M a r k e t N e w s

Rise of the machines

Posted on : Thursday, 8th September 2016

 Consultancy group Juniper Research has forecasted that fintech platform revenues for unsecured consumer loans issued using machine learning technology are set to see a jump of 960 per cent during the period 2016-2021, rising to $17 billion globally in 2021.

The rise is driven by advances in analytics and accessible computing power. Specifically artificial intelligence (AI) is expected to advance rapidly, according to Juniper's new report, AI & Machine Learning: Fintech Dynamics, Disruption & Future Opportunities 2016-2021.
 
Machine learning, a subset of AI, has grown 'tremendously' since 2011 due to significant increase in research and development into the sector and venture capital interest, Juniper said.  While for many the term 'AI' immediately conjures science fiction fantasies of robots, its fintech definition is far more simple and wide-reaching. Juniper Research defines it as a computer programme that uses a combination of digital building blocks, such as mathematics, algorithms and data to solve complex problems normally performed by humans.
 
These complex problems have grown with the advent of big data and the opportunities it presents for companies to better know, and serve, their customers. ZestFinance, one of the fintech startups that Juniper highlighted in its report, works in precisely this area, utilising data to make the consumer lending market more transparent.
 
As the US-based company--founded by a former Google CIO--describes itself on its website, "This new technology is able to consume vast amounts of data to more accurately identify good borrowers--enabling higher repayment rates for lenders and lower-cost credit for consumers." ZestFinance's offer is attractive--the company has raised $100 million in funding, led by American and Chinese investors.
Another fintech start-up, Kabbage, focuses on e-lending for small businesses and attracted $135 million from big investors such as Santander, ING and Scotiabank last year. Juniper pointed out that both companies cite AI as part of their core strategy.
 
Juniper said that alongside big data, the increased availability of cloud computing and high bandwidth internet services have made harnessing data more feasible for companies, leading to an overall resurgence in AI interest.
 
"Until recently, machine learning was too expensive and computationally time-intensive to break into the mainstream. Meanwhile access to extensive data sets for algorithm training were limited," Steffen Sorrell, Senior Analyst at Juniper and the author of the research, said. "Presently, the ability to use GPU [graphics processing unit] hardware for processing massive and highly available data sets, along with unlimited affordable computing power in the form of distributed architecture has opened the market to a swathe of disruptive new players."
"Where big data analytics offered retrospective business intelligence, machine learning offers predictive and even prescriptive capabilities." Sorrell said. "Data is key--and industries able to draw expertise from data scientists will be the first to capitalise on the AI opportunity."
 
In these contexts, AI is largely used for risk assessment--particularly when it comes to crunching numbers efficiently for loan approvals in previously limited markets.
 
"This widens the addressable market for financial institutions considerably over traditional FICO credit scoring, where lack of credit history may mean loan rejection despite a real low risk for the lender," Sorrell said.
 
AI is still a nascent industry in Africa, but fintech as an industry is growing significantly and helping to usher in a new AI era, according to new data from research and consulting group Frost & Sullivan. The company said that Africa is following in the footsteps of Australia, where Frost & Sullivan forecasts that fintech companies will take $10 billion in revenue away from big Australian banks and contribute $3 billion of new revenue from 2015 to 2020.
 
"The African continent has embraced mobile communications at a faster rate than other parts of the world, whilst also pioneering mobile technologies such as M-Pesa, through which almost 50 per cent of payments are being made by Kenyans," Wayne Houghton, Director of Growth Implementation Solutions for Africa at Frost & Sullivan, said.
 
"Africa's under-developed banking infrastructure means that the fintech wave will more likely be an enabler of financial inclusion than the typical disruption seen in more developed markets. With at least 60 per cent of the adult population on the continent still without a bank account, Africa offers significant opportunity for the industry," he added.
 
Globally, Frost & Sullivan said that an increase in the use of algorithm-based banking and 'robo-advice', or AI, is set to significantly affect the financial planning market.
 
AI systems are already being used in social media networks and website such as MyBucks, a start-up to assess the credit-worthiness of customers in the African market.
 
"MyBucks and TagPay have already joined the growing list of international companies to have taken an interest in Africa's fintech industry, competing with local startups such as Kenya Fintech, SnapScan and Rainfin," Houghton said. "Existing South African financial services providers are beginning to appreciate the threat and the opportunity fintechs pose. Some have embraced open innovation as a way to explore these types of opportunities and understand how to make them relevant for the local market. In South Africa, we have already seen the emergence of Standard Bank's WeChat Wallet. And predictions globally suggest that Apple Pay and Android Pay will be the next revolution in banking, with a number of bets being placed on the emergence of a 'Facebook bank'."

Source : zawya.com
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