The topic of artificial intelligence in financial services has infiltrated industry conferences in the way that cryptocurrency and blockchain did a few years back.
While many pundits once believed something like blockchain could solve for everything, AI and machine learning have more practical uses in financial services. In fact, banks have used machine learning in some capacity for at least a decade, if not longer. But the rise of generative AI has this topic on the tip of everyone’s tongues, and it was no different earlier this month at FinovateFall 2024 in New York City.
Much like its spring counterpart in San Francisco, FinovateFall featured an array of AI-tinged fintech demos, as well as multiple panel discussions featuring the same. But not everything was about AI, thankfully.
The following are just a few observations that came out of panels, company demos, and networking conversations at FinovateFall in New York City.
Looking beyond the hype
Gen AI was top-of-mind at the conference, with panelists debating its potential to revolutionize financial services. A recurring theme was that Gen AI can unlock new levels of personalization and efficiency, from product development to customer engagement. However, as several speakers noted, the implementation of Gen AI comes with challenges, particularly around governance, data management, and regulatory compliance.
Many organizations are still grappling with how to balance the promise of Gen AI with practical concerns. The consensus? While Gen AI holds immense potential, its success hinges on robust data infrastructure and clear ethical guidelines.
As the adoption of AI accelerates, so does the focus on regulatory compliance. A key session on regulation, led by Donna Murphy of the Office of the Comptroller of the Currency (OCC), stressed that while AI offers significant opportunities, it also introduces new risks—particularly around data privacy, explainability, and governance. Financial institutions must tread carefully, ensuring that their AI implementations align with evolving regulations.
The panel on third-party risk management underscored the importance of maintaining strong oversight when partnering with fintechs and other third parties. With regulators paying close attention to these partnerships, institutions need to implement thorough due diligence and risk management processes.
The future of fintech: personalization, agility, and regtech
Fintech innovation continues to push the boundaries of what’s possible in financial services, particularly when it comes to personalization. A common thread throughout the conference was how fintechs are helping financial institutions shift from a product-centric approach to a more customer-centric one. With consumers demanding personalized solutions, banks are increasingly turning to fintech partners to deliver on these expectations.
On the regulatory front, the rise of RegTech is making it easier for financial institutions to stay compliant in an ever-changing regulatory environment. Ben Anderson from Quavo underscored the importance of partnering with RegTech providers to ensure that organizations are not only compliant but also agile enough to respond to new regulations as they emerge.
Compliance challenges and opportunities
With the Consumer Financial Protection Bureau’s (CFPB) open banking Rule 1033 set to go into effect in the coming weeks, this was probably one of the more discussed topics outside of AI.
In a nutshell, Rule 1033 is about consumers’ personal financial data rights. The rule’s purpose is to enable consumers to easily share personal financial data across institutions. While open banking has become a standard in many countries, the U.S. is the biggest laggard from a regulatory perspective. Up until now, various banks and fintechs by choice have implemented aspects of open banking. The CFPB’s rule will make it mandatory.
Panel speakers believe open banking will be both a challenge and risk for financial institutions. For almost the last decade, U.S. banks have viewed open banking with a wary eye with the fear their customers would get better services elsewhere, particularly with neobanks and other fintechs. Banks will also need to be aware of third-party risk management. However, open banking opens the opportunity for banks to better utilize customer data to create enhanced products and services.
FinovateFall 2024 confirmed what many in the industry already know—AI is here to stay, and its impact on financial services will only grow in the coming years. But there are other pressing issues banks need to be aware of as things like open banking and increased regulatory scrutiny become a reality.