Emerging Technology and Financial Security

New and emerging technologies throughout history have transformed our lives, well-being, and day to day tasks. This is true in financial services as well: we use cash less and cards more, have access to banking services 24/7, and can perform most aspects of our financial lives without visiting a bank branch. Emerging technologies also carry new risks and are distributed unevenly, with some populations using cutting edge technology to get ahead, while others are left out of the system. When it comes to financial services, Commonwealth believes that it is crucial to ensure financially vulnerable consumers are included as our financial system continues to evolve. 

Our team focused on getting a deeper understanding of the technology and use cases for blockchain, machine learning, and data science. Each of these technologies have become hot topics in the financial services field, with financial institutions and fintechs alike making large investments in exploring their use cases. Our goal in exploring these technologies is to offer a perspective based on our experience with financially vulnerable consumers. Both the risks and opportunities associated with these technologies must be explored, and there is a role for every part of the fintech ecosystem to play in ensuring that consumer financial security is kept front and center.    

Blockchain

Blockchain is a distributed ledger of electronic data that is maintained, shared, and synchronized by a network of participants. Last year, the financial services industry spent $1.7 billion on blockchain technologies, bringing products to market to reduce identity fraud and transform the payments process. Potential use cases include lowering the costs associated with international payments, improving credit history and reporting, and reducing identity fraud. Early movers are shaping the direction of this technology and influencing whether it will help promote positive social change or further entrench existing inequalities in access.

Read more on blockchain, its key features, and opportunities and risks here. 

Machine Learning

Machine learning and artificial intelligence use large data sets and algorithms to find patterns and make recommendations on future actions. This technology powers products and services like voice recognition, texting and chatbots, and facial recognition. In financial services, financial institutions may use machine learning to automate data collection processes, help identify a consumer’s credit worthiness, or make recommendations on financial decisions. When it comes to applying these technologies to use cases for financially vulnerable consumers, financial institutions may run the risk of giving inaccurate or harmful financial advice, or using flawed data to draw conclusions about a person’s overall financial wellbeing. 

Read more on machine learning and the importance of identifying clear use cases and problems to solve here. 

Machine Learning & Data Science

Machine learning technologies rely on underlying datasets and data scientists who can leverage them effectively. Perhaps one of the most critical risks financial institutions using machine learning face is in making investments and building technologies around data that is ultimately unhelpful or biased, especially for underrepresented populations. Due to historic and current opportunity gaps and discrimination, people from marginalized and financially vulnerable communities are often not represented in testing and development of these technologies. Increased emphasis on representative data collection and testing for bias could give financially vulnerable consumers new access to financial tools and advice. A financial system that embraces emerging technology without intentionally correcting for bias could threaten to further exclude them. 

Read more on data science and the role of the ecosystem in creating powerful data sets here. 

While the risks of these technologies are clear, the changes they could cause in our financial system also represents an opportunity to shift the financial services system away from one that primarily services the mass affluent to one that truly builds financial security and opportunity of all Americans. Commonwealth is advising financial institutions on the risks and opportunities for financially vulnerable consumers and encouraging the field to use these technologies to solve some of our toughest financial security challenges.