Hear David Gardner and Niels Pedersen talk about how fintech is reshaping business and how we engage with the financial system, from blockchain and AI to customer-facing technology.
In this 20-minute interview, they discuss:
Niels is author of Financial Technology: Case Studies in Fintech Innovation, and senior lecturer on MMU’s post-graduate fintech degree – the first of its kind in England. He runs TLT’s Fintech School, which was launched as part of our commitment to supporting our people and our clients
In 2021, David Gardner, head of fintech at TLT, spoke to Niels Pedersen, the senior lecturer who runs a fintech school for our lawyers, about fintech’s growing influence on business – including what we’re starting to learn about this technology, and how it’s going to affect businesses in the future.
David Gardner: So. Niels, I suppose to start with, I was interested to chat to you about why you started the programme.
Niels Pedersen: Well, we set up the programme because we saw a gap in the market for what I would call a conduit degree. So a mix between a technology / computer science degree and a business and/or finance degree, because both skill sets are in demand. So if you go out into the world, you have lots of techies, and you have lots of people with what are called soft skills. There are very few people who can gap between the two camps. And that's what we aim to do with the degree. To build people who have what I would call soft skills, and also a very thorough understanding of the technology.
David Gardner: That rings true very much from my perspective, as an advisor. A lot of our role is to try and bring together those two sides. Take an example of something like big data and AI, automated data mining. That's something where you can't really advise on that if you've just read the GDPR or just the relevant bits of the data protection legislation. You really need to understand a bit more about what's going on with algorithms. What's going on with the development of AI and how that's being used.
Niels Pedersen: When I was in school, I was told you need to know how to use the technology, you don't need to understand it. But the world has changed so much in the last 25 years that well, actually...whatever profession you're in, whether it's accounting, law, medicine…any kind of profession is being changed by, as you mentioned, AI, automation and all manner of technologies. So you do actually need to have some understanding of how these things work. otherwise you risk being becoming redundant.
David Gardner: Yeah. I've had lots of very interesting conversations with my wife who's a nurse about how her role as a clinician has changed as she's had to look at how to implement technology solutions into her practice. So moving from paper to digitally recording observations on tablets and then how those are stored, how those can be examined and audited, and again, bringing in AI and bringing in automation to look for trends.
That's a huge piece where it's important to understand very clearly how that works from a personal perspective. Are the nurses and doctors using those tablets in the right way? But then also quite a deep level, what information are we collecting? Why are we collecting it? What are we going to do with it?
Bringing it back perhaps to fintech. It's quite interesting to see how this affects everyone because everyone is participating in some way in the financial system.
Niels Pedersen: Yeah, absolutely. We don't have a choice, right? Because to pay the rent or to pay the electricity or get food, we have to use money. And as a society and businesses and people we’re all too happy to use technology for very specific things. So I would imagine in the case of your wife, it would be gathering data about say the health of the patients and trying to...in order to try to make things better.
But although we seek very specific answers, our use of technology, it gives rise to all sorts of questions. So I think you mentioned data protection issues and how people actually engage with it. We employ them, we employ technology to be used in certain ways, but then there's always the human element. And I think it's really important, not only to...you know, there's a focus on making technology better, but we also need to train ourselves as people and professionals to become better at using technology.
David Gardner: And the same goes from a finance perspective, where fintech solutions can be used not only to give you information but also to try and help you to make better decisions and give you information that allows you to make choices and have access to financial products that you wouldn't otherwise be able to get hold of, because you can have a detailed analysis of your spending habits above and beyond what's possible on a standard credit check. That means you can then potentially access credit in a way you couldn't before. You can get advice from an app where you wouldn't perhaps seek out or be able to afford to go and speak to a financial advisor. You wouldn't think to do that, but if it's available on an app, then it's suddenly more accessible.
Niels Pedersen: Yes. I mean, when I speak to my students, I always say that...when they ask, “What is fintech?” It's a contraction of the words, finance and technology, sure. But if you just go with that basic level of definition you’re kind of missing the point, because technology is being applied to finance to make it cheaper, faster, easier and more convenient, but also more accessible. And that's where the humanity of it comes in. And that's where I think…well there are many issues to explore within that space at a professional services level, at a policy-making level and a business level.
David Gardner: I agree. And it's incumbent on businesses and policymakers to understand how those technologies operate, then also how they are used in practice. Because whilst you can point consumers in the direction of good choices, you can equally point them in the direction of bad choices or use all that information that you have about them to put people at risk, to potentially try and defraud them or to use that same technology for nefarious ends.
Niels Pedersen: Well, I'd say in a fintech context...bad actors are always going to try to use technology for bad ends, right? But I think one of the things that can be pre-empted and prevents it is helping people understand how technology works. Helping them understand the risks, the upsides, the downsides, and thereby make them more able to use these tools. These wonderful technological tools that we're given. Whether it's blockchains, AI, APIs, cloud computing – use them appropriately, and thereby minimise the risks of let's say consumer detriment or data loss or anything really going wrong. And I think that there is a conversation to be had about that.
So for example, I would venture that this conversation is going through a cloud platform, perhaps somewhere in Alaska or Iceland. And the frightening thing: according to research by McAfee, very few IT professionals have a firm grasp on the risks and the extent of the use of cloud computing. And so if the lack of knowledge is so pervasive amongst IT professionals, well then it's even more lacking amongst the rest of us. And so a lot of issues relating to say financial crime, cybercrime, hacking etc. can be prevented by awareness at all levels of an organisation.
David Gardner: Yeah. Agreed. And I think what's often missed out when techies in particular, they often focus on the nuts and bolts without necessarily seeing the bigger picture. So it's understanding that human layer, and again, the good advice, and the good learning comes from understanding the interaction between the technology and its use in practice.
Niels Pedersen: So whilst we do need to add the interface to the technology to make it more usable, we also need to upgrade the software inside the humans. So it's a two-way street.
David Gardner: Yeah. Completely. And that goes for developing new products in fintech as well. And understanding what is your consumer base if you're a financial business, or you're a fintech with a great idea. Who's going to use that? How will they use it? Will they understand the proposition that you're putting forward? Will they appreciate that the exchange might not be a payment in cash? Or it might be a payment in sharing data. And is that a conscious trade-off or not? Because if it's not, then you'll run into difficulties when your customers are dissatisfied if they discover that. And also if you run foul of data protection or other regulations about how you need to treat your customers fairly.
Niels Pedersen: Well, it's interesting you mentioned the user experience, because with a product or service…from the perspective of the provider, they think of cost or the service level or the quality. But from the perspective of the consumer…yeah, we think of cost too, but we also think of ease of use, any hassle, how much time we have to spend.
Some people are fine using apps and some people are not. Now, I don't think it's either or. So for example, there is an app called My Eva and it’s a robot advisor, but it's not a pure robot advisor in that it's not an app that just gives you financial advice. It's an app that surveys the consumer's financial needs. And then it puts them in touch with an appropriate, say, mortgage advisor or financial advisor. And I think there is a future for a lot of solutions and a lot of businesses to use technology where it improves the user experience, where it makes it quicker and more convenient, and then deploy a human touch where the users need it. Where they have the greatest level of uncertainty and where they need the most help.
David Gardner: Perhaps the technologies that will be more successful are the ones that don't try and prescribe the answer. Don't try and prescribe or take a guess at who you are, but actually respond and give you intelligent options about what you need to do.
One thing I was interested to talk to you about was any particular areas that you see as a particular interest going forward in the short to medium term. We've talked about blockchain briefly, we've talked about perhaps AI, machine learning, big data.
These are very powerful tools. And I suppose one thing that strikes me is they're becoming more pervasively embedded in the financial system, in the way the system operates, in the way decisions are made. And that means the risks become greater because it's not just an individual risk for me using one product. It’s actually this platform based on the assumption that these technologies work and work appropriately.
Niels Pedersen: I think that the blockchain technology will be used behind the scenes increasingly because it is difficult to understand, it's difficult to apply. You know, you’re in quite a high-level skill set. So I don't think…without a user interface, I don't think blockchain is appropriate for consumer solutions.
Now that said, you could say the same about email. So email works because there is a very good user interface on top. In fact, blockchain and email rely on very similar technology under the bonnet. And so I say, that's probably the way blockchain is going to go. And yes, we may have private currencies like Bitcoin, but they won't feel different to spend than the way you do things now.
Currencies aside, I think the potential of blockchain to cut paperwork behind the scenes is phenomenal. And I think organisations will be…certainly financial institutions will be looking to do more of that as a way of cutting costs. I think there's a big potential for financial institutions and above all banks to play a role in being authentication interfaces. Things like Know Your Customer, anti-fraud checks.
I wouldn't be surprised if they decide to work together – whether they are conventional retail banks, investment banks, challenger banks, insurance companies – because anti money laundering is a cost centre, and so is anti-fraud. And generally, banks don't compete on their ability to stop fraud. So they have more to gain from collectivising this effort. The whole industry has something to gain from rates of fraud across the board.
David Gardner: We see that already in a number of areas where institutions are starting to work together between themselves collectively, or with organisations that would traditionally be seen as their competitors. So a lot of the challenger banks and the neo banks have realised that they have created very efficient infrastructure because they've designed their solutions to be API-ready, to be open banking ready, and they're delivering services which they realise they can actually market to other players in the financial system.
And in terms of a future prediction from my perspective, I think that kind of distributed financial system is likely to accelerate and become the new reality where, so many different players outside of the traditional financial service market will come into play. And that goes from very big tech players like Google, Amazon, Facebook, Apple who are developing their products, they're very ambitious, very innovative, and they've got lots of investment behind them in many cases.
And then the reaction from the existing financial players has been interesting to see, because we’re fortunate enough to work with companies and organisations in all those spaces. The larger banks in particular, where we speak to them, they're very much alive to these possibilities and these competitors, and they are not standing still either. They're thinking about how they can compete by launching their own solutions or actually being alive to the fact that in some cases they can't compete on their own terms – because of their overheads, their regulatory status, their compliance obligations. But in that case, can they partner, or can they contract with other players and get the benefit of their innovations a different way.
But it'd be interesting to ask existing banks, building societies, payment service providers: “As your ambition, do you want to be an authentication hub, or would you rather continue to do a lot of the other things that you do?” But if you don't keep an eye on this area, then you may be pushed into a position that's what's open to you, that's what's available to you because other players have come in and chipped away at your existing customer base or your existing proposition and done so with a new idea, a better app, a lower cost base. I think all that realignment is definitely in progress and likely to accelerate.
There’s that systemic point I mentioned briefly earlier on that not only is there a personal risk to me if I'm using an app that gives me the wrong answer or misuses my data. There's a systemic risk if every financial institution is operating based on Amazon Web Services or Microsoft Azure. If everyone at that platform level shares the same infrastructure, then they share the same risks. And we've seen regulatory moves in that space as well, where there's increasing demands on financial institutions to document how they are outsourcing services, how they're using the cloud.
Have you got any final thoughts or remarks?
Niels Pedersen: I thought I'd want to ask you about the image people have of lawyers. Maybe I've watched too many films, but my image in my mind is someone who sits in an office – maybe somewhere in Holborn – with very high ceilings, even higher bookshelves. And they read through dusty old statute books. How do you think technology is going to change that image, in let's say the next ten years?
David Gardner: I think the reality is the business of law is changing already. If I look at how we use technology at TLT, it's a world of difference from how we worked even five years ago, probably using technology that didn't exist say ten years ago. So the legal tech element across our business is huge. And our FutureLaw initiative is one that is pervasive. It's not just an add-on anymore. It's a core part of how we do what we do.
And I'll give you a couple of examples. We have a product called TLT LegalSifter, which allows you to use AI to review contracts and do so in a matter of seconds. That's a tool that we use ourselves in the business, because it helps our lawyers be quicker, more efficient, more consistent. We also use it to offer a service to our clients. So that's a subscription that our clients can sign up to.
And in a way, that's doing the same service that we've always done – reviewing contracts – but with a different mode. But on the other hand, it's actually quite a sea change because it's a law firm as a SaaS (software as a service) provider. And the interesting part there is we understand that the AI and the tool can do a lot of the heavy lifting and can pick up the pervasive points that come up time and time again. But we provide that as a service with a helpline attached. So if you've got a query about a case or something where you see the standard response, but your particular scenario doesn't fit squarely within it, then you can speak to a qualified lawyer and they can advise you.
I think the expectations of law firms from clients will change and we will be expected to provide document management solutions. We'll be expected to provide fast automated reporting, not “I will put together a bespoke spreadsheet that will be with you in two weeks' time about the matter we're working on for you”. I think that expectation from clients will start to increase and to be successful.
You'll need to be alive to that in the same way that if you're a bank or a financial institution. It's no longer an option to say “We only deal in cash”. It's no longer an option to say “We only take cheques”. Those expectations have completely changed.
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