The technological life cycle follows a familiar pattern. It starts with a thrilling beginning — an exhilarating birth — followed by meteoric maturation, refinement through regulation, and a dignified decline.
Presently, there is an implicit awareness of AI technology from consumers across business sectors. References to social media “algorithms” and quotes from movies such as “The Matrix” and “The Terminator” continuously permeate into the mainstream. Business leaders that have harnessed the rays of innovation are poised to capture the consciousness of consumers and deftly address their needs.
However, there are disquieting factors that financial tech, or fintech, business leaders must analyze ahead of this technological revolution. These factors include algorithmic bias, data privacy concerns, a regulatory vacuum ripe for exploitation, and the human complications arising from dependency on AI tooling.
Nevertheless, as we peer through the present window, the sun is setting on traditional tech. But if we look to the east, AI is on the horizon.
Regulations Help Protect Businesses and their Consumers
The fintech industry has made significant strides in digital payments and money transfers. Yet, with these rapid technological advancements, societal impacts need to be addressed and regulations need to be redefined to protect citizens.
The White House, for instance, has outlined a “Blueprint for an AI Bill of Rights” to guide automated systems design, use, and deployment. One of these technological innovations includes the adoption of blockchain, a decentralized and distributed digital ledger that records transactions securely and transparently.
Additionally, cryptocurrencies and their respective tokens have become mainstream over the past several years, meaning the transition to AI systems could heavily impact central banks. Blockchain technology, for example, operates independently of central financial institutions, while cryptocurrencies can be transferred directly between individuals without the need for intermediaries like traditional financial institutions.
Financial technology has been exploring generative AI for automating operations processes, augmenting data collection, and developing new products. Forbes suggests that industries such as Information Technology (IT), Marketing, Customer Service, and Operations may be most impacted by AI development.
Combining human and AI strengths can be valuable for startups and established firms. AI systems can handle repetitive and predictable tasks, freeing employees to focus on more complex business ventures. Furthermore, AI-powered tools like automated video captioning and voice photo descriptions can expand a company’s reach into new consumer markets.
AI tools are now integrated into compliance processes, with private sector companies advocating for regulations to govern their use. Generative AI is gaining popularity in content creation, while chatbots are used in customer service to handle routine inquiries.
Regulations Help Keep the Use of AI Ethical
With the rapid evolution of AI, conversational systems may introduce more human-like sentiments. However, caution is needed when incorporating AI into financial processes due to the risk of biased data and errors.
Biased data used to teach AI systems may lead to flawed insights that perpetuate societal inequalities and create blind spots in marketing predictions. Moreover, AI systems are only as capable as the human minds behind their processes, leaving them potentially vulnerable to human error. As such, it is crucial to blend AI tools with human oversight, correct possible blind spots, and account for data bias when implementing AI into financial processes.
Establishing regulations to oversee AI’s data selection process, algorithmic design, and testing parameters is vital for the ethical and responsible development and deployment of AI systems. Still, implementing regulations could increase the cost of AI technology packages for smaller financial firms, leading them to move forward without adequate safety guidelines, which is why balancing promoting innovation and protecting the public interest is essential.
Creating a collaborative environment between regulatory bodies and the private sector is crucial to develop policies that promote innovation while ensuring ethical considerations. For example, the European Union’s General Data Protection Regulation (GDPR) has been a step in the right direction in protecting consumer data privacy.
Implementing consistent and standardized laws worldwide would strengthen ethical standards in the development and deployment of AI. To achieve this, companies must prioritize transparency in their AI systems by disclosing the collected data types and their use in developing AI models and establishing clear lines of accountability and responsibility in case of AI system malfunctions.
AI technology can be harnessed to drive growth and innovation and potentially transform the fintech industry, but it is essential to prioritize ethical considerations, including data privacy and bias, to avoid perpetuating societal inequalities. Companies must work closely with regulatory bodies to establish policies that promote innovation while protecting the public interest.
AI should be viewed as a tool to enhance the capabilities of human advisors, rather than one which will eventually replace them entirely. By taking a cautious and informed approach, businesses can harness the power of AI to drive growth and innovation while minimizing potential risks.
The author, Sandy Fliderman is an experienced CTO and entrepreneur specializing in cutting-edge technology, big data analytics, and large-scale operational systems. Sandy is currently the Co-Founder and President of Industry FinTech (“IFT”), a digital back-office platform for funds, SPVs, REITs, deals, and private companies.
