Published on the 05/12/2023 | Written by Abid Ali

Artificial intelligence will take the sector by storm over the next decade…

AI is already taking mainstream markets by storm. It is, however, poised to revolutionise digital finance in profound ways from enhancing customer experiences to improving operational efficiency and risk management.

AI-powered chatbots and virtual financial assistants will provide personalised, 24/7 support to customers. Initially, these are likely to be focused on low-level decisions offering instant responses to lower-risk queries and guiding customers through basic financial decisions.

“CBDCs will enable governments to directly manage fiscal policies.”

However, once these systems have robust internal data to train their AI bots further, they will become increasingly powerful, analysing vast datasets to offer tailored financial or investment advice.

For internal finance teams, risk assessments for loans are likely to become near-instantaneous and, over time, sophisticated products will enjoy automated decision-making.

AI will also play a pivotal role in fraud detection and prevention, quickly identifying anomalies and security threats in real-time, and bolstering the security of digital transactions.

Convenient digital currency

The use of notes and coins had been declining, but this accelerated with the pandemic. Concerns over the spreading of the virus meant cash handling quickly transitioned to digital payments. Traditional cash transactions are expected to further diminish as digital wallets and digital currencies become more prevalent. This shift will usher in greater convenience, transparency, and security for consumers and businesses alike.

According to the ongoing CBDC tracker from the Atlantic Council, 130 countries across the globe are already exploring Central Bank Digital Currencies or CBDCs. These countries currently represent 98 percent of global GDP.  CBDC’s are digital currencies issued by governments, for example, the digital AUD which is currently in the pilot stage with the RBA.

CBDCs, through their ability to be digitally programmed have the potential to provide governments with the ability to manage economies in near real-time if deployed across a digital landscape.
CBDCs can link directly to your identity and, in time, almost certainly your government records. While the issue of privacy will be an inhibiting factor in the rollout of CBDCs, in principle, CBDCs will enable governments to directly manage fiscal policies, leveraging our various digital identities. For example, different interest rates can be offered to different demographics – say for example to encourage Gen-Z or ‘Zoomers’ to save more by offering higher rates of interest rates, whereas negative interest rates might be used to encourage spending from Boomers.
CBDCs will tend to make payments more secure and will play a pivotal role in the global financial landscape. These government-backed digital currencies will be integrated into everyday transactions, both domestically and internationally easing the ability to do business internationally.

Instant international transfers

The international banking system has been slow to adapt to the digital environment over the past 10 years with international transactions still taking days, and even weeks, to be processed today. The legacy international banking systems are outdated and can still even involve manual transactions. With the advent of CBDCs, new international payment tools, typically backed by blockchain-styled technologies, will see international transactions undergo a digital revolution. Cross-border transactions are likely to progressively become instantaneous and more secure. This will reduce inefficiencies and significantly reduce the costs of doing international business.

Mobile payments the ‘New Norm’

Payments via mobile phones will become the global standard, especially in developing countries. The increased use of smartphones will drive financial inclusion, enabling even the current unbanked population, estimated by the World Bank at 1.4bn people, to access and participate in the global economy, creating rafts of new opportunities and delivering empowerment to disenfranchised populations.

Fighting financial crime

As financial transactions become increasingly digital, financial crime will surge exponentially. Cybercriminals are already adapting to exploit new vulnerabilities. With easy access to AI tools scammers can now more efficiently craft their scam emails; and leveraging voice-cloning they can even create fake audio calls.  The ongoing game of cat and mouse will constantly shift and increasingly AI-driven security measures will be the first line of defence.

Blurring lines between banking and tech

The lines between banking and technology companies will become increasingly blurred. Banks are already beginning to transform into technology companies, leveraging AI, blockchain, and other digital technologies to deliver innovative financial services. Conversely, technology companies will want to leverage their extensive customer bases and venture into banking services, striving to provide seamless and integrated financial services to their customers. We first saw this in 2019 with Facebook’s attempt to create a global digital currency with Diem.

Banking sector consolidation

The banking sector will undergo consolidation as banks adapt, or fail to adapt, to the evolving landscape. Those banks that fail to embrace technological advancements are likely to face challenges, leading to failures and acquisitions. Those with enhanced technology will win the ongoing battle.

International regulatory cooperation

International regulators will increasingly collaborate to combat cybersecurity threats and will work closely together to establish global standards for regulation. In an interconnected digital world, unified efforts are vital to safeguarding the entire financial system and the data of all involved.

Conclusion

The future of digital finance promises a dynamic and transformative landscape, driven by the ever-increasing power of AI.

As digital currencies, CBDCs, instantaneous international transfers, mobile payments, and increased financial inclusion take centre stage, the role of AI will become even more critical in ensuring security, efficiency, and innovation.

To thrive in this evolving landscape, all companies, financial institutions and fintechs need to positively embrace change. There will be a raft of opportunities for smoother international business in a financial ecosystem that is more accessible, secure, and integrated, benefiting consumers and businesses alike.

About the Author

Abid Ali is Founder & CEO at SpendConsole where he is integrating AI to transform Accounts Payable technology in both private and public sectors.