The 5th prediction

Michael King

BI Intelligence have published a report entitled the 5 Top Fintech Predictions* by the BI Intelligence Research Team.

Their 5th prediction was that “traditional financial institutions will respond to the threat of fintech startups by partnering with them. Legacy banks face the greatest disruptive threat from nonbanks that provide similar services, according to a recent BI Intelligence study.

This then begs the question in my mind is do you look at startups that you think may start eating into your margins, alternative lenders come to mind, or do you look at the underlying fundamentals of what the consumer driven digital revolution is actually doing to your systems?

Clearly, information has become as important as money. There are lots of discussion and ideas around payments, which in its most simplistic form is an instruction to debit or credit a static account. The issue is how fast can you do it and can you do it correctly and for that the “information” has to be not only correct but also trusted.

In my view the whole discussion around PSD2 and open APIs should be around who is actually responsible for the data and thus access to it. Client data is held in all sorts of places in banks and one of my concerns is how banks will protect access to data whilst complying with the law and protecting their reputational risk if data is misused.

By going back to the fundamentals, should banks be looking at partnering with companies building infrastructural blockchains that can be easily embedded outside of database firewalls with complete access. By allowing third parties access to a private blockchain on the periphery of their main processing and recording systems, banks could increase their effectiveness in preventing fraud and strengthen trust.

By using the data on this private blockchain, banks could for example verify the identity of customers making transactions, while at the same time checking they have sufficient funds for the transaction. This approach could reduce merchant vulnerability to fraud but would also benefit customers who will no longer need to give access to their personal information to third parties.




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