The rise of the chatbot: fintechs and investors embracing social media

25 September 2018

Chatbots have been around for more than half a century, and they’re often dismissed as little more than a source of empty small talk for bored social media users. Yet over the course of the last few years, fintechs have turned that perception on its head by transforming traditional social media chatbots into dynamic and secure payment processing tools.

Payments provider Finastra has already developed a chatbot that can be integrated into front-end banking systems to serve retail clients by reacting to more than 200 questions – while the UK’s Financial Conduct Authority is currently facilitating testing of a new Facebook Messenger chatbot via its regulatory sandbox that will be capable of using the social media platform to sell travel insurance.

Elsewhere, Mastercard is planning to pilot its own QR chatbot to facilitate social media payments in Africa, South Korea’s Kakao Bank has launched a desk bot designed to intercept 80% of customer queries and Facebook has even filed a patent to develop its own AI messenger bot capable of processing in-app transactions.

Yet while many fintechs are still tinkering with chatbots that aren’t quite ready to bring to market, investors are signalling their own growing confidence in the technology after helping the UK-based personal finance chatbot Cleo to reach $10m in a Series A funding round last week.

Launched in 2016 by veterans from Google, Amazon and the now-defunct Wonga, Cleo is an AI-powered chatbot that’s designed to integrate with a user’s bank accounts and credit card accounts via Facebook Messenger in order to securely analyse transaction data in read-only mode. This means Cleo only views customer data on encrypted transactions, which it does via SaltEdge.

Cleo then utilises its AI programming to scan an individual’s transaction history in order to calculate and spot unusual or ill-advised spending habits to provide money management insights. Users are subsequently encouraged to use Cleo to view their bank balance, check up on direct debits or their latest transactions and budget in real-time to generate automatic savings.

Since Cleo came to market, it has attracted more than 600,000 regular users in the UK, USA and Canada – generating a userbase of more than 350,000 users within its first four months of launch in the US. Around 30,000 additional users are reportedly signing up to use Cleo each week, and 94% of those users are aged 35 or under.

Bearing in mind Cleo’s rapid uptake, it’s little wonder investors have flocked to the company. Its latest round of funding was led by Balderton Capital, one of Europe’s most formidable early-stage venture capital investment firms which manages a $2.6bn portfolio of 85 companies. Yet Balderton Capital is only the most recent addition in a series of high-profile names to offer Cleo financial backing. The founders of Skype, TransferWise and LoveFilm have all invested in Cleo, too – brining the chatbot’s total investment raised to $15m since its 2016 launch.

According to the company’s founders, Cleo’s five-year vision is to generate a daily userbase of 100m.

Despite Cleo’s impressive funding round and ambitious goals, it’s worth pointing out that there is already competition brewing for market domination of the UK’s personal finance chatbot space.

A similar chatbot, Plum, launched in January 2017 with roughly the same features and goals in mind, and even offers an investment feature for users to set up and manage ISAs via Facebook Messenger. Plum users are given the choice to invest in technology shares, a range of companies selected because of their demonstrated commitment to social responsibility or growing companies in emerging markets – and can then adjust their level of investment based on their mood or personal finance goals.

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