The 5 Big Debates That Will Shape Fintech In The 2020s
(Source: forbes.com)

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(Original link: forbes.com)

It’s that time of the year when banking industry pundits turn their thoughts to the top trends of the upcoming year. I’d like to take a different tact and posit the top debates the industry will wrestle with in the coming decade. 1) Branches: Dead or alive? The branch debate is certainly not new. But it’s far from resolved, and will accelerate in the next few years. To date, the debate has centered on arguments from:
Branchophiles who point to statistics that show that some high percentage of consumers still go to branches. For example, a CNN article reported that “banks should think twice before they shut down their next bank branch: Many customers, especially younger ones, still regularly rely on physical banks to make deposits, get paper money and even pay bills.” Branchophobes (like myself) who argue that while consumers might still want the “human touch,” that touch doesn’t necessarily have to come from someone sitting in a building called a bank branch. Why can’t banks use Facetime to facilitate interactions between people? Or why can’t they improve digital processes so consumers don’t need human intervention?
Over the next few years, this debate will focus less on consumer behaviors and preferences and more on the potentially disparate economic impact of branch closings.
That argument isn’t new either, as witnessed by recent studies from the Federal Reserve ( Bank Branch Closings Weigh on Rural Communities, Fed Finds ) and the National Community Reinvestment Coalition ( Bank Branch Closures from 2008-2016: Unequal Impact in America’s Heartland ).
Make no mistake: This debate will continue to be politically-infused with anti-bankers accusing banks of intentionally taking harmful actions against segments of the population.
The NCRC report, for example, points out that “the loss of branch banking access impedes small business lending, hampering capital availability to the primary engine of US economic growth.”
This ignores two facts: 1) The capital gap was created by banks’ increased aversion to risk, not branch closings, and 2) The gap has been closed by fintech startups—who don’t have branches.
Potential implication: Digital banks (and other types of fintech providers) will be required to have a physical presence in economically disadvantaged areas, which will impede their cost advantages.
Bottom line: This decade-old debate will continue into the 2020s, but will be the first of the big debates to be decided as technology-driven approaches to banking become even more dominant—and operationally better.
2) AI: Biased and in need of regulation? Advancements in artificial intelligence (AI) promise to change banking in many ways. But accusations of bias threaten the use of AI for certain applications and raise calls for regulation of the technology.
Like the first debate, this is already happening, but in some ways, it’s a misguided debate.
The data used in AI models is no different than the data used in non-AI quantitative models and other decision-making processes. Should the use of data in management decision-making processes be disallowed, then, until all data sources are proven to be free of bias?
That’s not realistic, and neither are calls for increased regulation of AI.
Over the next decade, AI will be assimilated into existing bank (and other industry) applications and systems. In effect, it will be difficult—if not impossible—to determine what part of an application is AI and what part is isn’t.
The concerns regarding AI bias go beyond business-specific management decisions. In When Algorithms Decide Whose Voices Will Be Heard , Theo Lau worries that:
“While we may have the perceived power to express ourselves digitally, our ability to be seen is increasingly governed by algorithms—with lines of codes and logic—programmed by fallible humans.”
Bottom line: Special-interest groups will continue to cry foul over results that might not even be caused by bias in AI. The debate over how to minimize, avoid, and/or regulate it will continue through the 2020s.
3) Data: Will privacy and security concerns curtail the use of data? Picking up where the AI debate leaves off, the debate over the use of consumer data will rage on throughout the 2020s with no easy answers.
On one side of the debate are Dataphiles who argue that data can be used to personalize products, services, and advice that deliver benefits to consumers.
On the other side are Dataphobes like Karen Yeung, a University of Birmingham professor who writes, in Five Fears About Mass Predictive Personalization in an Age of Surveillance Capitalism , that:
"Personalization fosters the asymmetry of power between profilers and individuals. Because preferences and interests are not explicitly stated, personalization may not be in the interests of the customer. Predictive profiling systems intentionally seek to exploit the systematic tendency of individuals to rely on cognitive heuristics or mental short-cuts in making decisions.”
Giving consumers choices ...