Artificial intelligence (AI) is poised to change the way financial institutions operate. One change is that data scale will become more important than asset size in building a successful business. Another is that revenue will come not from standardization but from the highly customized products and personalized interactions that AI makes possible.
All this has significant implications for public policy. From privacy to data protection and portability, advancing technology is prompting governments to help protect and empower citizens in a machine-driven world. Consider these recent developments:
- PSD2 and GDPR. Last January saw the EU’s revised Payment Services Directive (PSD2) opening up payment services to non-bank providers. PSD2 came on the heels of the General Data Protection Regulation (GDPR), which gives EU consumers greater control over how companies use their personal data.
- The UK open banking standard. Also in January, the UK mandated that banks, upon customer request, make transaction data available to third-party providers via application programming interfaces (APIs).
- Emerging Chinese ecosystems. Aided by a friendly regulatory regime, the Hong Kong Monetary Authority recently launched a policy framework enabling the flow of data between technology companies and incumbent financial institutions.
- US regulators. Congress this year has been hearing from US technology giants as the legislature weighs new rules around privacy and data security, potentially affecting the bilateral agreements between banks and data aggregators.
- Other countries. All around the globe, regulatory authorities are looking into ways they can support some form of open banking system, in some cases touching on activity taking place in adjacent industries.
From an AI perspective, this regulatory activity has two basic themes. One is to encourage the development of technology-enabled solutions that are more relevant and responsive to consumers’ needs. The other is to build trust in the way institutions handle the consumer data powering the solutions they provide.
Amid all the regulatory concerns about AI, though, it’s worth remembering the ways these technologies can enhance societal and economic well-being. For example, AI tools can aid fraud prevention, anti-money laundering, and other risk mitigation procedures. Put another way, AI is as much a partner to government as it is a target of scrutiny. It may turn out that’s the tension we need for a safer, sounder, and more resilient financial services ecosystem.
AI has many strategic implications for the financial services industry – the effect of public policy is just one. To see what else we discovered in the course of our research with the World Economic Forum, please download a summary of our recent report.