Propositions with Purpose
Could FinTech be an agent of social and environmental change? SARAH LOWTHER investigates.
Two billion people around the world do not have a bank account, with 1.5 million of those in the United Kingdom. What causes these people to remain unbanked is down to a variety of factors, such as eligibility, accessibility, desire to own, and the ability to manage an account.
FinTech – technologies and innovations including smartphones, blockchain, artificial intelligence and machine learning – has the potential to be a social and economic equaliser, enabling the unbanked to gain access to the benefits of having an account of their own.
WITH GREAT POWER…
With technical progress, transformation and associated opportunities comes responsibility – a responsibility to ensure that FinTech does not inadvertently create a divide between the haves and the have-nots; and that it will empower the economically disadvantaged and assist sustainable development. Central to this is the question that banks, government agencies, financial agents of change and software developers are considering: what is the purpose of FinTech and who should it serve?
Anna Laycock is Executive Director at the Finance Innovation Lab, an organisation dedicated to creating a financial system with a social and environmental purpose. “We see many FinTech developments as ‘status quo innovation’,” she says. “They add a better user experience or a more efficient back-end, but they don’t fundamentally change the way finance works for individuals or communities.”
Laycock’s ‘status quo’ is based on an analysis of what she sees as the maintenance and beautifying of existing business models and power relations in traditional retail banking. More inclusive innovation is required. This comes just two years after the Financial Conduct Authority used three metaphors to describe the difficulties consumers had in accessing financial services.
Physical and digital barriers were described as ‘The Void’; complex bureaucratic procedures were ‘The Maze’; and ‘The Fog’ referred to a lack of transparent and simple information, hampering understanding.
A CALL FOR DATA CLARITY
The implementation of the General Data Protection Regulation (GDPR) in May spawned FinTech cloud-based solutions to assist companies understand the intricacies of what the regulation was demanding of them.
The challenge remaining for banks and other B2C organisations is how to explain to the customer how their personal data is used. There’s only one way at present, and that’s the text-heavy, long-handed way. Paul Clark, Chief Technology Officer at Tandem Bank, points to the Consumer Credit Act 1974 which regulates credit contracts and largely dictates what a bank tells its customers. “It’s a beast of a document and in practice few people will read and understand it in full,” he says.
The digital challenger bank, which operated under the working title of ‘The Good Bank’ while it was being set up, and which has a base of more than 10,000 cofounders, is committed to clarity.
“Customers’ data protection rights are set out in Tandem’s privacy policy in language that people can understand; it explains what data is collected, how it is used and how a customer can correct it or have it deleted. “When we request information as part of customer registration, we do our best to give the context for why we want this information and what we’ll use it for,” emphasises Clark. “This way, people know what they’re signing up for and how they stand to benefit.”
THE SMALL PRINT
There’s an expectation that the customer reads everything in full – but do they? Who really reads the small print? Anna Laycock remains concerned about ‘weak consent’, where the user doesn’t understand how their data is used, shared and stored. “We know people don’t read terms and conditions,” she says. “The problem is now compounded by the lack of understanding of data-use and business models. The website Doteveryone.org.uk, for instance, has found that 70% of people don’t realise a free app will be using and/or monetising their data.”
Laycock references the FCA’s Duty of Care discussion paper released in July. It’s exploring whether a specific duty of care requirement for firms in financial services could enhance good conduct and culture and provide additional protections for consumers. “Many compliance departments seem to assume that more information equals more understanding, or that boilerplate warnings will be read and understood. We’d like to see new tech used to ensure that people are presented with clear, concise, relevant information about their contractual obligations at the point where it will have most meaning for them.
“BANKS’ FINTECH FOCUS IS PREDOMINANTLY ON CUSTOMER CONVENIENCE, BUT THIS IS NOT WHERE THE TRUE TREASURES OF FINTECH AND GREEN FINTECH ARE TO BE FOUND.”
Can banks and FinTechs work together and with the regulators to test and refine this?” Clark highlights one of Tandem’s relevant FinTech solutions: “We can use a customer’s data to see if they’re going to break even at the end of the month; if they’re not, we can proactively suggest ways for them to make savings, be that switching to a cheaper utility provider or cancelling a streaming subscription that has increased in price.”
Tandem’s app aggregates every bank account owned by a customer into one place. Insight gained from that data then assists in the creation of financial products and features aimed at helping customers manage their money better.
DIGITAL EXCLUSION?
Laycock returns the conversation to the socially disadvantaged. “Much of the FinTech sector is focused on the wealthy or on millennials, as a more attractive target audience in terms of profit and scaling.”
She wonders whether enough products are being designed for lower-income customers who don’t have smartphones or who have to rely on public Wi-Fi. “Will this create a new form of financial exclusion where people can’t access services that have been designed on the assumption we all have the latest smartphones and always-on 4G?”
The flagging of public Wi-Fi access is a critical one. Consumers using less sophisticated handsets could be vulnerable to identity theft and fraud. Public Wi-Fi can expose the user to unencrypted networks.
If the consumer’s information is unprotected, criminals eavesdropping on Wi-Fi signals can access everything the user is doing online.
MORE INTERACTION
Floris Kleemans, the former Head of Strategy at ABN AMRO and the founder of the FOCAFET Foundation, agrees with Laycock’s assertion that FinTech isn’t transformative enough at the back end, but he also offers another viewpoint: “Banks’ FinTech focus is predominantly on customer convenience at the front end. This is nice but it’s not where the true treasures of FinTech and green FinTech are to be found. With such an approach, banks remain legacy-constrained, IT spaghetti-bound, costly and slow-moving operators.”
Kleemans understands and sympathises with banks and what he describes as the focus on three-to-six-month profit targets and 18-month timelines to introduce change. He argues that for the creation of a ‘oneness’, banks must look at design and architecture that allows information to communicate directly with other information unimpeded. “With the right, ‘rigidly agnostic approach’, for instance, and the use of ecosystem-neutral and open identifiers such as ‘virtual addresses’, FinTech can remove IT spaghetti and legacy. It will make banks agile, fast and scalable again in functional interoperability. With that renewed agility, speed and scalability, a lot more interaction and sustainable value can be created.”
SHARING THE VALUE
The concept of ‘oneness’ interests Laycock: “How can we share in the value of our data rather than give it away to companies who will use it to generate value for themselves, but not necessarily share this value with the public?” she asks.
Kleemans is hopeful he has found a solution and one that’s not too dissimilar from the worldwide web’s research-sharing purpose when it was created almost 30 years ago. Today, FOCAFET is creating a free-to-use internet protocol that allows information to interact directly with other information on an open source data, open intellectual capital basis. He describes it as a new ‘internet of entities’ or ‘virtual internet’, in which everyone and everything can interact with the use of virtual addresses. In working proofs of concept, ‘everyone and everything’ can concurrently interact with each other in over 80 languages.
FINTECH FOR SUSTAINABILITY
In a FinTech innovation recognised as capable of supporting sustainable development, FOCAFET is working with several international companies and banks on a virtual barcode that provides a product-centred shared data solution with customisable information access and controls in the supply chain. Banks can collateralise products through the virtual barcode and provide finance to low-income producers that currently do not have access to finance.
It is a collaborative change in approach rooted in a commitment to social and economic good. Kleemans concludes: “Beyond technology, FinTech is also about culture and principles.
I would consider FinTech to be a result of the smart combination of recent technologies and concepts into new propositions.” And it is propositions with purpose that could become FinTech’s motivation, fostering universal relevance.
“WE SEE MANY FINTECH DEVELOPMENTS AS ‘STATUS QUO INNOVATION’. THEY ADD A BETTER USER EXPERIENCE OR A MORE EFFICIENT BACK-END, BUT THEY DON’T FUNDAMENTALLY CHANGE THE WAY FINANCE WORKS FOR INDIVIDUALS OR COMMUNITIES.”