Stanford: Fintech maintains position as third largest AI investment focus area

By 2022, global private investment in artificial intelligence (AI) companies will reach $91.9 billion, an 18-fold increase compared to 2013. Of that sum, fintech companies secured the third largest amount, raising $5.5 billion, a new report released by the Stanford Institute for Human-Centered Artificial Intelligence (HAI) says.

The Artificial Intelligence Index Report 2023, released on April 3, sheds light on the impact and progress of AI over the past year, looking at trends in research and development (R&D), technical performance, ethics, economics, politics, public opinion, and education.

According to this year’s report, fintech maintained its position as the third largest focus area for AI investment, securing 6% of global AI funding in 2022. Fintech followed medical and healthcare, this year’s top AI focus area with $6.1 billion raised , and data administration, processing and cloud with total private investments of USD 5.9 billion.

Almost all AI focus areas recorded a decline in private investment last year, reflecting the decline in global venture capital (VC). Investments in both AI fintech and AI for medical and healthcare fell by 46% in 2022 each. Investments in AI data management, processing and cloud, meanwhile, fell 51.6%.

Private investment in AI by focus area, 2021 versus 2022, Source: The Artificial Intelligence Index Report 2023, Stanford Institute for Human-Centered Artificial Intelligence

Globally, AI private investment fell 26.7% in 2022, while the broader corporate investment landscape, which also includes AI mergers and acquisitions (M&A), minority stakes and public offerings, retreated 31.3%.

Global enterprise investment in AI by investment activity, 2013-2022, Source: The Artificial Intelligence Index Report 2023, Stanford Institute for Human-Centered Artificial Intelligence

Despite the slowdown, AI fintech recorded some notable deals in 2022. These included Avast’s $8 billion purchase of NortonLifeLock in the year’s third-largest AI M&A transaction; the $1.48 billion minority arrangement for Grupo de Inversiones Suramericana, the second largest AI deal of its kind in 2022; and the US$820 million private investment secured by Faire Wholesale, the second largest private AI investment deal in the US last year.

AI is moving to the age of distribution

In the past year, AI has reached a new level of maturity and shifted towards distribution. New large-scale AI models are released regularly and publish state-of-the-art results, the report says.

These models, which include chatbot ChatGPT, text-to-image models such as DALL-E 2 and Stable Diffusion, and text-to-video systems such as Make-A-Video, are capable of performing an increasingly wide range of tasks and demonstrates remarkable abilities in question answering, and the generation of text, images and code.

Generative AI in particular has been a hot topic in the tech sector over the past year, a trend fueled by the release of ChatGPT.

ChatGPT is a highly advanced AI language model developed by OpenAI that can generate human text responses to questions and requests. The tool, which went viral last year, is capable of articulating answers across many domains of knowledge and can handle complex questions, debug computer programs, compose music, write poetry and much more.

ChatGPT reached 100 million monthly active users months after its launch, making it the fastest growing consumer application in history.

AI adoption on the rise

According to the Standard HAI report, AI use has grown rapidly over the past half decade. By 2022, half of the organizations surveyed by McKinsey reported having adopted AI in at least one business unit or function, a significant increase from 20% in 2017.

In the financial services industry, product and/or service development was found to be the function AI capabilities were most implemented (31%), followed by service operations (24%) and strategy and corporate finance (23%).

AI adoption by industry and function, 2022, Source: The Artificial Intelligence Index Report 2023, Stanford Institute for Human-Centered Artificial Intelligence

Looking at AI capabilities, robotic process automation had the highest level of adoption in financial services (47%). Natural-language (NL) text understanding came in second with 42%, followed by virtual agents with an adoption rate of 33%.

AI capabilities embedded in at least one function or business unit, 2022, Source: The Artificial Intelligence Index Report 2023, Stanford Institute for Human-Centered Artificial Intelligence

Organizations reported that AI adoption has led to both cost reductions and revenue increases. On the cost side, the use of AI has most affected supply chain management (52%), service operations (45%), risk (43%) and strategy and corporate finance (43%), the study found.

On the revenue side, the functions that most respondents saw increased revenue from AI adoption were marketing and sales (70%), product and/or service development (70%), and strategy and business finance (65%).

Cost reduction and revenue growth from AI adoption by function, 2021, Source: The Artificial Intelligence Index Report 2023, Stanford Institute for Human-Centered Artificial Intelligence