The Facebook/Cambridge Analytica data sharing scandal is a necessary wake-up call, but the issue is much bigger than Facebook, and the less visible aspects of data collection arguably present much greater risks.
I was listening to the CEO of a data company who said the firm has data from 3 billion people. They know if you have had a good day or a bad day, and if you are willing to receive a certain sales message. They are scraping data around the internet and trading with other parties. He said they can merge their data with the data of a bank or insurance company that can then utilize it for cross- and up-selling and find suitable products for each customer.
He said all this in front of a large audience a couple of weeks after the Facebook/Cambridge Analytica data scandal broke. I found myself wondering if he has seen the news and understood the mood of people. Maybe he could at least adjust his message? My lawyer friend commented that the CEO should also immediately talk to his lawyer and hit his head against a wall at least twice.
Anyway, his speech is an important reminder that we must not think it is only Facebook and Cambridge Analytica that collect and trade data and try to use them for marketing or persuasion. There are thousands of companies that are in this data business in some capacity or other. I recently tried to book a dinner table for a pub in London, and pub’s web site asked me to give my home address, email address and telephone number. This is the reality of data business, from small businesses to giants.
The Cambridge Analytica case spotlights important problems and is a good wakeup call, but it is only a small part of all things happening with data. It was not even new information, strictly speaking – most of the information on potential issues with Cambridge Analytica has been available for at least a year. The ‘new’ part was the academic project that was used to develop analytical models based on Facebook’s data at Cambridge University.
The case also illustrates that these kinds of issues are complex to evaluate and understand, and it takes time for people understand the importance of them. Collecting and monetizing data has been an important part of many business plans for years. But the mood has already changed – innovative business models and plans to utilize people’s private data are not as acceptable. Now it is becoming important to offer more control and privacy to consumers. Distributed models (including blockchain) are coming to bring new models manage data too.
The EU’s GDPR and PSD2 regulations are also a part of this shift. We could say that innovations, regulation and business models are moving towards models that can give more control to people. But this doesn’t mean things happen overnight, or there wouldn’t be any more companies trying to gather and trade data.
The issue of transparency is a tricky one. Many companies operate like big black boxes that suck up all data and trade it with other black boxes. Consumer visibility and control has been very limited. Interestingly, companies like Facebook and Google actually give more visibility to users’ data and even tools to delete data than many finance companies have done, for example, including banks, insurance companies and credit rating agencies (Equifax being a notorious example).
Traditional companies also have legacy IT systems that make it from hard to impossible to offer better transparency to customer data. For example, banks face challenges to fulfill PSD2’s open API requirements. To really improve data security as well as transparency and control, this often requires new IT solutions that are really designed to work with open APIs and tools to offer more control to users and better access to regulators.
Facebook ‘likes’ can be revealing about your preferences, political opinions and some other personal things. But it is naïve to think Facebook alone is our biggest risk and deleting your Facebook account solves all our issues. Think about all your finance data, health data, and customer data with many other companies, and how they are used, e.g. if you get health insurance, a home loan, or your credit card transaction to evaluate if you have criminal or terrorist contacts. It is also worth remembering the biggest risk is not just someone simply obtaining your data, but also modifying it and manipulate your ‘profile’.
Facebook and Cambridge Analytica have been a necessary reminder to understand the issues of data collection, and an arguably effective one considering many people have a personal relationship to Facebook. But we must realize the issue is much bigger than that, and that the less visible aspects of data collection and sharing arguably present much greater risks.
Data collection will not stop, and big data analytics will still be key to existing and emerging business models – indeed, businesses are already looking for new data models. Now is the time to do more. This means new attitudes, regulations, business models and also new IT architectures. We must no longer accept the excuses from those black-box data companies that it is complex and expensive to offer better transparency and give control to people. The solutions to accomplish that are available now – what we need is the desire and the will to change things.
Written by Jouko Ahvenainen.
The article was first published on Disruptive.Asia.
Changes take time, until they just happen. Financial services are at the cusp of a remarkable change that few bankers realize. The decentralization of technology, new regulation increasing competitiveness and ecosystem strategies - all these trends will mark the rise of a new era of financial services. This era will be fundamental to end user value and those who provide it will thrive.
Prifina with its partners have prepared a report to cover the main changes and drivers in the finance services. This means especially FinTech services, but they have impact on the whole finance industry and also on the Internet services and business models.
This report covers much more than only the most predominant trends in financial services, in it we discuss analogies of data to the oil business, how new models have to truly spawn the rise of new ecosystems. We discuss the rise of financial institutions as safeguards of your money, as opposed to hiding money under your mattress as well as their failings when instead of a mattress, you have an offline wallet in a decentralized ledger system.
Those are examples of questions that are considered in this report. No one has explicit answers, but this report gives new insight and angles to find answers. Finance services are a complex combination of finance services, instruments and technology, and it needs a lot of competence to develop new services, but it also requires to challenge the old models and thinking.
The disruption of the finance services is not driven by technology; it is driven by customer needs, and enabled by FinTech. Financial services as they stand today, cannot truly meet customer expectations of today’s and especially tomorrows global Internet and mobile era. Financial services firms are also competing in a breadth of services, where they cannot expect to be key contenders in all in the future. As startups and technology companies start to offer better services and really compete, the whole financial services industry must react.
The three key technology drivers are:
Currently the real influence of these components is in the order above, although if you were to look at the public discussion the order would seem to be the opposite. In reality cloud-based services have already started significantly changing finance services development and costs. Data analytics is already very important, whereas AI is more like a nice key word.
Key transformations to be seen:
The report covers many aspects of the disruption in finance and Internet services. It cannot cover all aspects, but it is one of the most comprehensive summary of FinTech, distributed finance models, and finance data services. The report helps everyone to identify the key drivers and changes that will impact on digital finance services and Internet services during the coming years.
Download the report here.
Prifina participates in Crypto Funding Summit in Los Angeles on January 24 and 25 and is one of its sponsors. Crypto Funding Summit is a two-day event being curated by crypto enthusiasts, with an audience of about 500 people in the Los Angeles Convention Center. The main goal is to connect crypto investors with most promising blockchain entrepreneurs. Crypto hedge funds, crypto investors, ICO projects, blockchain enthusiasts from all over the world will get connected at the Crypto Funding Summit.
Prifina Co-founder and Chairman Jouko Ahvenainen will speak at the event. In his speech "Crypto Investment Ecosystem with Data and AI" he especially talks about needs for basic finance ecosystem components in crypto investing, blockchain and funding services. Data and AI are coming to an important role in all fintech services, including crypto investing. Distributed finance models enable and need new distributed finance data solutions too. Mr Ahvenainen also participate in a panel discussion "The Rise of Crypto Funds."
Prifina develops new solutions for consumers to manage their personal finance data and use it in different services based on distributed ledger technologies. Distributed data models change fundamentally internet business, when they empower consumers to utilize their own data.
Equifax’s data leak was truly monumental; it involved compromised information of 145 million people. An interesting part of the story was the hearing with former and current executives of Equifax, Yahoo, and Verizon at the US Senate Commerce Committee. In this hearing the interim CEO of Equifax Paulino do Rego Barros indicated that it is Equifax and other companies that own this consumer data, not consumers, and consumers have no control over it. This even when it emerged that several customers have had their data collected without their directly knowledge. How long can it continue like this?
At the same hearing Marissa Mayer, the former CEO of Yahoo, admitted that she believes consumers should own their own data. But Equifax didn’t even commit to pro-actively notify people whose data might have been compromised. This all, of course, raises a question, what lawmakers can and should do. The EU brings General Data Protection Regulation (GDRP) in the next year to give more control to consumers. Or could it be the market and new technology offer solutions for this before lawmakers really do much more?
The question about ownership of certain data is not simple. One can argue that an individual should own all the data that is from her or him. Someone else can argue that if you use a bank account or credit card, the bank or credit card company in question owns the data linked to those accounts. It is a little bit like, if two parties have a phone call, is it both of them or neither of them that own the rights to the call and can for example publish it?
Probably the fundamental question isn’t who owns the data. The question is, who can use it and for which purposes. Now the situation is not in balance. Companies collect all kinds of data from individuals, sell it to other companies, combine it with other data sources, and utilize it for their own business. At the same time, consumers often cannot even have their own copies of this data, don’t know to whom their data is sold, and how it is combined with other data sources. When all the data was in paper form, the situation was probably better for consumers, they at least had their own papers at home.
Google and Facebook have been criticized for collecting data and using it for business. At the same time, those, and some other internet companies, offer tools for consumers to see their own data, export a copy and also delete them. Banks, publishers, retailers, and many others companies collect a lot of data, but typically consumers have no visibility to this data and how it is used.
Finance services and health care are two areas where companies have a lot of data from people. It is often also very sensitive information in nature. There are many companies in those industries, and people often use services from several companies. It is often valuable too for the consumer that companies can share information between them. For example, when you go to a doctor or hospital, it can help in your treatment that they know your medical history, and when you apply for a loan or use wealth management services, your finance history helps to find the right products and make decisions. But it must be consumer’s decision to share this data.
I earlier wrote that data should enable consumers to do things, not only help companies to optimize their businesses. Similarly, consumers should also have their own copy of their data and the ability to use it when it offers value for them. For example, they could go to a new hospital and insurance company with their personal medical history, or apply for a loan or make personal finance planning with their own data.
We have had two parallel, but slightly opposite, developments with the internet. While each individual can generate more activity - for example publish his or her photos, articles and have their own e-commerce site - the data is concentrating more to some central places, such as to big companies, data aggregators, and data processors (for example Equifax or online marketing platforms). Now we can see developments that we could move to more distributed models with data too and individuals could get better control over their data.
This technically is also linked to blockchain development that particularly has an impact on the finance industry. Blockchain basically distributes finance data, transactions and authority around the Internet, to individuals and their nodes. A person can have her or his own bitcoin and cryptocurrency wallet, which is not the account of a bank or finance institution. Now we will see solutions where people can have their own safebox for their finance, health care, and other data.
Lawmakers will probably try to give further rights to consumers to control their own data; in some countries sooner, some later. But new distributed ledger and data models can empower consumers sooner to take control and impact the balance. In finance and data services we can see development that the control and databases will be distributed. It is not anymore a hierarchical centralized model to manage data, but it will be a distributed model with the consumers in control.
Written by Jouko Ahvenainen, Prifina Co-founder.
First published on Telecom Asia.
Prifina will participate several FinTech events during the next two weeks. Here are the highlights of the events:
Come to meet and discuss Prifina's and its disruptive solutions to manage consumer's financial data. You can read more about disruption needs for data solutions on co-founder Jouko Ahvenainen's column.
Beyond these events Prifina team members are available to meet and discuss in Silicon Valley and Dallas, or in Skype worldwide. Please send email to Lei, Valto, or Jouko, or use our contact form.
Prifina participated in the World Funding Summit in LA and its Co-founder Jouko Ahvenainen spoke at the event about importance of a well working ecosystem and data for all new FinTech services, but especially for blockchain solutions and ICOs. Mr Ahvenainen emphasized that transparency, data and AI are fundamental components to get new finance models and instruments to work properly and create sustainable finance models. Blockchain and ICOs need also new models to manage customer data, KYC and user identity management. Prifina's solutions offer a new approach to manage user's identity and data in finance services. Customers get full control on their own data.
Photo: Jouko Ahvenainen speaks about the crucial role of data in new distributed finance ecosystems.
Everyone today knows data has a lot of value. Ten years ago, we developed a market slogan for our then data analytics company - “data is the black gold of the 21st century.” Nowadays, almost all companies share that sentiment. But it is not so simple. Oil became the black gold because it enabled freedom. The data business must achieve the same.
“We try to collect all possible data, and then we find a model to monetize it, maybe sell to advertisers,” is a common sentence in many business plans. “We help companies monetize their data,” is another typical value promise. “Let’s offer our solutions for free, if we can get the data,” is a ‘sales strategy’.
Is it so simple that you offer software, apps, and services to consumers and companies, utilize their data and create a big business? It really isn’t that simple anymore, because
Let’s think about some examples. Media companies and their analytics partners seem to be very keen to utilize all data they have from their subscribers and online visitors. Then they use this data to target their own marketing activities, but especially offer better targeting to advertisers. This is mainly outside the consumer’s control, and media companies possibly try to claim that the value the consumer gets is more relevant advertising. But I wonder how many consumers really feel they are provided value by getting more targeted boring banners or an ad video. No wonder consumers hate it when these media companies talk about monetizing their data.
Retail loyalty program analytics became popular globally particularly based on Tesco’s success story in the UK. Tesco doesn’t do so well anymore, and its competitive advantage based on loyalty program analytics has disappeared, when many others do the same and when competitors offer lower prices always to everyone; why would you follow personalized discounts?
Finance institutions and credit scoring companies collect data specifically to manage risks, for example, to decide, if a customer is allowed to get a loan. There are several new credit scoring companies, especially in the emerging market, but also in developed countries, that collect much richer data, e.g. social media, mobile and finance apps data. Typically, consumers don’t even exactly know what data is collected and how it is used. Or the consumer learns about the data when hackers steal it, like from credit rating agency Equifax. One could also say that the use of this data is very one-sided. Finance institutions use this to make decisions about customers and product offering for them, but it doesn’t really help customers to find the best deals.
All these above examples are about cases involving companies collecting customer data and wanting to utilize it make better business by optimizing some of their operations like marketing, risk management or product offerings. But the real value for those customers is often very limited. This means those companies can improve their business a few percent, but it is not disruptive or game changing. Google changed the game, it collects a lot of data, but its services have been also much more direct value to users than analytics from many other companies.
Regulators, authorities and law makers have become more interested in the use of data. One example is EU’s General Data Protection Regulation, GDPR, that gives more power to consumers to know his/her data and control the use of them. Generally, authorities and consumers see it as more acceptable to collect and use data if the consumer can see and control the data, and if consumers also get real value from it.
Many companies still see that the way to utilize data is to optimize their own operations to generate more revenue or cut costs. They don’t want to empower customers properly to utilize that data in the services that customers could get direct value. For example, finance data should not be used only by a lender to make a loan decision and adjust interest rates, but it should enable a customer to have a better user experience and find the best loan and interest rate.
Data is the black gold, but to get the full value, it cannot only be a one-sided marginal optimization. All parties must be able to utilize it and build totally fresh solutions. If oil companies had used oil only internally to offer transportation services, it wouldn’t have changed the world, created free mobility and huge businesses. Oil became the black gold when people got cars and other vehicles and got freedom to move based on their own needs. The data business must learn to be an enabler, not just a one-sided optimization tool.
By Jouko Ahvenainen
The article was first published on Telecom Asia.
"We need new solutions for collecting and using data that strikes the right balance between consumer benefits and control over their own data."
I was looking for the opening hours of a local supermarket in San Francisco from Google Maps. When I found them, Google also told me an interesting additional detail: “You visited this place 17 hours ago.”
In fact, yes, I did. It reminded me that my Android phone indeed collects my every movement and location. (You can check your history at https://www.google.com/maps/timeline, when logged into your Google account.)
Here’s another example of the same thing: an insurance technology (“insurtech”) company recently demonstrated its app to me, and it had a full history of drivers’ driving data, including each acceleration, braking and speeding, on the map. The insurance company collects all that data, which it can then use to try to influence driving habits, and adjust premium prices.
Yet another example: new credit rating agencies that not only collect your income and loan payment history, but also try to utilize all data about you available on the Internet –including location, social network and payments – to evaluate the risk in lending you money.
We are really starting to live a new type of public life, although we don’t always know it. It is not breaking news anymore that mobile, Internet services and social media collect a lot of data from us. It has been used for marketing and advertising for years. But now there are more and more ways to use it – for example, recommendations, financial services, political marketing, and personalized customer experiences.
Many parties and people are very worried about this. They see that companies can now know perhaps too much about individuals, sensitive data can leak into the wrong hands, and we cannot know how the data is used in the future if ‘bad forces’ take over. That’s why governments are developing new laws and regulation for collecting, storing, processing and utilizing data – perhaps the most well-known example right now being the EU’s General Data Protection Regulation (GDPR), which takes effect in May next year.
Naturally, we also hear many horror stories how this all can get worse in the future. When your phone, TV and digital assistant are listening to you speak, they can collect everything that is said in your home. Services could analyze all your communications, including emails, calls, and chat messages. There are totally new opportunities here to create intelligence gathering services much more effective than the East German Stasi ever were. And we know many government intelligence services already collect this data, or are trying to.
But the flip side is the potential benefits of all this data collection. Big data analytics can make many services better. Isn’t it fair and good that your driving habits have a positive impact on your motor insurance premiums (provided you’re a good driver, of course)? Or that your life habits can determine the cost of your health and life insurance? Or your money management behaviour and spending habits can be used to evaluate the risk and price for your loan? Or services can personalize your experiences and tailor them especially for your needs and behaviors?
People usually find data collection stories scary because they have no control over who gets to collect data and where and how it’s used – therefore, the simple answer is to give them control, to include the ability to forbid use of data and even to have the data deleted.
In practice, of course, this is far from simple. According to different studies, the majority of people believe they had lost the control of their data. So many services collect and use data, and users are not always able to follow or control this. Companies also sell and buy data. This is a new complex area for authorities to monitor and control, although we have also seen that some Internet companies are more interested in protecting privacy and use of data than some governments.
We can conclude, then, that while there are threats and risks to collecting and utilizing user data, at the same time this data is fundamental to making many services better for users, as well as more affordable.
There is definitely a need for new solutions where people can manage their own data and ensure it is used to suit their needs. For example, if a person has all his or her own verified data, it would not be necessary to reveal all data for a loan application, motor insurance application or location-based service – only profile-level data that is relevant for the service in question. Today, companies are the ones collecting all the user data they can – in the future. each person should be able to collect and use their own data. At least, people should have their own copies of their data to verify that it is true.
It is clear we have a need for totally new solutions to utilize data so that privacy and user control can live together. Governmental and legal control alone is not enough to handle the fundamental problems involved in data collection. (Governments can even be part of the problem of data misuse.) Instead, we will soon see a new era of data analytics that is based on fundamentals to combine personal data management, profiling and targeted utilization of profiles.
By Jouko Ahvenainen
The article was first published on Disruptive Asia.
Over two billion working-age people have no access to ordinary finance services, like bank accounts, payment cards or loans. These people are especially in developing countries and emerging economies. But not only there, for example, in the UK two million people cannot open a bank account. Finance services are key for many other things in life, without them people are outsiders. Fintech and mobile can change all of this.
People don’t need a credit card, they need credit. People don’t need a bank account, they need a safe place to keep their money, an easy way to receive money and make payments. When we think about solutions for financial inclusion, it is not about a focus on old finance services, but how to utilize technology and directly embrace the next generation solutions.
Financial inclusion is not only about tools to handle money. Financial data is a very important part of inclusion. Know-your-customer (KYC), credit ratings, and finance history are crucial elements in most of finance services. Without financial data a person is not able to benefit from most of financial services.
Many companies are now developing services that enable excluded people to receive their salary into an online account, make payments, transfer money to the family, and even apply for loans. Those solutions definitely help these people. It helps also economies, when for example the solutions can help collect tax information and pay taxes.
But they are only the first steps. Especially finance data and creditworthiness needs further solutions. It is also important that people are not tied to one service alone and its own customer history, but people are able to use different services, compare them and prove their history there too.
Traditional credit rating is missing or inadequate in many developing countries. At the same time we see many problems in credit ratings in the most developed countries too. It can be problematic especially for young people and immigrants, who start from scratch. At the same time there are privacy concerns. Circumstances of people nowadays can change rapidly, when there are societal changes in working relationships and even family relationships compared to earlier.
All this means we need new solutions for financial data and ‘finance-ability’. The need exists in the developing and developed countries. Actually, it is not only for people, but SMEs too. SMEs encounter the same problem, and sometimes it’s even worse. It is difficult to open a bank account with all regulatory requirements for banks, and acquiring debt capital for an SME is particularly cumbersome.
We need totally new angles to solve this problem. The relevant data is not necessarily only data from finance services, but many other data points to help address requirements around knowing the customer and also considering his or her creditworthiness. This is a significant opportunity for fintech companies, but also for other parties, for example, mobile carriers can have a role in this. Most probably it doesn’t make sense for carriers themselves to enter the finance data business, but opportunities for partnerships are emerging in these services.
Financial inclusion is one of the biggest fintech business opportunities. But it is not only a business opportunity; it enables a normal life and equal opportunities for now excluded people. It is also important for countries and economies, when all residents are included properly in the economy and also pay taxes. Financial data and finance-ability is an important part of this and it requires cooperation of many parties that offer data and develop data solutions. In practice, it means, for example, cooperation of fintech companies, mobile carriers, retail companies and governments.
The article was first published in Telecom Asia.
Nationalism and protectionism are rising in some countries, and we see speculation about global trade wars. National governments naturally want to control things as much as they can, especially when it comes to online businesses and services, particularly finance services. But as more and more people and businesses get connected to the internet, the way they interact with each other both inside and outside country borders is evolving fast. From a services standpoint, we are moving from a decentralized world to a distributed world for many services. Finance services are slowly but surely heading in the same globalized direction, and while government regulators may not like that, there’s little they can do to stop it.
E-commerce, social media and low-cost communications services have changed our lives significantly during the last ten to 20 years, but money and finance services have developed slowly in comparison. It’s an area that’s not only heavily regulated but also dominated by old banks that have wanted to protect their positions, as well as expensive services for transferring money or keeping an account. Governments are also very interested in maintaining the status quo for such services when they want to follow the money (e.g. to prevent money laundering or terrorist financing) and collect taxes.
Despite that, however, finance services clearly are evolving. Today, we can send money via international money transfer services, and even some chat, social media and email services. (We’re actually seeing speculation that Apple, Google and Facebook could become banks if they so desired.) We also have neo-banks, like N26, that are only in your mobile and bank’s servers. You can open a bank account from many countries without visiting a branch. And then there are p2p and crowd-financing and lending services that enable people to get loans and raise capital from other people and institutions directly.
All of this heralds a push towards more decentralized finance services, although most of these services are local (on the national level) rather than global.
However we’re already starting to move beyond this decentralization model. Bitcoin and blockchain have been important buzz words in FinTech for a couple of years – more generally, we talk about digital currencies and distributed ledgers. Some people say distributed ledger technology (such as blockchain, which is just one model) will do for finance what TCP/IP did for the Internet – it could change the whole finance world, just as the Internet has changed many businesses and operations since the 1990s.
When this starts to happen, we’re no longer looking at decentralized finance services, but distributed finance services. (See this article for a good visual illustration of the difference between decentralized vs distributed.) Distributed finance services enable real p2p, bypassing some parties (like banks) to authorize and control your monetary transactions. It is more like having digital tokens – a huge distributed network can identify your tokens, confirm they are real, and allow you to send and receive them.
As one FinTech expert said: you don’t need a credit card, you need credit, and you don’t need a bank account, you need a place to keep your money. What we’re really talking about here is re-inventing finance solutions, whether for investments, loans, investment vehicles, or many other instruments that enable individuals, companies and governments to finance their needs. We still need finance services, back office functions and applications, but they don’t need to be as old as our finance institutions.
Blockchain is admittedly a somewhat overhyped term. Banks use it for their internal database solutions – but that is not really what “distributed” means. We already have a lot of open API solutions, p2p services and cloud-based finance back-office services – very concrete components to build new solutions for distributed finance. But we still need to see some development with distributed ledgers to make it real.
But this brings us back to the earlier point about protectionism and border control. How can we see a more distributed finance world if governments that want to regulate finance services want to take more control?
Well, we know from our experience with the internet (which, again, is based on TCP/IP, an open standard) that it’s not easy to control things when people have easy low-cost access to them. Of course, some countries respond with national firewalls, and they can slow down development – but they cannot stop it, whether because of political pressure on finance institutions or younger digital-savvy generations who have no patience for old-fashioned solutions and will seek out services that make sense to them. At the very least we will see distributed finance solutions appear within country borders. This will be a huge challenge for national finance regulators, but perhaps it’s the incentive they need to think of new ways to collect taxes and manage fiscal policy.
Despite all the idealism about bitcoin and blockchain, the finance sector will probably still develop more slowly compared to other areas, and there will always be some form of regulation in the future. But we have enough evidence to conclude that nothing will stop this development. It is just a matter of time before distributed finance services hit the mainstream and replace old services. Those old services won’t completely disappear – we’ll still have them just as we still have circuit-switched phone calls today. But when finance services become globally distributed, then we can talk about real globalization.
This article was first published on Disruptive.Asia.