Asking the right questions; AI-first banking; open banking and frictionless banking; Blockchain regulation done right – FinTech Summary 83

FinTech - asking the right questions

Ever increasing quantity of data provides us with more and more options to drive new insights. Companies are jumping on the big data bandwagon and, rightly so, trying to find new ways to improve their services and offerings. However, at a time when information is so abundant that we can get the answer to any question, the real responsibility becomes asking the right question.

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Banking must move from mobile-first to AI-first
By Jim Marous

Technology continues to impact the banking industry, as more and more transactions move from physical to digital channels. The application of big data insights and advanced analytics (machine learning) has changed the internal operations, external experiences and competitive battlefield in financial services. With so much change, banks and credit unions are rethinking their business models for the future. While there are many important technological trends impacting the banking industry, none may be more important than artificial intelligence (AI) and the ability to use data, advanced analytics and digital technology to deliver a better customer experience. The number one trend around artificial intelligence is underscored by the fact that bankers believe artificial intelligence (AI) will ‘revolutionize the way banks gather information and interact with customers.’ This is in line with the findings from other industries, where the application of big data and machine learning is expected to provide a better understanding of customer beliefs and intentions, enabling enhanced customer experiences and better competitive positioning.


Open banking – is data the new currency?
By Alessandro Hatami

Banks across the globe are anxiously looking at the slow but seemingly inexorable progress of banking APIs. Regulation and market demands will require banks and other financial services firms to make it easy for another firm to gain access to their customers’ data, and to engage with their platforms to transact. Most realise that the world of financial services is going to be shaken to its foundations by their arrival. Banking APIs will usher a completely new era for banking. Financial services firms will have to accept a reality where their most valuable asset – their customers’ data – is now controlled by customers themselves. This may not be the end for the big banks and financial institutions, but it’s definitely a very different world from what they’re used to.


Frictionless finance with fintech
By Chris Skinner

Larry Summers, former director of the National Economic Council for President Barack Obama, writes a regular column in The Financial Times. His latest piece is his take on fintech, which has the main headline that fintech is taking away frictions in finance. FinTech to banking is like Skype to telecoms – drastically reducing margins; or like Netflix to Blockbuster – yes, some banks will go bust. 10 years from now, he predicts that one or two firms will have valuations of $250bn, the value of America’s biggest bank JP Morgan Chase, and maybe hadn’t noticed that Ant Financial is heading that way already. A further prediction is that the American internet giants won’t get into banking: I am “sceptical of the idea that one of the big tech players like Apple, Google, Facebook and Amazon would also become a big player in financial services (due to) the traditional American aversion to combinations of banking and commerce and also that I thought privacy rules would preclude their using their massive data troves to drive lending activity”. This illustrates the difference between the Chinese internet giants – Baidu, Alibaba (Ant) and Tencent (WeChat) [BAT] – and the American ones: Google, Apple, Facebook and Amazon [GAFA]. BATs are integrated versions of a Facebook, Amazon and PayPal in that they offer social, commercial and financial all-in-one apps.


Blockchain regulation: is Europe getting it right?
By Noelle Acheson

Despite increased investment, the banking industry in the U.S. continues to lag other regions of the world in the development of meaningful digital innovation. This impacts customer experience, cost structures, as well as revenue opportunities. Historically, the banking industry in the U.S. has been slow to innovate compared to other industries. When asked why this may be, most industry studies found legacy back office infrastructures, the lack of leadership commitment (culture), regulations and compliance, organizational silos and the lack of budget to be inhibitors. Despite these limitations, the U.S. banking industry has tried to increase their focus on innovation through upper management commitment and support of innovation initiatives, development of innovation labs, increases in dedicated financing, and even an openness to invest in, or partner with, fintech firms. Some may question if the increased level of attention has had any measurable impact. 

Finance 2.0: How We Will Build The Future of Finance – Part 2

future of finance

In part 1 we have discussed what underlying shift in mentality needs to happen for Finance 2.0 to really kick-off. To an extent a lot of these changes are already happening. Entrepreneurs starting new companies are adopting finance 2.0 mentality:

Risk Assessment will change

We are starting to look beyond traditional historic credit history to guide the future. Traditional credit scoring looks to the past and present as a guide to the future. But what would it be like if many data points, from psychometric testing to posts on Facebook or LinkedIn, could be used to build up a more accurate portrait of creditworthiness? What if instead of analysing past behaviour we could create an accurate persona of the customer that has predictable patterns. Hamburg-based start-up, Kreditech does just that.

risk assessment - fintech


Settlement and transaction time decline

Carrying out a payment is inefficient, it takes time and costs money. A typical international payment with ‘mainstream’ currencies takes anywhere between 2 and 5 days. It also costs a lot. Local payments are cheaper, and quicker. Some countries, like the UK already have instant payment systems in place, however this is more of an exception than the norm. Blockchain technology enables us to minimise transaction costs to bare minimum and makes settlement times near instantaneous, locally or internationally, creating a sound infrastructure for a layer of micro-transactions that were not viable before. This would change the way we pay for things, or even who pays for things. In Finance 2.0 people will only set up the logic for when the payment should occur (we run out of milk -> order new bottle) for the vast IoT network. Objects will do the micro payments, fridge in this case. Another immediate area that will change is the way we remunerate creators of their content. A network of microtransactions will enable us for pay for content as we consume it – pay for every page of the book you read or for every minute of the movie that you watch rather than the whole book or movie. A lot of business model will turn upside down as a result.

network - fintech


Data sharing and customer stickiness 

Banks currenly enjoy very high customer stickiness, well above a decade. Until very recently, it was a pain to move a bank but it is no more. In the UK the banks will transfer all you schedule payments for you and reroute all the payment to your old bank account to the new bank account. However, this is only half of the job. What we lose is all the data we have generated with the banks over the years. With upcoming PSD2 regulation, this will also change. Customer will be in charge of his data, he will be the gatekeeper and give the keys to who and when he considers fit. This will change the balance of power significantly. Rather than using 1 provider (bank) for most of your needs customer will be able to have many providers and use them as specialist for their one best function. Data generated by all these providers will complement each other. The layer of aggregation will likely to appear, that will simply plug all the APIs into one and provide great user interface.  

data sharing - fintech


Banks will turn into platforms

A bank won’t be a closed garden but rather a bustling bazaar. A placemaker for creators and innovators to meet their clients – a platform. AirBnb is the biggest hotel chain but they don’t own a single hotel, Uber is the biggest Taxi company that doesn’t own a single taxi. Can bank be the biggest financial institution without any financial products? Can banks simply become the gatekeepers of the bazaar, ensuring product quality, security and taking money for opening the gates to new vendors? Pascal Bouvier and David Brear have discussed the pros and cons of such platforms and Chris Skinner has laid out the steps that these banks need to take. I won’t summarise this better than they already have so do read their articles.

fintech bazaar


Change in regulatory mindset and approach

Regulators are perceived slow, inefficient and reactive. This would be best visualised by 1000’s of pages long volumes of regulatory frameworks such as Dodd-Frank Act. However, the role of the regulator has changed significantly. The regulator is under a constant spotlight to make sure that financial crisis of 2007 does not repeat itself. Equally, it is pressured to foster innovation, which in turn fosters competition. Many small players competing with each other reduces system risk and is beneficial to the customer in terms of price and quality. The regulator is encouraged to become much more proactive to prevent the misconduct from happening in the first place. For this, the regulator needs to have a hand on the pulse of the market, lots of data and access to the innovators of tomorrow. Sandbox by the Financial Conduct Authority (FCA) is a great example of embracing forward-looking innovation.

regulators fintech


Robots will transform finance business model

The corporate structure and headcounts will change drastically in finance over the coming years. Robots can already do many jobs better than humans can. Robo-advisors are better, and cheaper, at allocating assets. They can’t, and likely never will be, to provide behavioural coaching private banker can but this is only relevant for the ultra wealthy. Other parts such as compliance, accounting, modelling and other will be slowly transformed, or even outright replaced, by machines too. Machines don’t do mistakes. In the next term years banks will change from large employment hubs to lean operations. Many functions will be automated, many parts of the business will be lost to the marketplace. Banks will maintain their core functions and employees associated with that.


The dawn of new finance is upon us. As a crucial element of our society this changes will have a ripple effect across many functions and industries. A more efficient financial system will make our overall lives more efficient, more transparent and more fair.

Finance 2.0: How We Will Build The Future of Finance – Part 1

future of finance

This is the part 1 of the 2 part series, for part 2 click here.

In 2004 we witnessed the shift towards the ‘Web 2.0’. Mentality and assumptions of web developers have shifted from ‘everyone has very limited internet connectivity and limited browsers’ to ‘lots of people have broadband and modern browsers now’. This meant to techniques could be applied to start creating stuff we never had before. This lead to the webapp era. 2016 was arguably the start of ‘Mobile 2.0’ era. Our mindset is shifting from ‘people don’t have good mobile internet and limited smartphone penetration’ to ‘there are a billion people with high-end smartphones now constantly connected to the internet’.

Banking system is one of the underlying core systems of our society and it has always followed the evolution in our lifestyle, even though lagging behind. Web 2.0 brought limited banking capabilities online. Mobile era brought it to our smartphones, often leaving much to be desired but the capability was there. A perfect storm of increased smartphone penetration, big data, blockchain and fintech have put is on the doorstep of Finance 2.0, do we dare to enter?

finance 2.0 doorstep

The year 2017 is the year where our financial system will start to change noticeably for a mainstream user, not just the early adopters that played with P2P loans, blockchain or digital banking. A new set of startups are maturing and reaching the critical mass where they will start reaching everyday users. Here are the assumptions that the dawn of Finance 2.0 brings:

  • Past financial performance (credit check) is not the best metric to reflect likelihood of future repayment; new models are developed
  • Banks are open to collaborate and have changed from walled gardens to bustling bazaars
  • Technology can do a lot of the jobs better, quicker and more reliably than humans can
  • Regulator is not a stop break but an enabler who truly wants to encourage innovation, transparency and competition
  • Customer are willing to share their personal data, and it is easy to do and there are vast amounts of data to create personalised models
  • Settlement times and transaction become so negligent that we can power a network of instant microtransactions


Finance system is one of the underlying foundation of our civilisation, without finance trade would not be possible and without trade we couldn’t specialise in any of our activities – we would still have to produce all our food, clothes, shelter and, even our iphones, ourselves 🙂

In part 2 I discuss each of the assumptions in more detail and how will they change our day to day life.