Коваль, Фаренюк, THE PLACE AND ROLE OF ARTIFICIAL INTELLIGENCE-BASED FINTECH STARTUPS IN THE SYSTEM OF DECENTRALIZED FINANCE

Є.В. Коваль, студентка
Н.В. Фаренюк, науковий керівник
КНУ ім. Т. Шевченка, ННІМВ

THE PLACE AND ROLE OF ARTIFICIAL INTELLIGENCE-BASED FINTECH STARTUPS IN THE SYSTEM OF DECENTRALIZED FINANCE

Defining the role which AI-based FinTech startups play in the development of the system of decentralized finance is essential in understanding the effect of such startup-companies on the modern financial ecosystem. Consider the following figures: the global market in the abovementioned industry is expected to be valued at $61.3 billion by the year 2031. Furthermore, in accordance with the latest Summit of The Talent Route, 40% of the EU-based FinTech projects are based on AI. It can be derived from this information that most startup-companies all over the world (especially those with prospects to become unicorns) increasingly strive for applying AI in their operations wherever they can (and wherever it is truly necessary, of course). AI-based systems greatly facilitate the process of managing portfolios, constantly analyzing risk, offering valuable advice to clients and much more. It is understandable that if FinTech startups are to stay competitive in the highly volatile finance market – it is necessary for them to eliminate unnecessary costs and manage their operations more effectively. Next, I will discuss what reasons help AI-based FinTech startups (hereinafter referred to as AIBFTS) to stand apart from other companies in the system of decentralized finance.
Firstly, it is essential to define what decentralized finance (DeFi) is. Simply put, DeFi is a new kind of financial system which is built on the foundation of blockchain technology. That is, DeFi aims to reduce the reliance on traditional financial intermediaries in the system of finance. This means that banks or brokerages are not crucial for the functioning of this system anymore. In FinTech, alternative methods of interaction are now possible: mobile and digital banking, peer-to-peer lending, smart contracts – the list goes on and on. DeFi is what makes such methods safer, more efficient, and transparent, creating an open and permissionless ecosystem for financial services. However, with these benefits a great deal of challenges arises. It is arguable that a blockchain-based finance system will pose a significant threat to the already-established business models. All aspects of the companies’ operations will be influenced: accounting records, transactions, customer service, HR etc. This is a new step for global financial systems, in which AIBFTS have taken their place and will continue to evolve.
Secondly, it is worthwhile to analyze how AIBFTS may be integrated with the ecosystem of decentralized finance. It may be appropriate to quote Anthony Cerullo, Chief Communications Strategist at Walbi, here: “AI algorithms will be especially useful in analyzing blockchain transaction data but if we look even further, we will see improvements in assessing borrower credit history, collateral information, market data and macroeconomic indicators. When combined, AI can create instant insights that help DeFi lenders assess risks for their clients and for themselves”. It can be added that credit assessment powered by AI may be able to exceed the traditional credit scores. AI is able to build a more understandable model of the financial behavior of, for instance, the transaction history of a particular borrower. Based on this model, further critical decisions may be made which will benefit not only the individual, but also the company. For individuals and businesses which do not possess a necessary credit history (but actively participate in DeFi), this will be a huge boost.
Thirdly, another reason why AI-based startups are so successful is being useful in evaluating the value of collateral assets (provided to secure loans by borrowers) as well as their authenticity. It is a simple process of identifying the ownership and the value respectively, which will greatly reduce the risk of defaults for financial institutions in the future.
Fourthly, it is worth noting that chatbots based on AI have become increasingly popular amongst AI-based startups in the last couple of years and greatly contribute to setting these startups apart from others – at least, in the context of DeFi. These are applications able to interact with human users in the form of conversations in their language. By integrating and using chatbots in FinTech, companies are able to automate numerous tasks: starting with answering frequently asked questions (which might take managers quite some time if no help from chatbots is used), scheduling appointments and finishing with an ultimate goal of such applications – helping companies increase their efficiency and providing more consistent information while making fewer mistakes.
Finally, I would like to explain why the upward trend in AI-driven fintech persists, and the most essential reason for this, in my opinion, is the availability of opportunities for emerging participants. There are 4 main industries in which AIBFTS can build up their operations.
1) Digital banking. Established financial institutions face challenges from competitors aiming to overthrow them. Neobanks typically provide superior interest rates, reduced fees, and increased transparency regarding fund transactions.
2) Regtech. Adhering to regulations and completing required documentation is a time-intensive task susceptible to human errors. Therefore, investing in automated compliance software proves to be a valuable decision.
3) Maintenance of financial records. These types of applications aid in the management of individual finances by monitoring expenditures, bills, bank accounts, and other financial assets and obligations.
4) Robo-advisors. The convenience and accessibility of this software make it particularly favored by young people. With this generation now having financial responsibilities, the need for AI-guided advice is increasing.
In conclusion, the impact of AIBFTS on the contemporary financial ecosystem underscores the need to acknowledge and assess their influence as we navigate the ever-changing landscape of financial technology. As technology continues to advance, the symbiotic relationship between AI and FinTech is likely to shape the future of decentralized finance, influencing how individuals and institutions interact with and participate in the global financial system.

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