Cryptocurrencies are often compared to gold. They have a number of features in common – independence from governments, limited emission, and a user consensus ascribing value to them. This is especially true in the case of bitcoin, the first cryptocurrency that still retains the status of the “default crypto”, just like gold retains the status of the most important precious metal.

However, cryptocurrencies are also vastly different from metals: they are a lot easier to trade. Below Victor Argonov, Analyst at EXANTE, explains more for Finance Monthly.

Physical gold is extremely difficult to buy, sell, and trade across national borders, and nearly impossible to use as legal tender. Gold turnover is subject to heavy taxation, and many prefer to invest in precious metal accounts instead of physical gold. Cryptocurrencies, on the other hand, are easy to buy and sell, can be freely traded across borders, and their use as legal tender is becoming increasingly more common.

These similarities and differences between cryptocurrencies and precious metals are common knowledge. However, one crucial question remains unanswered – how much they are able to function as a protective asset, retaining their value during crises.

Theoretical Considerations

Currently, one of the key arguments against the use of cryptocurrencies as protective assets is their high volatility. BTC cost $0.1 in 2010, $1,000 in late 2013, $200 in late 2014, $19,000 in late 2017, and around $7,000 today. Even just in 2019, which can hardly be called a particularly volatile year, its exchange rate still fluctuated by a factor of four over the year. Crashes are commonplace on the market, and no matter when you buy cryptocurrency, there is no guarantee that your capital is not going to halve in a month.

On the other hand, the key argument for keeping one's funds in cryptocurrency is its tendency to grow in value as the number of its users increases. Cryptocurrency emission is limited by algorithms. With BTC specifically it is actually decreasing, which minimizes inflation. Currently a few dozen million people on Earth use cryptocurrencies, and their number doubles every year. Even 2018, disastrous as the year was, saw the number of users increase from 18 to 35 million. At the same time, the potential new audience is still huge, and in tandem with guaranteed low inflation it usually stimulates growing exchange rates, regardless of the bubbles that may occur.

The key argument for keeping one's funds in cryptocurrency is its tendency to grow in value as the number of its users increases. Cryptocurrency emission is limited by algorithms. With BTC specifically it is actually decreasing, which minimizes inflation.

The increasing number of crypto users not only boosts the cryptocurrencies' exchange rates and capitalization, but gradually decreases their volatility as well. Here is a rough comparison, which nonetheless illustrates the situation. Over the four years between 2010 and 2013 the BTC exchange rate changed by four orders of magnitude, while in the next four, including the dip in 2014 and the enormous bubble in 2017, it only changed by two orders of magnitude. It is true that even the modest fluctuations in 2019 are huge compared to the traditional stock and currency markets, but this is a predictable consequence of the low market cap, which is currently at around $200B. Even when taken individually, the world's largest companies like Facebook or Saudi Aramco have market caps several times that amount, while those of the global stock and currency markets have several orders of magnitude that market cap. So the current volatility of the cryptocurrencies may simply be a sign that they are still in their infancy.

Practical Evidence

There are many known cases of cryptocurrencies serving as a protective asset, primarily during national currency crises. In 2018 the national currencies of Turkey, Argentina, and Venezuela experienced drastic devaluation. While previously citizens of these countries tried to buy dollars in similar situations, this time many people turned to cryptocurrencies. As an example, in August 2018 the number of cryptocurrency users in Turkey was double the average number for Europe.

The cryptocurrencies' protection against fiat currencies' devaluation is not limited to unstable countries with only a small share on the global market. For example, statistics show that the BTC exchange rate usually increases as the Chinese yuan's rate drops.

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However, none of these examples make cryptocurrency unique. When one country's fiat currency devalues, any other country's fiat currency may serve as a protective asset if it is more stable. What makes gold unique is that its role as a protective asset is universal. Not only does it protect its owners from national currency devaluation, but from stock market crashes as well. Gold exchange rate is not particularly stable and has its own fluctuations, but it is fairly independent of stock index fluctuations. Does cryptocurrency have the same advantage? As practice shows, no.

From 2014 to 2017 BTC's exchange rate usually changed in the same direction as the indices, and often with much greater amplitude. In the fall of 2018 it briefly looked like the situation was changing. The 2017 bubble had already deflated, and the volatility of the digital assets dropped by several orders of magnitude (as it usually happens after bubbles). When American stocks started dropping in price due to the trade war with China, BTC did not follow the market's lead and had indeed served as a protective asset.

However, it was unable to cement that role. November already saw a new cryptocurrency crash that was followed by the infamous crypto winter. Whether it was chance or an expected event, it roughly coincided with the maximum dip in the stock market. The indices recovered due to the negotiations between the US and China in the spring of 2019, and so did the cryptocurrencies.

Very Risky, But Still A Protective Asset?

Overall, the properties of gold and cryptocurrencies as protective assets are very different. If you are afraid of your national currency experiencing inflation, cryptocurrency can protect your capital, but if you are a stock investor, expect cryptos to dip during a crisis as well. The reason for this is simple: despite their advantages, cryptocurrencies are still considered a very risky asset compared to securities and gold. They are exactly the assets the investors try to get rid of as soon as possible during difficult times.

Despite their advantages, cryptocurrencies are still considered a very risky asset compared to securities and gold. They are exactly the assets the investors try to get rid of as soon as possible during difficult times.

On the other hand, in the long term cryptocurrencies are still a protective asset. If you are not afraid of long exchange rate dips and are not prone to dumping all your assets during crashes, you will probably be rewarded over the years. While cryptocurrency growth on the scale of 2010-2013 is unlikely, their exchange rates are still expected to multiply in the next few years. To date, every bubble on the crypto market resulted in a substantial growth of the exchange rates. For example, the BTC rate of $3,000-4,000 during the crypto winter of 2018-2019 was vastly higher than in any year before the 2017 bubble.

The only thing that can seriously undermine the global positive trend of the cryptocurrencies is a complete ban on them by leading countries. However, this seems unlikely. With every year, more and more influential financial communities join the cryptocurrency market, and they would not want to leave it.

The increasing popularity of cryptocurrencies will eventually slow down their upward trend, but is also likely to greatly decrease their volatility and make them more similar to traditional protective assets like gold. How close that similarity would be is, as yet, unknown.

Most sectors are having to comply with said rules and conform to industry trends, thus evolving based on the limitations regulations have imposed on them. According to Aravind Srimoolanathan, Senior Research Analyst - Aerospace, Defence & Security at Frost & Sullivan, this is particularly applicable in the biometrics sector, as it progresses in line with regulation presenting increasing opportunities for biometrics to excel in a security driven data world.

The Swedish data protection authorities (DPA) recently levied the first fine of approximately $20,000 to a high school which ran trials of facial recognition technology among a group of students to monitor their attendance. The school authorities argue that the program had the consent of the students, though that did not soften the stance of the regulator. The European data protection board citing the ‘imbalance’ between the data subject and the controller of data. Canvassing the multiple opinions floating on the web¹, Frost & Sullivan notes multiple cases of violations reported in Bulgaria and Austria post the incident in Sweden. The regulatory breaches have led to similar fines levied by the respective local data protection agencies tasked to enforce GDPR. Have the flood gates opened? Will this drown the Biometric market? Probably not, but it does raise significant concerns which need to be assessed and responded, to continue bringing the associated benefits of Biometric technologies to business and security operations.

General Data Protection Regulation (GDPR) is designed for the protection of personal data. GDPR emphasises on a person’s right to protect their personal data, irrespective of whether the data are processed within or outside the EU. Any data that could be linked to a person is subsumed into the definition of “personal data”. The regulation comprises of several articles and clauses which require compliance by all forms of agency - public, private or individual, that processes personal and sensitive data of clients, companies or other individuals. The regulations not only addresses data protection and privacy of individual citizens of European Union (EU) and European Economic Area (EEA) but also data transfer outside EU and EEA.

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In summary- data is expected to be stored, managed, and shared in an individual-centric approach rather than a collateral approach.

The challenges in managing identity in the modern world through conventional methods such as ID cards and PINs/ passwords are failing to address efficiency, accuracy and security requirements. The exponential demand for biometric-based ID management and access control systems drives the need to overcome such challenges. Biometric technologies (yes, facial recognition is one of them) curtail unauthorised physical and cyber access preventing identity fraud, enhance public safety, and drive seamless and efficient processes ensuring higher safety, convenience, and profits.

The Sweden High School case indicates the extent of GDPR is not just limited to giant corporations such as British Airways but also smaller public and private entities ‘mishandling’ data and hence violating the dictates of the GDPR regulations.

Frost & Sullivan’s collation of perspectives and insights from across the industry indicates that biometric technologies will replace conventional methods of Identity and Access Management in the years to come, not a case of if but when. Continued enforcement of data regulations would drive proper use case definition and regulatory compliance, but for this the suppliers and operators of these technologies need to create compliant secure by design solutions and processes. The first step is ensuring secure operations of the systems, and second is to design robust and verifiable processes for the associated data generated. Thirdly, defining the application of harvested data within the ethos of GDPR and related governance.

In the short-term though, with a surge in biometric technologies adoption, Frost & Sullivan anticipates we will witness an uptick in number of GDPR violation cases, due to partial and/or improper understanding of data privacy regulations. Though there is a risk that the hefty fines may slow down the pace of widespread adoption of biometric technologies, Frost & Sullivan proposed three-step strategy will drive healthy demand. Organisations that are digitally transforming their businesses for enhanced process efficiencies as part of their digital strategy would need to realign strategies to comply with general data protection regulations.

Biometric technologies are gaining infamous popularity with the data breaches, privacy concerns and unethical commercialisation of the associated data. GDPR, the Achilles heel as it may prove to be for the Biometric market, does not necessarily need to be – instead, the principles of GDPR can itself become the value proposition of the future biometric technologies.

1 http://www.enforcementtracker.com/

2 https://www.infosecurity-magazine.com/news/gdpr-spurs-700-increase-data/

Yet, this is something many businesses, SMEs in particular, currently struggle with. Below David Duan, Data Science Stream Lead & Principal Data Scientist at Fraedom, explains why AI is key to the relationship between banks and business.

Research from Fraedom found that almost a third of UK SMEs claim to have a clear picture of business spend at the end of each month but little visibility on a day-to-day basis. As banks begin to remedy these issues, we are seeing the introduction of more technologies that make use of artificial intelligence (AI) and machine learning (ML). Consequently, businesses could soon benefit from a wider range of capabilities, tools and controls with AI having a major impact on the following areas:

Control over spend

Through the use of AI, banks will be able to more accurately forecast how much credit businesses require and limits on spending will be set automatically, enabling banks to gain a better understanding of their spending. This can also be implemented within the organisation as AI will allow for credit limit redistribution based on what different employees regularly spend. This means that credit will be allocated in an optimal way, ensuring the amount of credit employees are given reflects their spend history. This ensures that those employees who often make large transactions are given the credit to do so, while those who use their company accounts for lower-cost transactions don’t receive as much, so as to ensure credit is being used to the greatest effect.

Account protections

As banks make better use of AI for fraud detection, businesses will benefit from improved security features. In these scenarios, AI will help businesses keep their accounts safe by detecting any anomalies in their accounts and fraudulent activities much quicker than previously possible. This works by the model having an understanding of what is ‘normal’ for each account or card and recognising patterns based on past transactions and behaviours. For example, if 99% of the transactions for one account happen Monday to Friday, a transaction that occurs at the weekend will be seen as abnormal and flagged as such. Of course, anomalous transactions aren’t always fraud. Often they’re just out of the ordinary, requiring some more investigation – flagging them to the business would certainly allow for this. With companies currently losing an average of 7% of their annual expenditure to fraud, these technologies will help lower incidences of fraud as shown by Visa’s use of AI reducing global fraud rates to less than 0.1%. In the future, AI could be used to detect fraud in real-time, stopping fraudulent transactions from being processed altogether.

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Expense management

In addition to providing banks with a greater degree of control and understanding of their finances, banks are also beginning to use AI to offer businesses extra tools and services. A prime example of this is expense management systems which use AI to simplify the expense process and reduce the amount of time employees and finance departments spend on such tasks. As with fraud detection, the system would establish patterns based on the employees historic spending behaviour. For example, it may pick up that once a week the sum of £5 is spent in a coffee shop which the user then applies a particular expense code to. Once this behaviour has been demonstrated enough times, it becomes a pattern. So, the user will no longer have to code the transaction themselves, the system would automatically identify the type of expense it is and code it correctly.

As the system establishes more patterns and understands what the user or business is doing, smart coding could start to be applied to a greater number of transactions. This would significantly reduce the amount of time spent manually sorting through and coding expenses as the employee then only has to check that the correct codes have been applied.

Ultimately, the use of AI and ML will help banks build up a more accurate picture of their business customers and result in the ability to automate more processes. In turn, this will provide organisations with a greater level of control over their accounts, improved visibility and a better understanding of their finances. As this is realised, businesses will begin to reap the rewards of their employees spending less time manually interrogating accounts and instead being able to focus on more value-adding tasks.

This guide will cover the basic and essential information about home insurance policies, so you know where you stand come the unexpected.

What does your home insurance cover?

Most standard home insurance policies cover structural damages, your belongings – as specified in the contract, and liabilities in case of accidents and injuries on your property.

As a homeowner, you have to make sure that you carry both structural and contents insurance, so you'll have lesser things to worry about should disasters like fire or water damage happen.

Typically, home insurance policies also include liability coverage that protects you from and helps you take care of lawsuits and medical responsibilities if someone gets hurts or injures themselves while in your home.

How much homeowner’s insurance do you need?

The amount of your home insurance coverage should depend on what you need and what you want to protect yourself against. That said, three factors usually determine your level of insurance.

1. Lender Requirements

If you're purchasing home insurance as part of your mortgage, your lender will require you to carry coverage of at least the same amount as your mortgage. The reason behind this is pretty much self-explanatory. Your lender will want assurance that if something catastrophic occurs and the property is a total loss, your home has enough insurance to cover the damage.

2. Asset Protection

There are limits to what and how much your premium will cover in case of a disaster or accident. That is why, you need to contemplate on extending it or purchasing riders if you have the money to spare.

Let's say you own plenty of valuable items like antiques, jewelry, or precious artworks. You may choose to have a higher level of contents insurance to protect those assets from loss or theft.

3. Policy Requirements

There are also instances when the insurance company asks clients to purchase specific types of coverage, as they deem necessary. Those who are living in flood-prone areas, for example, may be required to have flood insurance for them to carry a general homeowners insurance policy.

Types of Home Insurance Coverage

Homeowners insurance have four basic types, namely: property, additional living expenses, personal liability, and medical payment insurance. These four, however, are further broken down six different coverages. It is the level of coverage that you need - or want - for each of these six areas that determines your premium.

1. Property damage insurance covers damages to your home caused by fire, wind, or hail. Many policies do not include flood and land movement (earthquakes, landslides, etc.) insurance in their property damage coverage. You may want to consider purchasing separate insurance for those if you think you need them.

• Coverage A is the highest and most important of all as it involves the main structure of your home.
• Coverage B covers all “other structures” or the ones detached from the main building of your home.
• Coverage C covers personal property or the contents of your home in case of loss or theft.

2. Additional living expenses insurance or Coverage D.

• Coverage D covers expenses you may incur from being unable to live in your home due to damages that render it uninhabitable and the renovations that follow.

3. Personal liability insurance or Coverage E.

• Coverage E protects you and the members of your family against lawsuits that result from injury or property damage.

4. Medical Payment Insurance or Coverage F.

• Coverage F pays for the medical expenses of people who accidentally hurt or injure themselves on your property. Note that this coverage does not apply to you or your family.

No two homes and lifestyles are exactly the same; thus, there is no one-size-fits-all home insurance policy. If you really want your homeowners insurance policy to serve its purpose the time you need it the most, you must know what it covers and understand how it works.

When the General Data Protection Regulation came into force in May, it affected every company that does business within the European Union and the European Economic Area EEA. Its main purpose is the protection of each individual’s data, but their privacy and compliance obligations have put a significant burden on companies of all sizes and across all sectors.

Similar legislation exists in Turkey, although there are distinct differences. On one notable point, however, they are in harmony: just as not complying with GDPR requirements carries substantial penalties, so does any breach of Turkish provisions. Failure to comply can lead to administrative fines and criminal penalties. As a result, every company that does in Turkey already, or which plans to do so, needs to be aware of how these laws might affect their operations.

Partly in anticipation of GDPR, Turkish Data Protection Law (DPL) was enacted in 2016. Turkey’s supervisory authority, The Personal Data Protection Board (DPB), is still publishing assorted regulations and communiqués relating to it, as well as draft versions of secondary legislation. Under these changes, data controllers who deal with personal data are subject to multiple obligations. In addition, the legislation also applies to ordinary employees, making it significant for every company operating in Turkey.

The grounds for processing under DPL are similar to GDPR - saving that explicit consent is needed when processing sensitive and non-sensitive personal data.

So when comparing DPL with GDPR, what are the differences that impact businesses operating in Turkey? Although it stems from EU Directive 95/46/EC, DPL features several additions and revisions. It does, however, contain almost all of the same fair information practice principles, except that it does not allow for a “compatible purpose” interpretation and any further processing is prohibited. Where the subject gives consent that data may be compiled for a specific purpose, the controller can then use it for another purpose as long as further consent is obtained, or if further processing is needed for legitimate interests.

The grounds for processing under DPL are similar to GDPR - saving that explicit consent is needed when processing sensitive and non-sensitive personal data. Inevitably, this is much more time-consuming. Such a burdensome obligation would initially make it seem that DPL provides a higher level of data protection compared to GDPR, but DPL’s definition of explicit consent also has to be compared to GDPR’s regular consent. ‘Freely given, specific and informed consent ‘ is common to both, while GDPR further requires ‘unambiguous indication of the data subject's wishes by which he or she, by a statement or by a clear affirmative action, signifies agreement to the processing of personal data relating to him or her’.

While DPL consent might appear to be less onerous than GDPR, no DPB enforcement action has yet occurred: interpretation of explicit consent therefore remains uncertain. Under DPL, the processing grounds for sensitive personal data are notably more limited than under GDPR – with the exception of explicit consent, the majority of sensitive personal data can be processed, but only if it is currently permitted under Turkish law. The sole exception is data relating to public health matters.

Controllers have to maintain internal records under GDPR, whereas DPL does not make any general requirement to register with the data protection authorities.

Equally burdensome under DPL is the cross-border transfer of personal data to a third country. As determined by the DPB, the country of destination must have sufficient protection – either that, or parties must commit to provide it. DPL also states that: “In cases where interests of Turkey or the data subject will be seriously harmed, personal data shall only be transferred abroad upon the approval of the Board by obtaining the opinion of relevant public institutions and organisations”. Under this provision, data controllers must decide whether a transfer could cause serious harm, and if it does, they need to obtain DPL approval. However, it is unclear how these interests might be determined.

Controllers have to maintain internal records under GDPR, whereas DPL does not make any general requirement to register with the data protection authorities. Instead it has a hybrid solution: registration and record-keeping requirements. DPL specifies a registration mechanism: data controllers have to register with a dedicated registry. Under a draft DPB regulation, before completing their registration they are required to hand over their Personal Data Processing Inventory and Personal Data Retention and Destruction Policy to the DPB.

For businesses which have to comply with DPL, GDPR, or both, it would be prudent to ensure that they are not duplicating their efforts. The best way to achieve this is by aiming for a flexible compliance model that successfully meets the obligations of the regulatory authorities across multiple jurisdictions.

Website: www.kilinclaw.com.tr/en/

Recent figures compiled by banking industry group UK Finance have revealed that over £500 million was stolen from customers of British banks in the first half of 2018, of which £145 million was due to authorised push payment (APP) scams – referring to when people are duped into sending money to a fraudster’s account. While it is often a bank’s policy to refuse refunds to customers who fall victim to these schemes, Aspect Software believes financial institutions need to demonstrate a concerted commitment to addressing this problem head-on if they are to keep their customers on-side, by focusing on nullifying the methods that criminals use.

Of the overall amount of money stolen, £358 million was lost to unauthorised fraud – which refers to transactions made without the knowledge of the victim. While this represents the majority of stolen funds, UK Finance confirmed that two-thirds of unauthorised fraud is thwarted by financial institutions, meaning that banks are having some success in this area. APP, however, represents a different challenge entirely, with regulations meaning that banks are often well within their rights to reject refunds for this type of fraud.

Cameron Thomson, VP Northern Europe & Worldwide Subscription Sales at Aspect, said: “Banks turning down compensation claims due to a customer’s own errors is understandable to an extent. However, banks – like so many other businesses – are customer-focused institutions with a responsibility for those in their care. People are being hit by increasingly sophisticated social engineering schemes and related scams, including SIM swap hacks or posing as a highly convincing text message, email or web page purporting to be from the bank.

“A certain level of common sense from customers should rightly be expected, but the growing skills of fraudsters in appearing legitimate mean that it has become unrealistic to expect every customer to distinguish a fraudulent request from a genuine one.”

While Thomson considers it crucial that banks reaffirm their efforts to teach adequate security hygiene to their customers, he also believes that it is time that financial institutions stepped up their efforts to detect techniques such as SIM swap or social engineering campaigns, before taking the necessary steps to reinforce data security measures and shore up the accounts most at risk.

He added: “Humans will always be the weak link in the security chain, so banks should be doing everything in their power to mitigate the impact of errors made by individual customers. This means that financial institutions should have fraud detection capabilities in place that are able to keep them abreast of the latest scams, as well as automatically flag and escalate instances of issues such as SIM swap or particularly successful social engineering schemes. Banks might not be compelled by regulations to refund customers, but there’s a possibility this could change very soon, and demonstrating a steadfast commitment to customer welfare will always be positively received.”

Thomson concluded: “Key to this is also a willingness by banks to work closely with regulators to work out the best possible course of action to tackle APP. The issue of compensating defrauded customers can be a sticky one, so engaging in open discussions with regulators can go a long way towards ensuring that we arrive at a positive resolution to the APP conundrum.”

(Source: Aspect Software)

This week Finance Monthly talks to Daniel Kjellén, CEO and Co-founder of Tink on the democratisation of data and what this means for both financial services businesses and consumers.

Open Banking was designed to open the retail banking market by giving everyone access to the data they needed to deliver banking services. Initially viewed as a massive boon for fintechs, and a worrying threat for banks, the mindset of the latter is shifting.

They may have been slow to start, but today the majority of retail banks are waking up to the opportunities offered by Open Banking. Banks are realising that the new battleground is the level of valuable insights and product offerings, tailored to the individual, that can win over consumers. And the key to unlocking this customer value? Data.

But CIOs and product analysts will be only too aware that data was relatively unmanageable until fairly recently. Historically, legacy systems and fragmented technology stacks have meant that getting the right data-sets in one place has been a huge struggle for banks.

What’s more, being able to use these data-sets to create data-driven insights and support data-driven sales has proved even more of a challenge. This means that, until recently, banks and consumers alike have been unable to make full use of the financial data at hand to make better, more informed decisions.

Out-engineered or the opportunity of a lifetime?

Banks might still be grappling with trying to make the best of their consumer’s financial data. But heel-dragging is not an option.

For several years, banks have been under siege from all sides. The technology that allows consumers to grant third parties access to their financial data has existed for some time, and agile fintechs have out-engineered banks in the field.

There’s no question that the advent of Open Banking has widened the data floodgates now that banks have had to open up their APIs. With data more readily accessible, third party providers in all sectors - from finance to insurance - can begin to compete with the traditional banks by introducing innovative new products and services.

What’s more, these challengers have the advantage of being more agile with their time to market; getting new software off the shelf and into people’s pockets in a fraction of the time previously taken.

Banking on the future

Banks have work to do. They’ve been caught napping by these nimble fintechs who have stolen a march.

Regulation is really only the rubber stamp on a technology-led revolution that was already well underway. Banks are now waking up to the same opportunities by partnering with agile industry players that can leverage the financial data at hand.

They need to act now to keep pace with the new market entrants who have already tapped into a world where the access to financial data is democratised, to build newer and better products for consumers. Instead of inventing the wheel once again, banks can choose to invest in the best technology that will provide them with the right data-sets that will both give them a holistic overview over their customer’s finances, and the ability to deliver data-driven sales and insights, tailored at the individual.

Why does this matter?

Open Banking has changed the way consumers can choose to manage their finances. By democratising the access to financial data, consumers are beginning to understand, and take advantage of, the benefits of sharing their financial information with third parties.

Once faithful to traditional banks, people are becoming increasingly fickle - flirting with other providers to find the best deal, service or experience on the market.

It might be intelligent personal finance technology that can predict consumer spending habits and provide advice and recommendations based on these predictive insights. Or it might be a current account platform that allows people to monitor and change their mortgage and savings in the same place, despite using different providers.

Whatever the specific solution, consumers are feeling the benefit of increased flexibility and choice, and demand for new ways to manage money is growing.

It really is win-win-win

Banks must stop viewing the democratisation of data as a zero-sum game - where their loss is a fintech’s or another bank’s gain. Instead, they should see it as an opportunity to gain an advantage by ensuring that their data analytics capabilities keep them one step ahead of their rivals.

While aggregation is just one part of the puzzle, the democratisation of data opens up a wealth of opportunities for banks. Data-driven banking will allow banks to make better commercial decisions based on their customers behaviour, while PFM (personal finance management platforms) will help banks give their customers a better experience.

There is a huge opportunity for banks to successfully monetise Open Banking through identifying where they can offer customers a better deal to meet their needs and targeting them accordingly with a personalised offer.

In this brave new world of banking, the winners will be those who decide what their unique offer to consumers will be and focus on doing it better than anyone else in the market. This might be providing the smoothest UX, the best predictive personal finance management platform, or the slickest analysis and insights tools. Or it might be offering the best products in one particular area - for example the most competitive rates on mortgages or loans

Unlocking this opportunity might require developing new customer centric platforms in house or buying technology of the shelf by partnering with fintechs to take advantage of their technology solutions.

But one thing’s for certain. Far from sounding the death knell for the banking industry, the democratisation of data will become the smart bank’s secret weapon for winning their segment.

General Data Protection Regulation is a ‘game changer’ for the financial services industry and many small firms are unlikely to be fully compliant with the new rules.

Nigel Green, the founder and chief executive of deVere, is speaking out since the implementation of GDPR, a regulation in EU law on data protection and privacy for all individuals within the European Union and the European Economic Area.

Mr Green says: “GDPR is a game changer for the financial services industry – the biggest shake-up I can remember.

“Not only is it protecting clients further by putting them back in control of their personal data, but it is going to make the industry work smarter, harder and better.”

He continues: “One of the main day-to-day ways GDPR will impact financial services is that no longer will firms be able to poach staff asking them to bring client data with them. Unfortunately, this has been a highly unethical modus operandi for many smaller financial companies for far too long. This is now no longer possible.

“Another key way that GDPR will affect the admin operations of financial services companies is the storage and management of the data. Holding data without good reason to do so will no longer be allowed.”

Mr Green goes on to add: “Despite them having ample advance notice, due to the breadth and scope of GDPR, and because it represents a fundamental shift for some companies’ business models, many smaller firms will find it extremely challenging to meet the requirements.

“It is likely that they will have found, and will continue to find, it difficult to dedicate the time and resources to getting this right and being fully compliant – especially as many are still struggling with the costs and demands of Mifid II and other complex regulatory reforms.

“As such, we can expect that many smaller firms will be hit with hefty fines for failing to meet GDPR’s stringent standards.

“Bearing this in mind, GDPR will prove to be a ‘burden’ too heavy for some smaller companies, forcing them to exit the industry.”

The deVere CEO concludes: “GDPR represents a watershed moment for the financial services sector. This is an opportunity for all firms to redouble their efforts to overhaul their business practices where necessary, ensuring the clients’ interests are always front and centre.”

(Source: deVere Group)

Just last month Facebook was found to have been providing user data to Cambridge Analytica, which would then allegedly use this data to influence users.

More recently it has been reported that music, and such apps as Spotify, could be providing the Bank of England with data on consumer moods. How far can behavioural data analysis get? Book lists, TV choices and even computer games could also be used to gauge consumer confidence. What are your thoughts on this?

This week Finance Monthly spoke to a couple of experts on this news, who gave their two cents on the matter.

Steve Wilcockson, Industry Manager, MathWorks:

Andy Haldane, Chief Economist at the Bank of England has revealed that researchers are using data from individuals’ Spotify playlist choices and data from games including World of Warcraft to gain insight into public sentiment – information that can be fed into financial models used to reveal important economic indicators such as consumer spending patterns.

Haldane has highlighted the potential of use of alternative data in helping institutions make sense of new sources of information and use it to gain useful insight, in this case into consumer sentiment that feeds economic modelling.

Approaching the anniversary of the global financial crisis reminds us of the critical importance that data and model governance must be impeccable. Alternative data, whether Taylor Swift download metrics, news sentiment derived from text analytics or geolocation-inspired datasets should therefore be used in conjunction with, rather than a replacement for, traditional economic indicators. As the Bank of England has rightly noted, it is also vital to ensure the proper anonymisation and safeguarding of public data, especially in the wake of the Facebook/Cambridge Analytic scandal.

Jacob Gascoine-Becker, Associate Director, Pragma:

Using Spotify data as a guide for consumer sentiment relies on semantic search techniques predicting user intent and meaning. Retailers frequently use these consumer insight tools to analyse social and digital conversations about their brand.  However, the method has increasingly developed a reputation for inaccuracy due to the complexities of language, context and the British love of sarcasm.

At a basic level, it taps into sentiment - words understood as positive or negative and flag a post accordingly. For example, a post that says: “Thanks a lot for delivering my package four days after you promised” is tagged as positive, despite its clearly sarcastic tone. In Pragma’s view, the degree of separation between a sentiment expressed online and one inferred through a song choice will only add to this inaccuracy.

Despite current challenges in automating analysis, retailers wanting to stay on top of perceptions of their brand - and get ahead of operational problems - already pay close attention to online narrative. As the reliability of sentiment analysis improves, it’s easy to see this becoming a widespread leading-indicator of performance, incorporated into management KPIs in the future.”

Behavioural analysis is already used for targeting online. In its most rudimentary and obvious form, shoppers browsing a product on one website will be trailed by relevant banner ads for days afterwards. There are much more subtle ways that e-commerce operators are exploiting behavioural data. Increasingly retailers optimise what consumers see on their websites based on past digital behaviour, even making assumptions about items based on your location, web browser, ISP and so on. Amazon is a perfect example.

In-game behaviour as a confidence barometer is viable, particularly as many role playing games incorporate their own virtual economies. However, the greatest value for economists will surely lie in capturing data from more ubiquitous services, such as social media platforms, offering a more broadly representative consumer cross-section.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

The Cambridge Analytica revelations have put the issue of data privacy front and centre in the minds of consumers, policy-makers and businesses. Facebook has taken up much of the media’s attention but with other recent and notable data breaches involving many millions of customer credentials, companies are being scrutinised for their data-handling practices like never before. Below Finance Monthly gains expert insight from Nick Caley, VP of Financial Services and Regulatory at ForgeRock, who delves deep into the implications of the data scandal on open banking.

In this era of heightened privacy awareness, it’s clear that there will be implications for businesses across all sectors.

This all raises significant questions for the financial sector. At a time when the banking industry is seeking to open up and encourage data sharing as part of the Open Banking initiative how should banks react to growing concerns from consumers about the risks and realities of online data sharing?

Firstly, UK banks need to prepare for their data management capabilities to be put under extra scrutiny. Banks are already well underway with their preparations for the EU General Data Protection Regulation, which comes into effect in May, and this provides them a solid foundation to work from.

However, the flurry of headlines around data protection and privacy will certainly make consumers more nervous about how and where their data is being used and, as a result, banks must be extra vigilant in order to maintain and grow customers’ trust.

For those already familiar with these issues, the reaction to the Cambridge Analytica story will not have come as a surprise. In a survey commissioned by ForgeRock before the Facebook revelations, only a third (36%) of UK consumers said they would be happy to share data in order to get a more personalised service. Yet over half (53%) said they would not be comfortable for their personal information to be shared with a third party under any circumstances at all. At the same time,

57% of UK consumers said they were worried about how much personal data they have shared online and 63% admitted that they know little or nothing about their rights regarding their own data.

Although this presents a challenge, incumbent banks do hold a considerable advantage over fintech companies and challenger banks when it comes to asking customers to share data: they are already trusted entities with a long track record of safely storing and managing customer data. As such, the demands of securing API access to high value customer data has been the focus of most Bank’s security teams for years. Investment in security expertise, well defined security operations and the latest technologies being tested ‘under fire’ and ‘at scale’ on a continuous basis lead to much greater levels of assurance. Standards such as OAuth 2, Open ID Connect and User Managed Access, which authenticate and authorize only trusted third parties, reinforce this access control model.

Our research shows that consumers do tend to trust banks and financial services companies to handle their personal data responsibly, especially when compared to more digitally native companies. ForgeRock’s survey found that banks and credit card companies were amongst the most trusted holders of personal data, with over 80% of UK consumers saying they trusted banks and credit card companies to store and use their data responsibly. In comparison, just 63% said they would trust social networks with the same data. This is very positive news for the UK banking sector particularly at a time when Open Banking is set to unleash a new wave of competition from digital-first competitors.

Why are banks considered trustworthy? Our research revealed a clear correlation between how in control of their data consumers feel, and how much they trust companies. Banks and credit card companies were ranked among the organisations that gave users most control over their data. This suggests that, particularly at a time when attention is being paid to data policies and privacy controls, banks must continue to invest in systems and processes that put control over data firmly in the hands of users.

The management of customer consent must be central to this strategy as it will only be possible to maintain and build trust if customers know they can turn data sharing on and off at their convenience. Putting consumers more in control of their data through consent and giving users transparency and control over how and under what circumstances their information can be used will allow banks to not only ensure compliance with Open Banking and GDPR, but also establish a basis on which they can build trusted relationships with their customers. They will then be well-placed to offer additional, more personalised services to their existing customers, allowing them to add valuable real time, context-based insights and offers for users, that in turn will create new revenue opportunities.

The Cambridge Analytica scandal combined with the regulatory changes that GDPR and Open Banking will bring appears to mark a turning point in how businesses approach issues around data sharing. The good news for banks is that they are already starting from a strong position as trusted holder of personal data. They now have a real opportunity to build on this and become true leaders in the next era of digital finance - by giving customers greater visibility, choice and control over their own data.

Fraud is an intricate practice. The methods of criminals creative and meticulous, and the cost to companies and consumers staggering. In the UK, the fraud economy is thriving. It’s a growth industry. And it’s showing no signs of slowing down.

Last year, the Annual Fraud Indicator report revealed the total cost of losses to the UK economy to be a colossal £190 billion. To put that huge number into context: it represents more than the government’s combined spend on health and defence.

The best way to describe the current fraud problem: pervasive. A recent survey by professional services firm PricewaterhouseCoopers (PwC) highlighted that half of UK companies had fallen victim to fraud or economic crime in the past two years. Today, businesses are finding themselves fighting a surge of sophisticated attacks.

At the centre of fraud is technology. As technology advances, new forms of fraud emerge, and more robust security solutions are developed. It’s a double-edged sword. But businesses need to be aware of trends and predictions that will allow them to offer the best possible protection to their customers.

In the financial services sector, the struggle has been striking a balance between innovation and protection. So far, it’s something that many in the sector have failed to get right. A large part of this is due to increasing market and consumer pressures. In an age of hyper-globalisation, with industries undergoing rapid digital transformation, financial institutions are facing demands to increase the pace of delivery and provide an omnichannel experience.

Due to the rise of digital commerce and the proliferation of multiple-channels and payment types, there are more data transactions taking place than ever before. While this is a big benefit to businesses, it brings with it greater risk. An omnichannel environment creates a number of challenges when it comes to fraud management. The sheer number of avenues exposed at any one time can stretch security thin. For fraudsters, this makes it ripe for exploitation.

Yet, many institutions still rely upon disparate services and products that act in isolation of one another. This piecemeal approach is a hindrance. It makes it much more difficult to recognise certain types of fraud and leads to delays in decision-making.

The truth is that most legacy security systems and anti-fraud measures simply aren’t able to keep up with modern fraud attacks. They’re too wide in scope, complex in execution and high in velocity. So, the sector is now turning to technology in a bid to strengthen its efforts to fight fraud.

Automation has been the most widely adopted, so far. It’s able to reduce the burden on finance professionals, particularly when it comes to back-office processes, such as transaction and application processing, and audit compliance. It’s also a viable solution for assessing risk and limiting exposure to fraud. As a result, institutions are introducing everything from machine-learning platforms to robotic process automation (RPA), network analysis and artificial intelligence (AI).

The common theme among automation technologies is that they use algorithms to spot suspicious activity, detect patterns and predict outcomes in large data pools. Some of the more advanced platforms are even capable of assessing the anatomy of a fraudulent transaction. These solutions can draw inferences based on the information available, raise questions where the data is incomplete and produce audit trails (vital in such a heavily regulated industry).

But while we’ve seen a greater uptake of automation technology within financial services, questions remain. The sector has a history of being risk-adverse and sceptical of new technologies. And industry experts have queried whether institutions are using technology on the same scale to prevent fraud as fraudsters are to perpetrate it.

One of the biggest concerns to businesses, especially banks, has been the up-front cost of investing in these technologies – as well as how fast they can be implemented and how well they integrate with the existing infrastructure.

It’s fair to say that it’s a large-scale change for such a traditional industry. But to hesitate to modernise anti-fraud measures – and to defer investment in technology that’s designed to combat this problem – based on whether or not it complements the current system is short-sighted. When it comes to fighting fraud, the financial services sector must analyse the impact of technology trends and invest accordingly.

The default position from those within the sector should be: Sooner or later, we will succumb to a fraud attack. And businesses need solutions that are intelligent, efficient and provide actionable insights.

Fighting fraud across the omnichannel is a difficult task. In the digital era, automation technology is vital. If the financial services sector is to lessen its exposure to fraudulent practices, and provide greater protection to its customers, then it must think strategically. At present, the sector finds itself locked in a technological arms race with fraudsters. Institutions need fast-acting, agile solutions – not quick fixes or outdated legacy security systems. It needs to invest in, and place its trust in, technology.

By increasing its reliance on automation, the sector will be better positioned to keep pace with and protect against the frenetic nature of modern fraud attacks.

The controversy surrounding Facebook and privacy issues has made news headlines. However, data brokerage and the miss-use of information is nothing new.

The subtle manipulation of the way in which users respond to certain information stimuli is currently a hot topic of conversation. This after the recent Facebook/Cambridge Analytica scandal literally broke the internet in a way that no amount of funny cat video footage has ever managed to do. Whilst it certainly is no surprise that Facebook users find this kind of intrusion on privacy and thought manipulation to be exceptionally disturbing, it is interesting to note that many people consider this to be news, when in fact, it has been going on for a very, very long time. The only difference being that it was called by a different name.

The truth is, data, or information brokers have been around and doing business for almost as long as what the internet is old. It’s a multi-billion dollar industry and its not bound to come crashing down anytime soon. In many ways, the need for this type of intellectual trade is fuelled by everything from over-supply to economic recessions.

Companies have become increasingly more desperate to get a grip on effective marketing in order to sell their products to the best possible target market. Making the most profit from the least amount of effort and capital input has become the driving force behind every conceivable marketing strategy under the sun.

Information Is Money

Data brokers collect everything from census information, motor vehicle and driving records, court reports and voter registration lists, to medical records and internet browsing histories. The idea is to gather as much information about every conceivable human profile as possible.

This information is then categorised and grouped into typical market profiles, providing an in-depth analysis on everything from religious affiliation, political affiliation, household income and occupation to investment habits and product preferences.

It doesn’t require a technological genius to see why this information is worth thousands of dollars.

No Control

Individuals are usually not able to determine exactly what is known about them by data brokers. Most data brokers hold on to the information that they have obtained for an indefinite period of time. Loosely translated: the information may very well never go away. Part of the efficacy of the gleaning process is that historical information can be compared with the latest information in order to better determine customer trends as well as the rate at which certain dynamics evolve.

A very scary thought indeed, especially considering the fact that entities like social media giant Facebook still consider allowing companies like Cambridge Analytica to continue trolling its pages from an insider’s perspective, knowing full well that this is the case.

More Than Marketing

Moving away from the manipulative marketing point of view, information in general can be a very sensitive issue. The truth is, somewhere along the line, many of us have dabbled outside the borders of a marriage or relationship or have even discussed sensitive information relating to criminal behaviour and activities with contacts via instant messaging apps.

It’s safe to say that most of us would pay considerable amounts of cash in order to protect information of this nature, especially since the leaking of this information to interested parties can have dire effects on the very quality of our lives.

When considered in this light, blackmailing activities become a real and imminent danger, no longer something found only in crime and drama series on television. There’s also the risk of users information being used in scams, and con-artists are well versed in identity theft and assuming other peoples data as their own.

Its Free For A Reason

People have long been aware about the many dangers of over-sharing information on social media. Many people have fallen prey to identity theft and have lost everything but the clothes on their backs due to this. Imagine now the dire nature of the situation now that the problem is no longer criminals trolling social media pages that have not been sufficiently hidden from the public eye, but instead, are being handed sensitive information on a silver platter, for a minimal fee.

The question begs: is Facebook more than just a social media platform? Or has it been headed towards being a modern-day surveillance tool all along?

Perhaps there is a more sinister reason behind the fact that its free, and always will be, than what meets the eye.

Sources:

https://en.wikipedia.org/wiki/Information_broker

https://hbr.org/2018/04/facebook-is-changing-how-marketers-can-target-ads-what-does-that-mean-for-data-brokers

https://www.wsj.com/articles/facebook-says-its-ending-use-of-information-from-outside-data-brokers-for-ad-targeting-1522278352

https://thenextweb.com/facebook/2018/03/29/facebook-to-block-data-brokers-from-its-ad-network/

https://www.forbes.com/sites/kalevleetaru/2018/04/05/the-data-brokers-so-powerful-even-facebook-bought-their-data-but-they-got-me-wildly-wrong/#6740e0193107