Earlier today I was thinking about the taxonomy of Fintech, about Fintech verticals where data and analytics are key drivers, and the possibilities of vertical alignment of Fintech capabilities through data. The real differentiator for Fintech from mainstream banks has been their focus on two key themes, customer experience and democratisation of capital. While most Fintech firms currently focus on standalone experiences, these experiences should soon evolve into customer journeys. I just wanted to explore how Fintech businesses could leverage data.
Blockchain is not just a Fintech innovation – thanks to Bitcoins, but a technology that could redefine computing. Stephan Tual, CCO of Ethereum, describes block chain technology as “a method by which trust can be reached on an open network”. Inspired by blockchain technology, IBM is building a decentralized internet of things that could let products order its own parts or software. The fed is running a pilot on using blockchains for trading of securities. Other possible use cases of Blockchains in banks would be distributed ledgers.
Artificial Intelligence has its applications in credit scoring. Kreditech, a German credit scoring agency, use machine learning algorithms to provide credit scoring in real time. An interesting find by their algorithm was that customers with a certain font installed on their computers are at higher risk of defaulting. Further research showed that the font was used for online gambling and poker. Some of the more sophisticated Fintech credit scoring algorithms use tens of thousands of data points versus a few hundred data points used by the high street banks while making credit decisions.
Cyber security is high on the agenda for most CIOs. With nation states running massive infrastructures with the sole goal of breaching big institutions, it is not surprising that 93% of large firms had a security breach last year. The challenge with addressing cyber security is that the pattern of attack keeps evolving. Machine learning algorithms that get better through continuous evolution in their understanding and identification of breaches are critical to this field. In a Fintech world with critical transaction data being shared, cyber security will prove critical.
While many of these fintech use cases focus on one simple gap in the customer journey, these Fintech capabilities should soon evolve into customer journeys through vertical alignment. Say, a customer buys an expensive suit after he moved jobs. The next time this customer moves jobs, the Fintech ecosystem uses data from social media, uses location services to track if the user is close to an M&S store, alerts him on sale of suits, and notifies him of POS credit (interest free/ P2P lending/ crypto currency) options to complete the transaction.
This journey needs an ecosystem that cocoons the customer within social media data, SKU level product data from vendors, location data, credit data and in some cases P2P lending options to close transactions - a seamless vertical integration of Fintech players. The question is, who will lead the build out of these ecosystems as Apple and Google did for mobile technology. My guess would be banks. Banks would lie at the heart of this ecosystem and are best placed to bring the key players together. Banking as we know today is dying, but banks aren’t!!
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