companies. Some examples of these regulations include:
The Financial Conduct Authority's (FCA) sandbox, which allows fintech companies to test their products and services in a controlled environment before launching them to the general public.
The Payment Services Directive (PSD2), which introduced new rules for online payments and allowed for the development of new payment services.
The revised Directive on Markets in Financial Instruments (MiFID II), which introduced new rules for the operation of financial markets and made it easier for fintech firms to access these markets.
Overall, these regulations are designed to create a more level playing field for fintech companies, allowing them to innovate and compete with traditional financial institutions.
Lazarow: What has fintech's impact on society been?
Chat GPT: Fintech has had a significant impact on society, both in terms of the way that financial services are provided and in terms of the broader economy. Some of the key ways in which fintech has impacted society include:
Providing greater access to financial services: Fintech has made it possible for more people to access financial services, particularly in underserved or underbanked communities. This has made it easier for people to manage their money and make important financial decisions.
Increasing competition in the financial industry: Fintech has also introduced new competitors into the financial industry, which has helped to drive down prices and improve the quality of financial services. This has been particularly beneficial for consumers, who have more choice and more options when it comes to managing their money.
Supporting economic growth: The growth of the fintech industry has also contributed to overall economic growth. Fintech companies often create new jobs and contribute to GDP growth, and the increased competition and innovation in the financial sector has helped to support overall economic growth.
Overall, the impact of fintech on society has been largely positive, as it has made financial services more accessible, affordable, and convenient for many people.
Lazarow: What geographies has fintech transformation been seen most acutely?
Chat GPT: The transformation of the financial services industry through the adoption of fintech has been seen most acutely in developed markets, particularly in North America and Europe. In these regions, the combination of advanced technology infrastructure, a highly educated workforce, and a strong culture of innovation has facilitated the rapid adoption of fintech solutions by both consumers and businesses. Additionally, regulatory environments in these regions have generally been supportive of the development of fintech, which has also helped to drive its growth. However, fintech is also gaining traction in other parts of the world, such as Asia and Latin America, as more and more people gain access to technology and financial services.
Lazarow: How does fintech drive financial inclusion?
Chat GPT: One of the main ways that fintech drives financial inclusion is by making financial services more accessible to underserved communities. For example, by offering mobile banking, fintech companies can make it easier for people in remote or rural areas to access financial services, such as transferring money or paying bills. This can be especially important for individuals who do not have access to traditional brick-and-mortar banks. Additionally, fintech companies can also offer financial products and services that are tailored to the specific needs of underserved communities, such as microloans or savings accounts with low minimum balances. This can help to empower individuals and families to take control of their finances and improve their economic well-being.
What this means
Chat GPT demonstrates the power of generative AI.
This will not only affect fintech thought leadership (as this 1500 blog post was broadly created with its help) but delivery of financial services.
A few thought starters:
Investment research: One of the challenges for startups to become a public company is the availability of research coverage. This is generally reserved for larger companies with wider trader volumes. Generative AI could power the long-tail of investment research, giving research analysts the power to scale their work beyond a narrow number of stocks.
Customer service: Out with the standard, frustrating chatbots. Generative AI could power a new class of service.
Transaction complexity: One large segment fintech has tackled has been private markets, bringing greater access and transparency to everything from wine, art, shoes to legal finance and boat reconstruction. Yet one of the largest costs is legal. If Chat GPT can generate sophisticated answers to complex questions, it should be able to do the same for legal drafting. This should accelerate the fluidity of review for startup deals, but also all illiquid
For you the reader: do you think these takeaways were written by me or AI?
Lazarow: Please write the history of credit cards as a shakespearean play.
Act I: The Birth of Credit
In the midst of a bustling marketplace, merchants and traders haggle and barter for goods and services. Amidst the chaos, a bright young merchant named John comes up with a revolutionary idea: what if he could offer his customers a way to pay for their purchases without carrying around bags of coins or stacks of paper currency?
John's idea quickly catches on, and soon other merchants in the marketplace are offering credit to their customers as well. As word of this new way of doing business spreads, more and more merchants begin to adopt it, and the concept of credit begins to take hold.
Act II: The Rise of Credit Cards
As the use of credit grows, so too do the complexities of managing it. Keeping track of who owes what to whom becomes a daunting task, and merchants begin to search for a more efficient way to manage their credit accounts.
Enter the credit card. Developed in the early 20th century, credit cards revolutionize the way merchants and consumers interact. Suddenly, anyone can carry around a small, portable card that allows them to make purchases and pay for them later, rather than having to carry around large sums of cash.
Act III: The Boom and Bust of Credit
As credit cards become more widespread, their use explodes. Consumers can now buy everything from groceries to vacations on credit, and merchants are happy to oblige, as they see their sales and profits rise.
But with the good comes the bad. As more and more people begin to rely on credit to make purchases, many find themselves unable to pay off their debts. Credit card companies, in turn, begin to charge higher and higher interest rates, and soon the market is flooded with subprime borrowers who can't keep up with their payments.
Act IV: The Regulation of Credit
As the credit market spirals out of control, regulators step in to try and rein in the excesses of the industry. New laws are passed to protect consumers from predatory lending practices and to ensure that credit card companies are more transparent about their fees and interest rates.
Despite these efforts, however, credit remains a central part of the modern economy, and the credit card industry continues to evolve and adapt to changing consumer needs and market conditions.
Lazarow: only wish it could have been in Iambic Pantameter :-)