As we stand on the threshold of the Fourth Industrial Revolution, the landscape ahead includes developments in areas such as blockchain, internet of things, and nanotechnology: developments that are taking place at a faster rate than many of us are able to keep up with – or even easily comprehend.
Artificial intelligence (AI) is one of these very interesting areas of development that could revolutionise our day to day lives, much as the internet did in the last century.
The term AI is often used to refer to the development of computers, computer programs or applications that can, without direct human intervention, replicate processes which are traditionally considered to require a degree of intelligence, such as strategy, reasoning, decision making, problem solving and deduction processes. For example, an AI program can use algorithms to analyse datasets, and make decisions and take actions based on the output of the analysis – an analysis that would traditional be done by a human.AI programs can also be developed to interact with people in ways that mimic natural human interaction, for example in online customer service support – sometimes in to an extent that the difference is hard to recognise (the ‘uncanny valley’).
Potentially AI has the potential to supplant a great number of human processes, and it can do so cheaper, faster and without human error. However, in practice the current applications and opportunities are much more limited and constrained by practical factors such as the sheer processing power that is required, especially pending a breakthrough in quantum computing, and ‘design’ limitations such as the inability to learn by extrapolating from limited failures, or to apply common sense to scenarios.
Is this development a good thing? AI can cut costs, eliminate human error, and potentially make products and services available to those who might not otherwise be able to access them. But what about the possible downsides?
50 years ago, in the film2001: a Space Odyssey, an AI slowly turns from being the humans’ assistant, to pitting itself against them. HAL, the Heuristically programmed Algorithmic computer, ‘realises’ the fallibility of humans stands in the way of it achieving its operational objectives, and therefore seeks to remove these obstacles. Presciently, this film encapsulated many of the present concerns about AI – what will stop the machines ‘deciding’ to exercise the powers they are given in a way that we don’t like? For example, what is our recourse if we need a computer to evaluate a request from us, such as deciding whether or not to accept a job application, and the computer says no? We can try to appeal to other humans on an emotional level or challenge the basis for their decision; a computer programme that is implacably based on an incomprehensible algorithm does not present that option.
Regulation is the most frequent knee-jerk response to any such question of ‘what if…’. However, many regulators are cautious about imposing regulation in a vacuum, seeking to prescribe or proscribe technologies rather than focusing on particular applications of technologies. The well-known risk of doing otherwise is the outcome that technology will develop so quickly that regulation will always lag behind.
In the financial services space, AI has already been making inroads on market practices, as evidenced by:
- Behavioural Premium Pricing: Insurance companies have been deploying algorithms to, for example, price motor insurance policies based on data gathered about the prospective policyholder’s driving habits.
- Automated decision making: credit card companies can decide whether or not to grant a credit card application based on data gathered about the applicant’s spending habits and credit history as well as age and postcode.
- Robo-advice: a number of firms have developed offerings that can provide financial advice to consumers without the need for direct human interface, based on data input by the customer regarding means, wants and needs etc, and measured against product models and performance data to find appropriate investments.
Automating these processes with AI offers the ability to manage downwards the costs of servicing a given market while potentially eliminating rogue variables caused by human fallibility. AI could thereby help to make financial services products more accessible to the public, enabling them to be offered at a price that is affordable to a greater section of the public
However, we cannot forget potential risks: what if an insurance pricing algorithm becomes so keenly aligned to risk that a segment of higher risk, and potentially vulnerable, customers are effectively priced out of the market? How can an algorithm be held accountable if a customer feels that a decision about their credit card application was wrong? And what if the questions about investment intentions are too focused on what customers say they want and miss out on the nuances of a customer’s wishes and fears that an experienced human advisor may know to pick up on and pursue?
What could the regulators do to address these potential risks, and the consumer detriment that would ensue if they materialised? One option, and likely only part of any solution, is to ensure firms are mindful of the consumer and market protection outcomes and objectives at the root of the regulations with which they must comply, and they will be held accountable when their products and services fail to deliver those outcomes. For example, the UK’s Financial Conduct Authority (FCA) requires firms providing services to consumers to ensure that they are treating their customers fairly, and being clear, fair and not misleading. The onus is then on firms to ensure that whatever new developments they have, these outcomes are consistently being achieved. For the insurance firm described above, this could involve paying close attention to the parameters and design of the algorithm, to ensure that, for example, a certain pricing threshold is not breached. For the credit card firm, this could be ensuring that if a customer’s application is declined, they are provided with information about how that decision was reached, and what factors it was based upon. For the robo-adviser proposition, this could involve a periodic review of investments and portfolios by a human adviser.
Practically, regulators will need to work with firms to ensure that the need to comply with such outcomes does not block development. Since 2016, the FCA has made available a regulatory ‘sandbox’ for firms, to let them develop new ideas in a ‘safe’ surrounding, to contain risks of customer detriment while products are in development, and to offer support in identifying appropriate consumer protection safeguards that may be built into new products and services. The FCA is now exploring the expansion of this sandbox to a global staging: working with other regulators around the world to support firms that may offer their products in more than one regulatory jurisdiction. The FCA has also been meeting with organisations who are working to expand the current boundaries and applications, at specialist events around the UK, such as the FinTech North 2018 series of conferences, which raise the profile of FinTech capability in the North of England.
By working together to balance potentially competing factors such as technological development and consumer protection, regulators and the industry may be able to provide a stable platform to develop AI, while overcoming or at least assuaging the potential fears of the target audience for these developments. In 2001: a Space Odyssey, the conflict between AI and humans was only resolved by the ‘death’ of the AI. Let’s hope that in real life, a way of co-existence can be found instead.
For more information, please contact:
Roseyna Jahangir, Associate at Womble Bond Dickinson (UK) LLP
Why brands harnessing the power of digital are winning in this evolving business landscape
By Justin Pike, Founder and Chairman, MYPINPAD
Delivery of intuitive, secure, personalised, and frictionless user experiences has long been table stakes in digital commerce, well before the era of COVID-19. As businesses harness the revolutionary power of digital technologies, they have pursued large-scale change to adapt to evolving consumer preferences (some more successfully than others, but that’s a blog for another day). Digital transformation is a term we hear repeatedly, and it looks different for each organisation, but essentially, it’s about utilising technology and data to digitise, automate, innovate and improve processes and the customer experience across the entire business.
As I said, this was already well underway but then came 2020 and no industry escaped the disruption of the coronavirus outbreak, which has had an indelible impact on businesses performance, operations, and revenue. Regardless of whether the impact of COVID has been very positive or very challenging, it has forced organisations globally to re-evaluate and re-orient strategies to adapt.
As lockdowns and pandemic-related restrictions continue to change daily life, this raises the question of how we can balance a dramatic shift to digital and the benefits it brings, while ensuring business continuity and innovation both during and post-COVID, and protecting everyone against fraud?
Digital is an essential survival tool, and even more so in a COVID world
No one could have predicted the dramatic digital pivot that has taken place over this year. Indeed, within weeks of the COVID outbreak cash usage in the UK dropped by around 50%. Digital solutions including delivery applications, contactless payments, mobile commerce, online and mobile banking have become essential components of a touchless customer experience in the era of social distancing. It’s no longer just about an enhanced and superior customer experience, it’s also about health, safety and survival.
In store, businesses have benefited from contactless payments enabling faster throughput and reduced need for consumers to touch payment terminals (therefore requiring greater cleaning, which degrades the hardware much faster). Mastercard reported a 40% increase in contactless payments – including tap-to-pay and mobile pay – during the first quarter of the year as the global pandemic worsened. Digital has also become an essential sales channel for many B2C brands. Where brick and mortar stores have been required to close, digital commerce enables continuity of customer relationships and revenue. This channel also provides brands with rich customer data, which can be used to enhance and personalise the customer experience and typically results in greater levels of engagement and uplifts in revenue.
Industry forecasts estimate that worldwide spending on the technologies and services enabling digital transformation will reach GBP 1.8 trillion in 2023 – a clear indication that the process represents a long-term investment and a global commitment to digital-first strategy. The key point here is that digital brings significant benefits, and regardless of COVID, is here to stay.
The challenges that rapid digital transformation brings to businesses
Regardless of whether businesses are operating in developed or less-developed economies, these times of crisis have levelled the playing field in the sense that all businesses are facing similar issues. Access to products and supplies, maintaining customer relationships, accelerating sales for some and declining sales for others, health and hygiene are just a few of the unique challenges brought about by COVID.
Many businesses in physical environments have had to swiftly implement changes to significantly reduce safety risks for staff and customers, such as contactless payments, mobile ordering and delivery options. But with these changes come a host of other benefits of digitisation, such as faster transactions, and reduced human error at the point-of-sale.
The reliance on technology, however, can also expose organisations and consumers to certain vulnerabilities. In particular, the risks of fraud and cybercrime have dramatically increased since the onset of the pandemic as scammers have taken advantage of digital technologies to target both businesses and individuals.
As a McKinsey report illustrates, new levels of sophistication in the activities of fraudsters have placed more pressure on companies that have been previously slow to go digital, bringing “into sharp relief how vulnerable companies really are”, and damaging the financial health of small and large businesses. In fact, the Bottomline 2020 Business Payments Barometer reveals that only one in 10 small businesses across the UK report recovering more than 50% of losses due to fraud.
But take these stats with a grain of salt. While it is important to be aware of the risks and challenges this new business landscape brings, it’s equally as important to have a lens firmly across your own business, industry and audience, and to identify the changes you can make internally to mitigate risk as well as improve your customer experience. Where can you make some quick wins? Do you have the right skillsets internally to achieve what you need to achieve? What technology is out there that will enable your business goals? There are tech companies like MYPINPAD that are making huge strides in software development, which will transform businesses globally.
A digital world post-COVID
Almost a year in, the line between business success and failure remains fragile. However, an ongoing transition towards greater digitisation will be the difference between survival and the alternative.
There is a wide range of initiatives businesses can implement to weather this storm. If we look at the space MYPINPAD operates within, secure digital consumer authentication is crucial to the ongoing success and security of not only financial products but also identification and verification across a range of different industry verticals. Shifting the authentication of consumers securely onto mobile devices enables businesses to completely reshape their customer experiences. By bringing together a more seamless, frictionless customer experience, accessibility, privacy, security and access to consumer data, businesses are able to drive digital transformation across day-to-day activities.
Against this backdrop, software with stronger security standards continue to play an ever more vital role in supporting society, protecting consumers and businesses from the increase in risks that rapid digitisation brings. Already, merchants can deploy PIN on Mobile technology from companies like MYPINPAD, onto their smart devices to speed up the digitisation process many are now tackling.
Essentially, opening up universal payments and authentication methods that feel familiar, for both online and face-to-face transactions, will be key to opening up a world of possibilities when it comes to redefining how businesses engage with consumers.
Brexit responsible for food supply problems in Northern Ireland, Ireland says
LONDON (Reuters) – Food supply problems in Northern Ireland are due to Brexit because there are now a certain amount of checks on goods going between Britain and Northern Ireland, Irish Foreign Minister Simon Coveney said.
British ministers have sought to play down the disruption of Brexit in recent days.
“The supermarket shelves were full before Christmas and there are some issues now in terms of supply chains and so that’s clearly a Brexit issue,” Coveney told ITV.
The Northern Irish protocol means there are “a certain amount of checks on goods coming from GB into Northern Ireland and that involves some disruption,” he said.
(Reporting by Guy Faulconbridge; Editing by Tom Hogue)
2021: a new tipping point for digital commerce
By Damien Perillat, SVP Digital Commerce at Worldline Global
2020 was a year of significant change for all of us, impacting businesses and their customers heavily. While several industries struggled, the demand for digital commerce and alternative ways to pay took off as nation-wide lockdowns meant customers needed to shop from the safety of their homes. This forced many businesses that previously relied on their bricks and mortar stores into the online space. And now, consumers are increasingly comfortable with ecommerce being a crucial part of their shopping experience – even those who were previously reluctant to adopt a digital life. It took ecommerce 20 years to reach about 15% penetration of consumer spending and in just a few months we jumped five to ten years forward. This isn’t likely to change in 2021.
Even in physical stores, customers are looking for safer alternatives to cash and chip-and-PIN payments. UK Finance revealed that contactless spending was up 18% across the UK in September last year when compared to the same time in 2019 – 64 percent of debit card transactions and 46 percent of credit card transactions were contactless. The use of digital and contactless payment methods will be much more widespread in 2021 as we enter this new normal.
K-shaped economic recovery will continue
With that said, economic recovery won’t take place at the same rate for everyone. Different industries have been impacted in their own unique ways by the pandemic. Leisure and travel continue are ranked as the most one missed activities by consumers and the first signs of recovery will be in the form of an increase in domestic and regional travel.
At the same time, the way consumers are interacting with different industries has changed. For example, millennials are looking for more experiential holidays with strong social aspects, where they can make a positive impact on the destination and people they are visiting. And, younger generations are displaying more conscious buying behaviour, focusing on sustainability.
Other industries have faced difficulties throughout the pandemic. Challenged with economic uncertainty, customers have cut back on spending on non-essential, luxury items, instead favouring spending that has enabled low-touch and home-based activities, such as food delivery, electronics, home entertainment and online marketplaces.
A shift in payment preferences
What has been uniform across many industries though, is that consumers now have high expectations surrounding not only the user experience (UX) but also the payment process itself. They anticipate an easy shopping experience where payments are almost invisible. Having the right payments mix will therefore be the key ingredient for success this year for many. Companies will need to ensure that their payment processes are fast, simple and frictionless as online checkout experiences have been raised to the next level.
At the same time, demand for digital goods and services surged last year as people were stuck indoors during lockdowns so purely digital players benefitted. By the end of Q3 2020, Netflix had a huge 195 million subscribers registered, while from February to June, Zoom saw a 677% increase in usage – attributed to increased remote working.
Clearly the digital transformation boosted the subscription economy, and that didn’t stop at just digital goods. People took to subscription services that regularly delivered anything from food to supplies to their doorsteps. This has been a much safer and convenient way to purchase goods during the pandemic.
So, with subscription services establishing a foothold last year, 2021 will be the time for businesses to invest in understanding the dynamics of what a truly optimised subscription payment customer acquisition looks like.
More online payments means more online fraud
Last year it wasn’t all plain sailing for everyone operating in the digital space. The increase in online payments presented more opportunity for fraud to take place and that’s exactly what happened. Between May and July 2020, when certain lockdown measures were eased and customers became more willing to spend, fraud volumes rose 61%, according to figures published by Barclays Bank.
Similarly, chargebacks became more prevalent. When shops are more reliant on deliveries than ever before, there is more opportunity for things to go wrong with orders and customers to be dissatisfied with what has been purchased. Fraudulent chargebacks have also become much easier to commit as it is increasingly difficult to prove when deliveries arrive safely.
Therefore, in 2021, not only will it be important to have a frictionless UX, but security measures must be effective without impeding on checkout processes and refund management will remain critical.
Greater risk of fraud didn’t stop businesses from embracing their new-found digital capacities while physical stores were closed though. Many have ventured into international territory with the aim sharing their services with other countries around the world.
This year, focusing on high-growth markets such as India, Brazil, Russia, and China will be hugely beneficial for companies looking to operate internationally and we could see cross-border sales continuing to take off in these regions. South-East Asia and Latin America have some of the greatest potential for digital commerce growth and I would urge those operating across borders to consider offering services there.
Key to achieving this is the ability to provide payments services that meet the needs of customers in different localities. Worldline research has found up to 42% of customers are likely to drop off and search for an alternative website if their preferred payment method is not offered at the checkout. Therefore, businesses must integrate with payment networks in different regions to provide locally relevant payment methods.
Yet, the web of complexity is increasing for online merchants, especially for those that want to expand internationally. As such, next year we can expect to see the growing popularity of payment solutions that seamlessly support the international reach of consumers and that enable businesses to integrate with local payment networks, while minimizing the need for local establishments and resources.
In a similar fashion, supply and logistics is becoming more localized. Lockdown measures hugely impacted supply chains around the globe and businesses resorted to new sourcing strategies and business models which will continue to be used this year.
Facing up to the change
2021 will be another extraordinary year for many businesses, as the world begins to find its feet again following COVID-19. Businesses must assess their position in the market and ability to meet the changing needs of customers’ when it comes to preferred commerce and payment methods.
Not only will this be critical when operating in the bustling online space, but it gives them scope to diversify, bringing in new revenue streams as we face the current economic downturn. When used to their full potential, payments will also ensure that companies can continue expanding online and abroad, even if the economy is going through a long K-shaped recovery period.
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