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Democratizing Financial Innovation



The benefits of financial technology go unquestioned today, sustained by the rise of big data, machine learning and artificial intelligence (AI). The improved, tailored services offered to customers leave fintech service providers with a host of challenges proportional to the opportunities.
by: Andrei Costica and Baptiste Aubry (Allen & Overy)
photo: Anna Katina
Wider reaching client services

The impact of financial technology is probably most visible in payment and banking services. It brings fast, intuitive and cheap solutions to the public, enhancing the client experience and offering new opportunities in unexplored territories.

Facial recognition technologies (FRT) have been implemented by financial institutions worldwide to improve customer access to services. In Europe, CaixaBank announced that its customers can now use facial identification to withdraw money from certain cash points, while FRT has already been implemented in thousands of shops in China. FRT has massive potential to simplify Know Your Customers (KYC) processes and strengthen cybersecurity systems.

“The extensive distribution of smartphones in Africa is a gold mine for light-touch (neo)banks that have begun offering e-money or cryptocurrency services to the unbanked.”

On top of FRT, AI makes the leap from identifying the customers to understanding what they want. Through AI-driven predictive banking, financial institutions are implementing conversational interfaces (robo-advising, chatbots or voice device interfaces), gathering and analyzing data on customers’ lifestyles, values, mindsets and aspirations to build real-time predictive profiles. Customers then receive services tailored to their needs rather than merely standardized products.

Combined with FRT and AI, the digitalization of payment and banking services ultimately offers a way to reach markets currently forsaken by traditional financial institutions. The extensive distribution of smartphones in Africa is a gold mine for light-touch (neo)banks that have begun offering e-money or cryptocurrency services to the unbanked, which represent approximately 1.7 billion people. In the EU, PSD2 and PAD pursue the same objective of integrating unbanked individuals via regulated, innovative payment solutions.

Greater opportunities & greater challenges

Though not without difficulties, regulators across the globe are trying to grasp these breakthrough technologies to set an adequate regulatory framework and protect users from the risks emerging from new innovations.

“Regtechs rely on exchanges of data and also raise important data protection and confidentiality issues.”

FRT, together with modern technologies (regtech), will enable regulatory improvements without sacrificing the agility of fintech. For instance, electronic KYC solutions are being developed, enabling a smooth onboarding experience for the client while staying compliant with stringent anti-money laundering requirements.

However, even regtechs rely on exchanges of data and also raise important data protection and confidentiality issues (notably in the context of professional secrecy). The growing practice of outsourcing data storage across borders accentuates the need for regulators to understand the technology and set appropriate guarantees and safeguards to stabilize the fintech/regtech environment. Inevitably, this will be achieved by imposing licensing requirements on tech service providers, thus compelling them to improve their legal and regulatory expertise.

This could also be an opportunity for regulators and industry players to develop global best practices and industry standards, and for major financial centers (such as Luxembourg) to lead the way in financial

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Head of IT Operations (FinTech) (m/f) | Finologee
Junior Banking Lawyer (m/f) | Allen & Overy