With the advent of PSD2 in Europe, financial services companies have embarked on their Open Banking initiatives, which are set for full swing in 2018. Banks have been writing and exposing APIs for third parties to pull data and perform actions on the banks platforms through these APIs in order to provide more customer facing service innovation. For many banks this is the final step for complying with the PSD2 regulation, but the reality is that it’s only the very first step in the total transformation to an open financial services ecosystem.
A great disruption is underway in financial services, yet it’s still open who will come out on top in each distinct category of offerings. Will it be the institutions modernizing their fundamental approach to financial services or will it be digital native, technology firms that enter the sector to give clients the service they want?
Paris Hilton supports an ICO the same week as the People’s Republic of China determines that Initial Coin Offerings or ICOs constitute ‘illegal fundraising.’ Back in the United States, contact with the SEC forces Protostarr to refund their ICO investors. Bitcoin is dubbed ‘the best example of a bubble’ by no other than bubble researcher Robert Shiller. And if Bitcoin isn’t sufficient, TokenMarket is tracking over 335 different types of alternative cryptocurrencies. This is either the best of times or the worst of times for cryptocurrencies. We are on a brave new path or the world is ending, depending on who you ask (cue Jamie Dimon). So should you buy a water purifier and run for the hills, or stay put?
With the Payment Services Directive becoming a reality at the start of 2018, can we expect to see a panacea of connected services at users’ fingertips, offering best in class quotes for financial products based on actual information? Will we see firms position themselves as leaders beyond their previous borders and existence, in the digital realm with limitless data-driven possibilities? Or will we maybe see cross the board resistance and siloed architecture that prevents valuable use?
Artificial intelligence (AI) and machine learning (ML) are becoming an infallible part of the development of present-day technology. Yet the public discussion often centers around a notion of a ‘human-like’ robot and my concern is that the impact gets downplayed. How then should we look at the future with AI? One way which may be helpful is examining the aspect of morality and consciousness, or rather, the lack of both in decision-making in a new paradigm.
In between pauses at the WWDC, Apple announced it will be expanding their financial services strategy by going beyond Apple Pay and issuing virtual payment cards to all iOS users. There are 1bn iOS users around the world. At the same time, this same week Amazon made headlines by having lent over $1bn to third party sellers on the Amazon marketplace. Amazon has also rolled out a highly aggressive credit card offer with Chase, which offers 5 per cent cash back for its Prime customers. Neither company is a traditional financial services company. So what is going on?
Private transactions, both private equity and debt, have been inefficient and littered with information asymmetry due to the way the transactions have been made. The emergence of public distribution of information on private transactions seeks to change that and the quickly arriving secondary markets for private transactions can bring liquidity and efficiency to typically cumbersome asset classes.
Financial inclusion is an often encountered term in financial services. In fact it may be the most referenced societal benefit that finance firms aspire to better, to the point the term itself may have experienced inflation. Yet financial inclusion has historically had a narrow view of financial inclusion on solely the underserved, today with increasing data it’s much broader, including also the misunderstood.
There’s a lot of excitement about blockchain and the opportunities it offers the financial services ecosystem, but a lot of work is still needed on bridging the learning curve around actual applications and implications. The very fabric of blockchain, its decentralization, is what makes it both interesting and at the same time, difficult to fit into current structures.
It’s amazing to think we’re at the end of 2016, but so we are and it’s time to look ahead to all the materialization we may expect from the digitalization of financial services in 2017.