The future of finance and banking

As a delegate at the 2018 Montreal FinTech Forum, I realized that the financial industry is at the forefront of a huge change. The final step of this envisioned future will have a significant impact on anyone in or entering the financial industry. However, the first step will affect everyone who has a bank account. The following brief summary aims to help gain insight into the future trends that have already begun transforming the industry. The first step towards this future is the implementation of open banking in Canada. Following this will be a large-scale collection of data and, finally, the application of artificial intelligence in the field of finance.

Open banking will have implications for all consumers. To keep things simple, open banking is essentially sharing customers’ banking and transaction data with third parties. This brings up the question of who owns the data: the bank or the customer. If the banks own the data, then they can do what they want with it. However, if the customer owns the data, then the banks will have to get consent from customers to use their data openly. The main concern from customers is protecting their privacy. The banks state that anonymizing the data, by removing personally identifiable information, will protect their customers sufficiently. They also have a list of strong benefits to open banking. First, the main benefit is that it will put the customer at the center of all business. By sharing customer transaction data, all companies will know the core product or service that the customer needs or wants. This will allow the creation of advertisements that are tailored to each customer based on their transaction history. This is something that is already done on many social media platforms based on online search data in the form of targeted marketing. Companies will want to differentiate themselves by offering increasing value to the customer. Second, innovation is easier with a lot of data, and collection of data is essential for creating artificial intelligence that will better the lives of consumers. To get to this final step, we must first collect and compile massive amounts of data that will be available through an open system.

Companies that collect data, also known as aggregators, have been collecting and compiling data for many years, but with the creation of the internet the amount of data and the ease of collection has increased exponentially. Aggregators have been selling the data they have collected and compiled for decades, and they will continue to do so after the implementation of open banking. It’s important to note that with the implementation of open banking, there will be new types of data for aggregators to collect. This brings about additional concerns over privacy and security of customers’ banking information. There is no doubt that legislation will be proposed concerning open banking to help ensure privacy and security. For banks, the process of giving data to aggregators is currently costly and not reciprocal; this means that the banks will not directly get anything in return. The banks will, however, benefit from having access to this same data that has been collected and compiled by aggregators. The data can be used for a variety of purposes, including to identify market segments and for search engine optimization. This makes the data valuable to most companies to allow them to better serve consumers. This translates into bettering the consumer’s life with personalized advertisements.

Cryptocurrency also has its place in data collection. Cryptocurrency was created to be a decentralized and difficult-to-trace means of purchasing power. Companies were created with the goal of tracing and monitoring certain cryptocurrency transactions. For example, a company called Elliptic was created to address traceability in cryptocurrencies. They have found a way to track certain cryptocurrencies and make transactions with those currencies completely transparent. This helps to eliminate one of the main concerns of cryptocurrency, that it is widely used by bad actors (anyone using the currency for illegal or unethical purchases). Elliptic also claims that with cryptocurrency they can obtain detailed transaction data that is fully auditable and transparent. Since data is the new gold, this change to the way we can trace cryptocurrency transactions may lead to companies being more likely to embrace the use of cryptocurrency.

With all of this new banking and transaction data, we can change the face of the financial industry as we know it with the implementation of artificial intelligence (AI). This is something that most people have heard of but do not fully understand. AI, machine learning, and deep learning, can be programmed to process massive amounts of data or can learn to do it by itself. This can enable AI to make more accurate deductions than human intelligence can because it can process more data. This could potentially be problematic given biased data being processed or if the programmer programmed a bias into the AI. This means we must still think critically about the outputs that AI offers depending on the context of the data. AI will change many industries, from self-driving cars to apps that can identify skin cancer. With open banking we will see huge changes to the financial industry such as more accurate risk assessment for creditors, fast fraud detection, financial decision proposals, stock charts predictions for trading, budgeting, personal finance, and much more (Marutitech.com, 2017). This will undeniably change the demand for labour in the financial service industry. We can expect to see entry-level financial jobs such as data analysis for financial services start to disappear. AI will also bring about an unquenchable demand for data scientists. Perhaps it is time to start thinking about having a secondary specialization in data if you are pursuing an education in finance, such as the minor in Data Intelligence offered at Concordia.

In the grand scheme of things, open banking will bring about many changes to the industry that should have an overall positive impact on the lives of consumers. There is no doubt that it will bring about innovation and advancements in the financial industry when we reach the final step of this envisioned future of finance. The first step is underway and must be addressed now to keep progressing. The future is now, and so is the time for everyone to educate themselves on how they will be impacted by these trends.

References

5 Ways AI is Transforming the Finance Industry. (2017, September 26). Retrieved November 05, 2018, from https://www.marutitech.com/ways-ai-transforming-finance/

Montreal FinTech Forum, Palais des congrès de Montréal, October 30 & 31, 2018.