Konstantin Tserazov: How to Be Successful in Fintech in the World of AI?

The accelerated development of digitalization has created new needs and demands, with customers expecting access to fintech services and other digital innovations that have emerged in society. Furthermore, the evolution of modern, constantly changing digitalization has made companies increasingly dependent on fintech to sustain their growth. In the banking sector, digitalization has led to the emergence of more fintech companies that provide innovative financial instruments with customer-tailored solutions.

The advent of Artificial Intelligence (AI) in human socioeconomic life has many implications actively discussed in various media. One significant implication is that the widespread use of AI makes it increasingly difficult for any business to find and exploit market imperfections. This trend will likely cause the operating margins of all businesses to trend toward zero as opportunities to effectively leverage market asymmetries diminish. The financial sector, including banks, will be among the first industries to confront this new reality of zero returns on their activities.

In this context, fintech faces a new challenge: to reinvent the role of financial and investment entrepreneurship in an era dominated by AI. This shift eliminates the need for traditional marketing and marketplaces since the market arbitrage utilized by various businesses will vanish. Financial AI assistants represent a new generation—the AI generation—with AI influencers becoming integral to AI-driven marketing aimed at interacting with these assistants rather than with people.

As individuals increasingly rely on AI assistants for decision-making (including selecting banks for deposits or choosing brokers), marketing must focus on influencing the decisions made by these AI systems. AI-Word of Mouth (AI-WOM) is gaining traction as one of the most powerful tools for promoting fintech products and services.

The AI transformation challenges not only the jobs of millions but also the role of fiat money, whose primary function has been to facilitate communication between the job market and the market for goods and services. As a result, humanity stands on the brink of achieving perfect markets, leading to a strong demand for innovative ideas on reinventing the payments sphere.

To succeed in fintech requires a deep understanding of this evolving landscape. We must recognize that AI does not merely solve problems; it also creates new ones.

Fintech is at the forefront of transforming the payments sector through the invention of new value systems on the blockchain. The rise of reputation, authenticity, recognition, and popularity tokens will become widespread. These new tokens will reflect shifts in values driven by AI development and will support the increasing role of smart contracts, which will automate all processes that can be automated.

The new fintech vision must acknowledge that services enabling the automation of various banking processes will be in high demand over the next three years, prior to the arrival of Artificial General Intelligence (AGI). AGI will be capable of performing any intellectual task that a human can do, completing the automation of banking tasks. Following this, within two years, Artificial Superintelligence (ASI) is likely to become a reality, surpassing human intellect in every domain, including tasks that may not yet exist.

For Gulf countries, there is a historic opportunity to emerge as leaders in this new world. AI and energy are intrinsically linked. Elon Musk's team invested $3 billion in a data center to train xAI's Grok.

However, further investments on the world level will be necessary. On September 19th, Microsoft, BlackRock, and the UAE announced the formation of GAIIP – the Global Artificial Intelligence Infrastructure Investment Partnership. This partnership aims to invest $100 billion in data centers and power infrastructure primarily within the United States, with some funds allocated for data center construction in U.S. partner countries.

Gulf countries can choose their role in this digital movement into the AI world by leveraging their robust fintech sector and vast energy resources. While they depend on semiconductor supplies from China and the West, local fintech companies demonstrate potential as serious competitors to their peers in China, the U.S., and Europe.

The establishment of the Artificial Intelligence and Advanced Technology Council (AIATC) in January under the initiative of UAE President Sheikh Mohamed bin Zayed Al Nahyan indicates Abu Dhabi's intention to play an active role in the burgeoning AI landscape. The AIATC is set to serve as a coordination center for all efforts in this direction, including developing local fintech startups.

The key motto for any new fintech startup must be its ability to solve not only existing issues in finance more effectively but also to anticipate future problems and be technically prepared to address them efficiently. This perspective centers on the client. The development of financial AI assistants is a leading approach to achieving this goal since these assistants (or AI robots) possess an inherent capability for continuous self-improvement.

From an operational standpoint, AI enables fintech to automate startup activities, creating an environment where production costs for goods and services are reduced. Ultimately, it significantly enhances data gathering and processing efficiency, including big data analytics. The same benefits apply to banks if they adopt this approach.

For AI assistants' learning, access to human experience is crucial. Therefore, Human-in-the-Loop Reinforcement Learning (HITLRL), combined with data gathered from Internet of Things (IoT) sensors, is expected to become a mainstream approach for fintech startups over the next three years. HITLRL is projected to deliver an average operating margin of 90%, surpassing any other fintech activity in the software creation sector.

Successful fintech startups are expanding their teams by hiring AI Strategists and AI Data Integrity Facilitators. Their immediate task is to upgrade the Massive Multitask Language Understanding (MMLU) framework to effectively evaluate large language models (LLMs) in their output related to financial and investment decisions.

Comprehensive Digital Literacy (CDL) is an essential skill for success in the financial sector today. It requires a 360-degree digital approach where the fintech startup team demonstrates genuine empathy for clients' pain points and is ready to collaborate on a journey to fulfill their dreams. CDL also encompasses technical knowledge and cognitive flexibility. First principles thinking, which involves deconstructing complex problems into their most fundamental elements, is particularly valuable in fintech management.

The modern fintech environment is constantly evolving. Various startups take different paths, but the future is becoming increasingly clear. Each day brings us closer to a point where fintech startup founders will be ready to delegate entire operating processes to AI.

The rising influence of AI is not coincidental. Consider the macroeconomic landscape of the U.S. The Federal Reserve announced its sixth policy decision for 2024 on September 18th, reducing the benchmark interest rate by 50 basis points (bps). In the last 35 years, there have only been four instances where the regulator implemented such a drastic rate reduction of 50 bps or more, all occurring during looming or ongoing recessions.

Effectively, from September 19th, 2024, the fourth phase of fintech evolution — the AI-driven phase of Fintech 4.0 — commenced.This isn't just an incremental change; it's a fundamental shift, comparable to the impact of the internet or the smartphone. AI is slated to reformulate communications with money and financial instruments, from the rise of AI-powered assistants to the emergence of decentralized autonomous organizations (DAOs) managing finances. Why?

The U.S. and a significant part of the global economy must reinvent themselves. Rising debt levels, budget deficits, and a negative balance of external trade have created complex problems that humanity cannot solve by continuing on the same technological path. AI, as a catalyst for many innovations (including blockchain, smart contracts, IoT, etc), provides a way forward and will lead many aspects of human endeavor in the future, including the development of AI-driven monetary policy in response to an almost ineffective classical monetary approach with unpredictable and unstable results.

The initial reaction of financial markets to the Fed's September decision was a downward movement in the S&P 500, Nasdaq Composite, and Dow Jones indexes. Interest rates were lowered; however, yields on many bonds did not decrease. This serves as one of many signals that the Fed may have begun to lose its influence on financial markets.

This is not an end but rather a doorway to a new world where fintech strategists will have more time to invent new innovative solutions. What will be the next big thing after AI? By practicing strategic thinking and combining deep experience in classical banking with engagement in effective AI-driven fintech solutions, it becomes easier to look beyond the horizon and anticipate what tomorrow may bring