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Behind the buzzwords: risks and rewards of FinTech

The finance industry is facing change of unprecedented speed. To keep up, banks are embracing innovation and charging ahead with FinTech strategies. But, it’s important to get behind the buzzwords, and understand the reality and risks of new technologies.

Artificial Intelligence & Machine Learning

AI and Machine Learning is having one of the largest impacts on finance today. It is already being deployed in investment management, fraud detection and risk management.

What are the risks?

Most AI solutions are provided by external companies, increasing a bank’s third party risk. There are also no international regulatory standards, so should this new technology lead to losses, there may be a lack of clarity about where responsibility for this falls.

Blockchain

There are a lot of big expectations around distributed ledger technologies, and investment is pouring into blockchain especially.

What are the risks?

Blockchain is not a silver bullet, and improper implementation could harm rather than help. Like AI, regulators are still working with exchanges to explore what oversight should look like. Integrating blockchain with legacy systems can also cause cyber security risks, which are harder to manage than within a private infrastructure.

Digital Banking

Digital banking is removing the need for costly physical infrastructure, as customers go online and payments go card and contactless.

What are the risks?

Digital transformation has made the financial industry more vulnerable to cyber-attacks, theft and fraud. And it isn’t just money up for grabs, often criminals and hackers go after customer data, which leads to reputational risk down the line.

RegTech

After the global financial crisis, regulation become more complex. Through digitisation and automation, RegTech can be a cost-effective solution.

What are the risks?

Partnering with RegTech firms often means sharing sensitive data, opening companies up to additional risks. And, while the technology can speed up and simplify processes, humans will still be needed to oversee it.

Risk managers should take a step back to evaluate their bank’s innovation strategies to identify the risks lurking behind the buzzwords.

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