**3. Progress in financial technology**

Focusing on astonishing developments that have been recorded in financial technology – shortly fintech, a combination of finance and technology – proves rewarding to draw an updated picture of the global financial system, to be acknowledged as the largest industry in the world: as widespread evidence implies, most recent advances in this context have allowed financial institutions to satisfy the needs of their target markets in novel ways, that have shaken up the historically changeresistant banking sector, beyond expectations, and to serve potential customers that would otherwise populate the market segments consisting of the unbanked and underbanked [6]; thanks to progress in fintech, the financial industry has been experimenting with virtual banking, as well as – in more general terms – with automation, predictive analytics, new delivery platforms, blockchain and distributed ledger technology, to mention just a few innovations in the field under scrutiny. Promising areas that still call for keen attention involve mobile payments, digital currencies, peer-to-peer lending and marketplace lending, and underlying issues need to be more carefully addressed, that deal with the "the use of new technologies to solve regulatory and compliance requirements more effectively and efficiently" [7], p. 2 (or regtech) and with the recourse to innovative technology by supervisory agencies to support their activity (or suptech) [8].

As far as key players, most fintech innovations have been generated – and further fintech innovative solutions can be expected to emerge – outside the conventional financial and banking system. New applications developed by bright minds have been largely driven by non-bank entities, including venture capital-backed fintech start-ups and non-traditional providers of financial services that often focus their operations narrowly on a subset of the financial sphere of the economy: success stories abound in the area of digital payments, as fintech start-up companies have provided quick and convenient payment options, that encompass the adoption of e-wallets; they have been increasingly used for paying online purchases and for making person-to-person payments, thanks to intrinsic simplicity, not to mention strategies that have been designed to attract users by providing reward points, cash back and other exciting offers.

Very smart solutions that have been recently developed include those based on biometric sensors: their installation entails another step in the ATM innovation, as they are set to replace the need for carrying plastic cards and for remembering the

pin to get access to a bank account through the facility at issue; biometric ATMs use palm or fingerprint sensors, eye recognition and integrated mobile applications to identify the account holder, thus eliminating mistakes in recognizing authorized customers and granting them access even if their card has been lost. Challenges ahead encompass voice biometrics, that has already unveiled its multifaceted advantages for financial institutions and their counterparts on a significant scale, and behavioral biometrics, that allows banks to look at how consumers behave (for instance, on a mobile app or website) rather than using physiological characteristics, like fingerprints.

#### **4. Financial institutions and AI**

With fintech being more and more widely adopted, a major impact in the financial sector has been generated by leveraging some of the latest innovations that involve AI: financial institutions have started to resort to it in order to transform the customer experience by enabling frictionless, 24/7 customer interactions while saving on costs; certain AI use cases have been increasingly disseminated within the financial industry, especially by banks, that are estimated to be offered the greater cost saving opportunities by front- and middle-office applications. A case in point has to do with the recourse to chatbots that have been used for a while, not only in the banking industry, and that allow to conduct an online chat conversation via text or text-to-speech, as a cost-effective alternative to direct contact with a live human agent.

Unquestionably, AI has the potential to upgrade bank management by making operations and processes faster and safer, with their efficiency set to increase as a result, which leads to consider the "intelligent" bank as a reliable candidate to become the rule – rather than remaining the exception – sooner than expected. Further progress can be foreseen in the financial industry, as AI applications are not just limited to retail banking: not only they are set to positively impact every office at banks, but these applications can support all financial services providers to completely redefine how they work, how they deliver innovative services and how they transform customer experiences; to stress this point, even though consideration tends to be focused on front-office operations, the back- and middle- offices of investment banks and other financial institutions can also benefit from AI, as shown by the full range of channels to get usefully involved in this innovative wave, encompassing front-office (conversational banking), middle-office (anti-fraud) and back-office (underwriting).

While the number of financial institutions that avail themselves of AI technology is on the rise, the ones that will achieve successful implementation are those that can develop comprehensive strategies: they can help to sense, comprehend, act and learn, therefore envisaging a system that can perceive the world around it, analyze and understand the information it receives, take actions based on that understanding and improve its own performance by learning from what happened; these strategies can help to drive growth in banking and financial services, in sight of a more sustainable and inclusive financial system, which our global village needs and deserves, now more than even, due to the troublesome and persisting effects of the Covid-19 health emergency. It is noticeable that several trends in digital engagement have accelerated during this pandemic and the gloomy picture to be confronted with should push financial institutions to take advantage of AI technology as "the foundation for new value propositions and distinctive customer experiences", to compete successfully and thrive [9].
