Generative AI is Playing a Big Role in Open Banking

We’re in the midst of a generative AI revolution. With the technology set to disrupt a number of industries throughout the months and years ahead, the GenAI boom is set to transform the capabilities of open banking as we know it.

The relationship between generative AI and fintech is growing at an exponential rate. The market size is expected to grow significantly over the coming years to a value of $16.4 billion by 2032, representing a CAGR of 31% from its $1.1 billion market size in 2023.

While open banking is still in its infancy, it’s set to form a core component of the future of fintech. Representing a transformational shift from traditional financial services, open banking is a key industry trend that enables the secure sharing of financial data through APIs with third-party services, helping to leverage an unprecedented volume of actionable financial insights and accessibility to products and services.

How GenAI is Enhancing Open Banking

The rise of generative AI has brought significant enhancements in the fields of mathematics and statistics, and the utilization of machine learning (ML) is helping to open the door to unprecedented opportunities within the fintech landscape.

The contribution of mathematics and statistics and their applications in linear algebra, calculus, probability theory, and optimization algorithms are invaluable in building a strong open banking framework. These can combine to build more comprehensive models while ML algorithms can analyze patterns to make accurate predictions surrounding metrics like spending habits and investment opportunities.

Machine learning can also help to interpret these metrics to deliver actionable advice built on accurate forecasting. With the help of image and natural language processing, data can be analyzed across a range of structured and unstructured sources, contextualized, and delivered to users in a way that can improve their financial management.

Generative AI can have a range of applications across different industries because of its strength, and we’re already seeing an impact on the quality of open banking services for different users. With this in mind, let’s explore four ways the GenAI revolution is reshaping open banking:

1. Next-Generation Payments Insights

Generative AI insights can leverage historical payment data to offer fresh perspectives and actionable advice across different areas of financial management.

Through AI-powered open banking dashboards, users and businesses alike can discover more effective ways to make payments for goods and services, better understand their cash flow, and make budgeting decisions.

With ML logistic regression classification algorithms, these dashboards can provide payment source and method insights, as well as non-straight-through processing rates and payment processing duration data, helping users gain recommendations on effective payment methods with lower associated fees.

2. ML Fraud Detection

With the help of machine learning, AI can be trained using significant volumes of historical payment information, helping it to learn how cards are typically used while providing analysis with an overview of current fraud trends.

These models can help to automatically filter low-likelihood fraud alerts while assigning a specific level of risk to each case, allowing analysts to minimize instances of manual intervention.

Fraud managers can also use AI to summarize all suspicious payment behavior, allowing open banking providers to develop new fraud rules and apply their ML models by asking them how the rules and models would perform in a series of scenarios to build confidence in their capabilities.

3. Omnichannel Payments

Omnichannel payment solutions can also help to enhance the open banking ecosystem by allowing customers a series of transactional choices as well as driving greater operational efficiency and cost-effectiveness in the payment process.

Generative AI’s automation capabilities mean that we can access greater levels of personalization that can pave the way for more cost savings whenever a transaction is made.

We’re already seeing use cases in the form of Amazon’s palm-scanning technology within Amazon Go stores. This form of biometric payment technology uses a customer’s physical attributes to authorize payments without the need for any further action.

4. Intuitive Support

Generative AI support bots can also improve open banking by providing far more focused contextual information surrounding user queries and requested insights.

While chatbot technology is nothing new, traditional bots can be limited or incapable of interpreting user queries. However, large language models (LLMs) can interpret user queries at scale and provide instant responses that are easy to interpret.

This paves the way for open banking users to have human-level conversations with chatbots to access far more detailed information in response to various queries.

Fintech’s Next Frontier

Generative AI in open banking will be more than a trend, these united technologies will fundamentally change fintech and the way we manage our wealth in the future.

By understanding the opportunities that the technology offers, users and businesses alike can prepare in advance for the age of flexible payments and shifting consumer spending patterns.

The age of GenAI in fintech is already upon us, and it’s paving the way for a new frontier in financial management.