Teana Baker-Taylor is a Member of the Advisory Council at Global Digital Finance (https://www.gdf.io/) , an industry body that drives the acceleration and adoption of digital finance technologies to support the next era of digital commerce. We asked Teana for her views on developments in the fintech market, the role of AI and automation in financial services, and the changing nature of regulation in digital commerce.
Fintech Disruptors: What would you say have been the biggest changes in the fintech landscape over the last eighteen months?
Teana Baker-Taylor: In the last eighteen months – and really over the last decade – we’ve seen an enormous change in the velocity with which new solutions are being brought to market by both fintechs and traditional FI players. Traditional FIs typically invest considerable time evaluating business cases for new solutions, but the technology is moving faster than people can keep up with it. It’s the challenge from emerging financial technology companies which is driving this faster rate of change.
Alongside this, cryptoassets and blockchain are emerging as not just disruptors in themselves, but additive to both traditional financial services and fintech. I see these technologies and cryptoassets complementing traditional financial models and creating new access to capital formation, rather than necessarily replacing them – in the short term, at least.
Fintech Disruptors: What effect have these changes had on the regulatory environment?
Teana Baker-Taylor: There’s no doubt that the rate of change has caught the establishment by surprise. The speed at which things are changing has caused governments to start asking lots of questions about certain products and services. And where such regulatory uncertainty exists, it makes investors hesitant and hinders innovation. We’re also seeing different jurisdictions taking different approaches, for instance the UK has taken a lead in crowd-funding and peer-to-peer lending. Elsewhere, we’re seeing jurisdictions setting themselves up as innovation hubs for crypto and blockchain, such as Malta, Gibraltar and Switzerland (Zug). I think we’ll see more regulation in crypto and blockchain, since the current absence of clarity is creating some real challenges for entrepreneurs in this space. There have been notable positive steps from governments toward assessing the risks and understanding the technology with a view to create balanced frameworks, for instance the UK Crypto Task Force, led by a the Bank of England, FCA and HM Treasury.
Fintech Disruptors: What role do you see for AI and automation in the future of financial services?
Teana Baker-Taylor: I think this is a really interesting area, and we’ve seen the emergence of some good AI use cases within private banking and wealth management services. Interesting use cases around fund management are also emerging, enhancing effectiveness and profitability of algorithmic trading.. That said, in areas such as robo-advisers for mass-market investing and mortgage products, there is some skepticism around privacy issues and surrendering personal information. More broadly, I do wonder whether AI isn’t becoming too intrusive in the marketing environment – there’s growing evidence that people are getting turned off by on-line “smart” advertising for financial products based on search behaviours.
Fintech Disruptors: In your view, how is the advent of so-called “open banking” influencing the development of financial services?
Teana Baker-Taylor: Open banking has been great in that it’s forced traditional FI’s to focus on their customers’ needs and expectations. One common theme over the last few years has been a cultural shift towards more client-centricity. I think the bigger FIs now understand they don’t “own the customer” so to speak, and to retain customers they need to do more to deliver customer satisfaction. Specifically, I think that PSD2 and the arrival of open APIs in the EU has led to them realise that they could face real competition from challengers in the next few years.
Fintech Disruptors: What do you see as the big changes ahead? Do you think we’ll see more non-FI companies coming in to the financial services space?
Teana Baker-Taylor: Yes, I think so. If you look at the success of WeChat and Alibaba, that’s all been down to taking a customer-focused approach and using rich data from other customer interactions to deliver a better experience and tailored financial services products. There’s a distinction emerging between the facelessness of the large Financial Institution on the one hand, and the delivery of value by new challengers on the other. This is a kind of network effect: challenger banks like Monzo and Starling can work to deliver value in one area, then extend that relationship into another area. So you might start by switching your current account or some investments to a digital provider, but then choose to consolidate your pensions there if you have a positive experience.
All of this doesn’t mean that traditional FIs are going to disappear: I think it’s more likely that we’ll see existing institutions focus more on what they are good at – trade finance, custody, mergers and acquisitions, etc, rather than trying to be all things to all clients.
MagnaCarta will launch its report, “Fintech Disruptors 2019”, in London this December. For more information about this study or how you can get involved, please go to: magnacartacomms.com/news-insights