RACO Investment founder Randall Castillo Ortega discusses the role AI plays in FinTechs

Artificial intelligence (AI) is changing the way we live. We thought it was a long way from machines and software being able to execute actions and solve problems. But it is now possible to see various uses of AI in FinTechs. Randall Castillo Ortega, the founder of SME lender RACO Investment in Costa Rica and Panama, explains how.

One of the most recognized examples of AI use is in tourism. AI helps optimize promotions and prices, as well as prevent fraudulent transactions. It is also possible to offer personalized offers according to dates, routes and costs. When we buy a plane ticket and make the reservation at a hotel, the travel sites are planning our next vacation.

Financial services are not far behind and many AI applications are used by both traditional institutions and FinTech. Asserts Castillo, “AI offers a faster and more accurate assessment of potential customers, at a lower cost. This allows you to make more informed decisions. An alternative credit score that uses AI is much more complete and sophisticated compared to traditional credit score criteria. This helps lenders distinguish between high-risk customers and those who are not risky but do not have a credit history.”

Digital banks and FinTechs use machine learning algorithms, also known as machine learning. With alternative information, for example, from different bank accounts or from a smartphone, you can better evaluate potential customers of a loan and provide personalized options. Also, business credit companies in the US have reported excellent results thanks to the use of this tool. For example, according to the company Emerj, 40% of companies that use AI for financing and loans scored above 3 out of 4 in their ROI evidence score. This indicates a stronger supplier ecosystem.

The power of processing makes it possible to handle large amounts of data in a short time and cognitive computing helps manage structured and unstructured data, a task that would take too long for a human. The algorithms analyze transaction histories and identify signs of future problems in time. “AI in finance is a powerful tool when analyzing in real-time the activities of any market or environment,” adds Castillo. “It is possible to make predictions and generate details based on multiple variables, indispensable for financial planning.”

For several years AI has performed well in the detection of financial fraud. And it is looking to improve algorithms with machine learning. It is especially effective in preventing credit card fraud. This type of fraud has had exponential growth in recent years due to the increase in eCommerce and online transactions. Fraud detection systems analyze customer behavior, location, shopping habits and establish security mechanisms when something seems to be out of the norm and contradicts spending patterns.

Data-driven investments have increased returns over the past five years and closed at a trillion dollars in 2018, thanks to the so-called quantitative algorithm of high frequency inversion. The use of these tools in investing has been expanding rapidly through the world’s stock markets, and for good reason. Smart investment systems monitor structured information (databases, for example) and unstructured information (from social networks, news, among others). In the exchange of values, it means faster decisions and faster transactions.

AI in financial services provides new benefits for users. In the banking sector, it works with intelligent messaging robots that provide immediate solutions and financial education, as if it were a call center, but without people. Also, through voice and devices like Amazon’s Alexa, transactions can be made. And with both apps, you can check balances, schedule payments, monitor account activity, and more.

Cutting-edge industry leaders look to process automation when they want to reduce operating costs and increase productivity. For example, smart character recognition makes it possible to automate ordinary and time-consuming responsibilities that used to take thousands of hours of operation and stretch payrolls. AI-enabled software validates data and produces reports according to given parameters, reviews documents, and extracts information from forms.

With the use of AI in financial services, it is expected to have predictions to grant and track credits, identify fraud, be able to invest in the capital market, among others. All kinds of assistants and apps will continue to be developed and strengthened to offer easier personal finance management. Tasks such as paying bills and preparing the tax return can be performed automatically.

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