Financial technology firms specializing in artificial intelligence are one of the hottest investment opportunities in the tech world today, according to Barry Downes, CIO of Sure Ventures PLC and managing partner of venture capital fund Suir Valley Ventures.
The AI for fintech industry could grow to $7.3 billion by 2022 from its current $959 million globally, as young companies exploit opportunities in areas such as credit scoring, debt collection and quantitative asset management, Downes said in an interview, quoting data from Market to Market, a research firm.
"Artificial intelligence is becoming all-pervasive in the financial services community," he said.
Suir Valley Ventures is a VC fund that invests in early-stage software startups in areas such as fintech, virtual reality, augmented reality and the Internet of Things. The fund currently has €20 million to invest, and aims to raise a total of €100 million by August 2019. Sure Ventures is a listed private equity fund founded in 2017 and trades on the London Stock Exchange Group PLC.
The next big thing
There have been three major waves of innovation in recent decades: the PC, the internet and the mobile phone, Downes told panelists during an investor day in London on March 5. It has taken some time for the next wave to emerge, but there is a high chance that it will be be AI.
"If we invest in early-stage AI fintech startups, those companies will become the household names of tomorrow," he said.
Downes believes that the growth story is not to be found in fintechs that compete with banks for a chunk of their business, but fintechs that provide services to banks that they lack the expertise to develop or perfect in-house.
"As an investor, I'm most interested in companies that can solve the problems that big banks and insurers can't solve for themselves. AI is one of those areas," he said.
The prosaic paperwork problem
Some of these problems are more prosaic than one might imagine, Downes said, citing the example of handling paper documents at major banks and insurers.
Many insurers have incredibly archaic processes for handling day-to-day tasks such as processing claims, and this is an area where AI can come into play, he said.
"One of the companies I'm looking at is an early-stage company in Dublin, BPI Unitek, that is working to improve digital transitions in banks and insurers. Insurers still handle a huge number of paper documents, and while they've digitized a lot of these processes over the past 20 years, there are still a lot of issues. Documents still get lost or misread a lot of the time," he said.
BPI Unitek uses deep learning networks and natural language processors to pull data from claims forms with a higher level of accuracy, he said.
"That can really cut the number of people involved and the number of hours spent processing a claim," he said.
"People might look at digital transformation and say, 'I can't see AI hitting that, it's already been done.' But in many cases it's only been partially done, and there is still room for AI to transform things" Downes said.
The other area where Downes sees AI shaking up the financial services market is predictive analytics.
"Amazon.com Inc. has been using predictive analytics for some time, but we'll see banks and insurers use it more and more in order to help consumers
Shape of AI
One of the reasons why the AI industry is on the cusp of taking off in a big way is the fact that cloud computing and data centers — which provide much of the infrastructure that AI require — have come of age.
Some 23% of all new AI startups are in the financial services sector, according to recent research from venture capital firm MMC Ventures, in collaboration with British bank Barclays. This compares with 17% for health & wellbeing and 10% for apiece for retail & entertainment.
But the report warns that there is a degree of hype around AI adoptions. Out of 2,830 startups surveyed that purported use AI, around 40% of companies were not using the technology in a way that added any "material" value.