This is how AI is transforming financial services.

Byline: Lukas Ryll

Artificial intelligence (AI) is in the process of transforming a variety of models in the global financial services industry, a global survey jointly conducted by the Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School and the World Economic Forum suggests.

The study, supported by EY and Invesco, demonstrates that AI is changing how financial institutions generate and utilize insights from data, which in turn propels new forms of business model innovation, reshapes competitive environments and workforces, engenders new risk dynamics and poses novel challenges to firms and policy-makers alike.

Advancing towards mass adoption

The survey, which gleaned responses from 151 financial institutions, including both incumbent firms and FinTechs hailing from more than 30 countries, confirms AI as a crucial business driver across the industry in the short term. Notably, AI adopters do not appear to have specific modi operandi for implementing AI; instead, 64% expect to become mass adopters within two years, proving the growing potential of AI to stimulate innovation and growth across a wide range of business functions.

FinTechs and incumbents alike are moving from mainly using AI to reduce costs to utilizing its capabilities for revenue generation, albeit pursuing different AI strategies to achieve this. Most incumbents primarily use AI to enhance existing products and services, whereas many FinTechs use it to create new value propositions, as shown in the chart below.

How financial service companies are using AI (only including FinTechs with annual revenue [greater than or equal to]$100m to control for different product portfolio maturities)

This strategy is concomitant with selling AI as-a-service, with 45% of all FinTechs (excluding B2B-only companies) offering AI-based B2B solutions compared to only 21% of incumbents.

EY's Global AI Leader, Nigel Duffy recognizes the importance of understanding the implications of mass adoption: "AI is transforming the Financial Services industry and we can expect widespread adoption to continue. As the technologies give way to new revenue streams and transform business functions, it's increasingly important for organizations to focus on the long-term implications of AI adoption."

In the wake of mass adoption, survey participants' perceptions indicate that AI may replace nearly 9% of incumbent financial services jobs by 2030, while FinTechs...