Photo by Mohamed Nohassi on Unsplash

For fintech and traditional financial services alike, digital transformation has been laden with inefficiencies and growing pains. Reliance on archaic processes has made modernization more challenging, but generative AI could help to overcome these long-standing difficulties. 

The data is hard to ignore when it comes to measuring generative AI’s impact. According to Goldman Sachs, the arrival of the GenAI boom could increase global gross domestic product (GDP) by as much as 7%. 

Although there are fears that artificial intelligence will bring more job automation, the same data suggests that the innovation will help to introduce new occupations that could boost employment growth. 

Additionally, the development of generative AI will lead to the evolution of a relatively new subsector of banking: open finance. 

While the term ‘open banking’ has become relatively commonplace, open finance refers to its next evolutionary step, which focuses on the accessibility of interoperability between all regulated websites and apps that can access transaction data and services for customers. 

In the field of fintech, open finance will form the cornerstone of digital transformation within banking and can provide an explosion of new interconnected services to improve the experience of customers. 

Generative AI will herald the era of open finance. Let’s take a look at five key ways the emergence of GenAI will pave the way for an open finance boom: 

1. Predictive Analytics

One of the core reasons why generative AI will be a key driver for open finance is because it’s perfect for interpreting vast amounts of unstructured data. 

With the help of machine learning (ML) and generative AI, fintech services can algorithmically analyze historical data to anticipate user behavior, make predictions based on their spending trends, and offer actionable investment recommendations based on their banking usage. 

Generative AI can democratize open finance data on an enterprise level to identify risks before they can cause harm, and drive efficiency in a way that human staff are physically unable to replicate. 

One particular example of why this innovation is such a game changer can be found when navigating open finance credit. Using customer data, generative AI algorithms can create a detailed level of analysis regarding a customer’s risk of defaulting on a loan and offer lenders a bespoke credit score based on a range of behavioral, historical, and other unstructured factors. 

This will help the sector move on from rigid credit scoring services, which can involve inefficiencies like bias and a lack of tangible insight.

2. Autonomous Invoices

Another area of legacy finance that generative AI is helping to bring digital transformation to is the field of invoicing. 

Payper invoices and email attachments are still commonplace among invoices and remain largely inefficient. The necessity of manually inputting banking details can lead to human error and payment delays.  

Thanks to generative AI, it’s possible for systems to actively interpret invoices as they are received, monitor them for possible errors, and automate the entire process by extracting payment data from the relevant documents. 

Additionally, machine learning algorithms will also help to improve the accuracy of identifying errors between the biller and customer, making the process frictionless and faster. 

3. Cost Reduction

The ability to automate manual processes will help not only save time but also money for firms and customers that embrace open finance. 

This is because transactions and insights can be leveraged through seamless communication between parties without the need for intermediaries and added steps in leveraging transactions. 

Generative AI can monitor for risks or inefficiencies throughout many different processes that can be optimized by open finance. For instance, generative AI can offer solutions to speed up enterprises and their supply chain management, helping to process payments faster based on the correct receipt of goods. Preventing the need for unnecessary spending when unexpected complications emerge. 

4. Upgrading Customer Experience

We’re already seeing how leading generative AI tools like ChatGPT are improving the customer experience models of enterprises. Given the importance of banking and the necessity of providing an always-on level of customer service for users, the use of generative AI chatbots will be a game changer in open finance. 

With the help of large-language models (LLMs), open finance providers will be capable of answering complex and challenging customer queries in a manner that matches expectations and conforms to a lexicon that offers a satisfactory level of understanding. 

Finance is a complex industry. Customers want to be respected and not patronized. It’s for this reason that LLMs are an excellent resource for accommodating customer needs and enhancing efficiency in responding to nuanced queries.

5. Stronger Security

Finally, generative AI can provide more comprehensive solutions for keeping open finance users and fintech firms alike secure. 

AI-powered fraud detection and risk management systems can actively monitor for inconsistent user behavior and unusual activity in a way that can identify patterns that would be invisible to the human eye. 

This can leverage early alert systems that can advise human decision-makers on what further action could be taken. 

Risk-Free Fintech?

Of course, generative AI’s role in driving digital transformation for open finance isn’t entirely risk-free in its current iteration. 

According to a recent UK Finance report, factors like uncertain outputs, control over training data, and issues in regulatory cooperation could pose a threat to satisfactory customer experiences and lead to reputational damage for service providers. 

With more financial data sharing, open finance systems can be particularly vulnerable to breaches. This calls for higher security measures to be implemented for any firms seeking to embrace generative AI technology for open finance purposes. 

However, the opportunities for those embracing generative AI for open finance are clear. In offering frictionless access to banking services and financial insights, open finance paves the way for a level of digital transformation in banking that’s previously been impossible. 

While there’s still a long way to go in democratizing finance, generative AI could be a driving force in steering the industry away from legacy processes and into the digital age.

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