investment viewpoints

AI in financial services

AI in financial services
Jeroen van Oerle - Portfolio Manager

Jeroen van Oerle

Portfolio Manager
Christian Vondenbusch - Portfolio Manager

Christian Vondenbusch

Portfolio Manager

There is a great deal of Artificial intelligence (AI) behind the scenes within financial services, but it is not disruptive to the industry. Rather, AI is sustaining innovation and improving efficiency. 

Need to know

  • The entire AI market, including services and hardware, is expected to reach USD 900 billion by 2026, which would imply a CAGR of 19%. Financial institutions represent between 20-25% of this total market 
  • The latest hype surrounds generative AI, which is not likely to have a disruptive impact on the financial sector but will help achieve efficiency gains 
  • The biggest users of AI technology within the financial sector, such as companies within the payment segment, are available at extremely low valuations

Embedded in finance

Our latest white paper takes a broad approach to this diverse topic. We first introduce the concept of AI and examine its innovative potential by means of the disruptive innovation framework created by Professor Clayton Christensen. We then focus on its applications within the financial services sector, which must be viewed differently from other industries, given a variety of factors including regulatory requirements.

Global payment-network provider Visa1 is a good example of how advanced the integration of AI already is within financial services. One of the company’s services is called the Visa Advanced Authorisation (VAA) score. Machine learning is used to determine whether a transaction is legitimate or fraudulent within 300 milliseconds. The maximum payment transaction capacity for Visa is about 65,000 transactions per second. Checking these transactions and coming back with a fraud check within 300 milliseconds is impressive. According to Visa, VAA prevented USD 26 billion worth of fraud in 2021.

Fig 9 - 765px.svg
Source: VISA, 2023.

According to the Preventing Financial Crimes Playbook, Visa’s investments in AI match those made by the financial services sector overall. This implies there are many other examples of financial companies, beyond the payments industry, that are using AI in advanced settings. 

For example, financial institutions spent more than USD 217 bn on AI applications in fraud and risk assessment in 2020. This figure has likely increased substantially with the integration of generative AI techniques in the customer-engagement process.

Sorting hype from reality  

AI has the power to determine long-term winners and losers. Separating the two means analysing company fundamentals to determine which firms are properly harnessing the technology, rather than looking at corporate pitchbooks. Valuations in this space are currently approaching dotcom-bubble territory and extreme expectations are setting the stage for an AI winter. Investors who want to benefit from this trend in the long run need to know how to sort hype from reality.

1Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.


Download our whitepaper

AI is already firmly integrated in financial services but in a profoundly different manner to that of other industries. It is not disruptive in nature but is sustaining innovation and driving efficiency improvements. Investors that want to benefit from this trend in the long run need to be able to recognise companies which are using technological advancements to enhance their fundamentals.  

important information.

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