Original published in German by IT Finanzmagazin – find here. Translation provided by DeepL.com. Photos provided by Pixabay, Experian, Jochen Werne. Collage design by Canva
STRATEGY 23 January 2024
EBA deadline of 30 June: data quality will be decisive in the assessment of credit risks
Financial institutions are facing a significant change in the assessment of credit risks this year. Now comes 30 June: the deadline for new standards in credit risk assessment. Jochen Werne (CEO Experian DACH) is convinced that data quality will become the kingmaker in the credit risk market.
by Jochen Werne, CEO Experian DACH
Since 2021, financial service providers have been required to implement the supervisory priorities of the ECB and EBA. These priorities include the comprehensive improvement of credit risk management practices and the integration of new risk factors, particularly in the area of climate and the environment, into their risk management strategies. At the same time, the requirements for data management in the context of credit scoring are increasing. Artificial intelligence (AI) will play a key role here and banks will have to adapt to the new EU AI Act.
This also includes closing data gaps. However, smaller, nationally supervised financial institutions must now also comply with these new guidelines, as additional elements of the 7th MaRisk amendment came into force on 1 January 2024, which are based on the EBA guidelines, among other things. Financial organisations must review their existing practices in 2024 and adapt their credit risk assessment standards accordingly. In future, credit assessment models will have to take much greater account of transparency, fairness and sustainability, particularly from an ESG perspective. The game changer for this is increasing their data quality.
All of this leads to five important changes:
1. Profitability strategies in a challenging market environment
Advanced data analytics support organisations in various phases of their customer lifecycle. Already in the application phase, high data quality enables a more efficient assessment of creditworthiness. In portfolio management, advanced data analysis helps to proactively manage risks and dynamically manage the credit portfolio. Advanced analytics and high data quality help to strengthen resilience to risks, including data-based early risk identification and an optimised dunning and collection process.
2. Digitalisation for resilience, including against novel risks
These challenges not only affect the target customer landscape, but are also of great importance in the context of new ESG requirements. Due to their complexity and innovative nature, traditional approaches based on historical data cannot cope with these risks: Traditional approaches to data analysis and model preservation increasingly have to deal with slow regulatory processes on the one hand and a more dynamic macroeconomic environment and growing cyber risks on the other. In order to cope with this competitive situation, new strategies in the utilisation of all relevant data are urgently required, which place advanced analytics and the improvement of data quality at the centre.
3. PSD3, PSR and FIDA: Banks between risk and opportunity
As one of the players with the greatest wealth of data, this presents banks with a high risk in the face of new competitors. At the same time, however, it also offers them an opportunity to become a trusted partner for consumers. These regulations, which focus on the promotion of open banking services, greater control of data access and measures against online fraud, represent a starting point for financial institutions to think about the further use of transaction data. In addition to combating fraud, advanced analytics of transaction data, even taking into account all compliance requirements, opens up additional opportunities for interaction with end customers to improve the customer experience or the chance to monetise data.
4. Growth driver EU AI Act
AI and machine learning (ML) will further automate decision-making processes in the future and strategic investments in this area will therefore become even more crucial for growth in the future. According to a study by Forrester Consulting commissioned by Experian, 60 per cent of German companies already take a similar view and have a comprehensive AI-based risk management programme in place. By using these technologies, credit and fraud risks can be assessed more precisely and efficiently, even in uncertain economic times. Companies that implement these developments are positioning themselves as pioneers in a rapidly developing, technology-driven financial sector: 78 per cent of the companies surveyed in the study in Germany also state that they are prioritising the use of further AI and ML applications.
5. Continuation of cloud migration in the financial world
This includes identifying core business processes that will benefit significantly from cloud migration and defining clear priorities and objectives for the migration process. Cloud-based data analytics plays a central role in gaining valuable insights from customer behaviour, market trends and operational data to improve business processes and make more informed decisions.
About the author: Jochen Werne has been CEO DACH at Experian since August 2023. Previously, he served as Managing Director at Prosegur Crypto and as Chief Development & Chief Visionary Officer at Prosegur, where he was responsible for the development and implementation of strategies in the areas of business development, innovation and international sales. Werne’s career includes significant leadership positions at Bankhaus August Lenz & Co. AG, Mediolanum Banking Group, where he served as Director and Authorised Representative and was instrumental in the company’s digital business transformation. His academic career includes a FinTech programme at the University of Oxford (2017-2018) and a Diploma in International Banking at Goethe University Frankfurt (1997-2000).
The rise of AI and ML in fraud prevention can lead to a new era of digital trust and compliance
Author: Jochen Werne / 26.12.2023
In an era marked by rapidly advancing technology and increasing global interconnectivity, the fight against online fraud has become a paramount concern for financial institutions, businesses, and regulators worldwide. Part of my professional work revolves around understanding and mitigating the risks associated with financial fraud. The Experian Forrester Fraud Research Report 2023, which was recently released, sheds light on the escalating threat of online fraud and the evolving strategies to counter it, particularly through the use of Machine Learning (ML) and Artificial Intelligence (AI).
The report’s findings are stark: a 74% increase in fraud losses in Germany, reflecting nearly the global increase rate. This surge is not just a statistic; it’s a clear indication of the sophisticated and pervasive nature of modern financial fraud. Companies across various sectors are feeling the impact, with financial services bearing the brunt. This trend is deeply concerning not only for the economic health of individual businesses but also for the broader stability and security of the financial system.
From a geopolitical perspective, the rise in online fraud is a multifaceted challenge. It’s a threat that transcends borders, affecting relations among nations, and has become a significant factor in international policy and security discussions. Countries, including Germany, are increasingly recognising the need for cooperative international efforts to combat this scourge. The geopolitical implications are profound, as fraud undermines economic stability and erodes public trust.
Turning to the German banking sector, the issue of compliance and reputation risk under the framework of Minimum Requirements for Risk Management (MaRisk) is particularly pertinent. Banks are finding themselves at the forefront of the battle against online fraud, necessitating robust risk management strategies that align with regulatory requirements. Under MaRisk, the mandate is clear: implement effective, comprehensive controls to detect, prevent, and manage fraudulent activities. The reputational risk for banks and their board members is immense; a single lapse can lead to significant financial losses, legal consequences, and lasting damage to customer trust.
In this challenging landscape, AI/ML-based fraud prevention methods stand out as beacons of hope. These technologies offer the promise of enhancing detection capabilities, reducing false positives, and adapting swiftly to new fraudulent tactics. However, their implementation must be undertaken with a clear understanding of the ethical implications and potential biases inherent in AI systems. As we embrace these technologies, we must also commit to transparency, accountability, and continuous improvement to ensure they serve the interests of all stakeholders fairly and effectively.
Despite the challenges, I believe there is a path forward that balances the need for security with the imperative for innovation and growth. The key lies in embracing a multi-faceted approach to fraud prevention that leverages the best of technology, human expertise, and regulatory compliance. ML, with its ability to learn and adapt to new patterns, offers a powerful tool in this fight. However, its effectiveness hinges on the quality of data, the integrity of algorithms, and the wisdom of the humans who guide its evolution.
The German companies surveyed in the study are acutely aware of the challenges and opportunities presented by AI/ML in fraud prevention. The overwhelming majority recognise the efficacy of ML-based approaches and anticipate their increasing dominance in the field. Yet, they also acknowledge the hurdles, including the costs associated with deploying advanced fraud prevention solutions, the need for continuous adaptation, and the importance of addressing the ethical considerations of AI use.
In my experience, one of the most critical factors for success in this endeavour is collaboration. Tackling online fraud is a collective effort that requires the involvement of businesses, regulators, technology providers, and consumers. By working together, sharing knowledge, and fostering a culture of innovation and vigilance, we can stay ahead of fraudsters and protect the integrity of our financial systems.
Another vital aspect is education and awareness. Both consumers and employees must be informed about the risks of online fraud and the steps they can take to prevent it. Regular training, robust policies, and a culture of security are essential in creating a resilient defense against fraud.
Finally, we must recognize that the fight against fraud is an ongoing battle. As technology evolves, so too will the tactics of fraudsters. We must remain agile, constantly updating our strategies, investing in new technologies, and adapting to changing regulatory landscapes. This dynamic approach is not just about defense; it’s about building a stronger, more secure future for everyone.
The Experian Forrester Fraud Research Report 2023 is a call to action. It highlights the urgent need for enhanced strategies, stronger collaboration, and a steadfast commitment to ethical, innovative solutions in the fight against online fraud. As leaders in the financial services industry, we have a responsibility to take the helm, steering our organisations towards safer waters in this tumultuous sea of digital threats. By harnessing the power of AI/ML, prioritising ethical considerations, and fostering a culture of collaboration and continuous learning, we can not only mitigate the risks of online fraud but also pave the way for a more secure, prosperous, and trustworthy financial ecosystem.
From the eloquent words of Shakespeare in Henry V, where he once proclaimed, “all things are ready if our minds be so”^1 to the monumental shifts brought by Gutenberg’s printing press^2, history reminds us that change is both an inevitable and defining characteristic of human progress. As the world stands at the threshold of a new epoch marked by rapid technological shifts and pronounced geopolitical transformations, this profound sentiment compels us to reflect on the paramount importance of preparedness and perspective. The way societies respond to these shifts determines the direction of their trajectory. In our current age, Europe finds itself at the nexus of global transformations driven by technological advancements and geopolitical tectonics.
Technology: A Historical Reflection
Peering through the lens of history, one quickly realizes that technology has been both a beacon of hope and an augury of upheaval. Take the 15th century’s monumental invention of the printing press as a case in point^2. This groundbreaking innovation democratized access to information and catalysed a substantial uptick in literacy rates across Europe. As Eisenstein posits, the “Printing Revolution” catalyzed an era where knowledge was no longer the privilege of the few but a right of the many^2. Yet, its reverberations were not confined to just reading and writing. The press became the vessel through which Martin Luther disseminated his Ninety-Five Theses, triggering a religious revolution that reshaped the European continent.
However, the journey wasn’t without turbulence. This democratization of knowledge played a pivotal role in challenging the established order, culminating in events like the Reformation, which MacCulloch describes as Europe’s great house divided^3.
Niall Ferguson, in “The Square and the Tower”, beautifully illustrates the timeless tension and interplay between networks and hierarchies^4. Historically, technologies like the printing press have emerged as disruptors, challenging established orders and reshaping hierarchies. The press, for instance, allowed for the free flow of ideas, becoming an early network that democratized information. Yet, not everything it propagated was for the betterment of society. The infamous “Malleus Maleficarum”, an ostensibly scholarly treatise, fueled the flames of the European witch hunts, leading to persecution, paranoia, and a dark chapter in history^5.
From Past to Present: The Tech Geopolitical Nexus
Fast forward to the present, and we witness a world where technology continues to shape geopolitical realities. Maddison’s macro-economic study reveals that the global center of economic gravity has been steadily shifting towards the East, particularly since the dawn of the 21st century^6. Nowhere is this shift more apparent than in the realm of technology.
The US-China tech rivalry, explored by Fuller, highlights the strategic challenges posed by China’s technological ascent^7.
The race for supremacy in AI, quantum computing, 5G, and biotechnologies marks the modern-day power play. But this isn’t merely about technological one-upmanship; it signifies a larger canvas of geopolitics, economics, and even societal values.
Many analysts are drawing parallels to the Cold War, coining the term “Tech Cold War” or “Cold War II”. Unlike the 20th-century version, primarily characterized by nuclear deterrence between the USSR and the US, this new Cold War positions the US and China in an intense rivalry for technological, economic, and military dominance. In the midst of this rivalry, both nations are hyper-aware of the stakes.
Navigating the Waters of New Geopolitical Paradigms
More than a century ago, the naval strategist Alfred Thayer Mahan, in his seminal work on sea power, postulated that maritime dominance was crucial to national greatness.
Today the Indo-Pacific has become the focal point of 21st-century geopolitics. Here, China’s assertive ‘Two Ocean Strategy’ is emblematic of its ambitions to exert influence both in the Pacific and the Indian Ocean. This expansive maritime vision is not just about sea lanes and trade; it’s a reflection of China’s aspirations to be a global power.
Simultaneously, the Taiwan question looms large in this maritime strategy. Its strategic location in the first island chain poses both an opportunity and a challenge for Beijing. Control over Taiwan would offer unencumbered access to the broader Pacific.
However, the rise of one power often brings countermeasures by others. The ‘AUKUS’ agreement between Australia, the United Kingdom, and the United States is a manifestation of this dynamic. While cloaked in the language of technological collaboration, especially in the realm of nuclear-powered submarines, the underlying intent of AUKUS is clear. It seeks to counterbalance China’s growing naval capabilities and assertiveness, particularly in the South China Sea.
Reflecting on Mahan’s sea power doctrine in this context provides a sobering perspective. Mahan believed that maritime dominance was the linchpin of global influence. Yet, he also understood the responsibilities and challenges that came with such power. In our contemporary setting, while nations pursue their maritime strategies, it is imperative they also embrace the principles of dialogue, cooperation, and conflict avoidance.
Taiwan epitomizes this interplay. As a beacon in semiconductor manufacturing, Taiwan’s geopolitical relevance can’t be overstated. Any instability could trigger economic consequences potentially dwarfing the aftermath of the Covid-19 pandemic^9.
Taiwan and Europe: Quietly Interwoven, Profoundly Connected.
In the intricate web of global technology supply chains, few names stand out as prominently as Taiwan Semiconductor Manufacturing Company (TSMC). Founded in 1987, TSMC has ascended the technological hierarchy to become the world’s leading semiconductor foundry, a testament to its unwavering commitment to innovation and excellence.
TSMC’s significance is multifaceted. For one, it’s the world’s largest dedicated independent semiconductor foundry^8. With clients ranging from major tech giants like Apple and Nvidia to burgeoning startups, TSMC’s production underpins a vast swathe of the digital products and solutions we rely on daily. However, TSMC’s role isn’t merely a commercial or technological one. It is geopolitical. With the escalating “Tech Cold War” between the U.S. and China, TSMC finds itself at an intriguing junction. The company’s strategic importance is underscored by global reliance on its cutting-edge chip manufacturing capabilities. This reliance has not only made TSMC a coveted partner but also a strategic asset in the larger scheme of global geopolitics. The U.S. push to ensure TSMC sets up manufacturing bases on its soil, and China’s keen interest in the semiconductor sector, highlights the foundry’s pivotal position.
Furthermore, TSMC embodies Taiwan’s broader significance in the tech world. As the geopolitical tussle intensifies, Taiwan – and by extension, TSMC – becomes a linchpin for global tech supply chains. A disturbance in TSMC’s operations, as speculated, could have cascading ramifications across industries, from consumer electronics to automotive and healthcare. Any significant disruption in this intricate supply chain would reverberate globally, with experts suggesting a potential 5% drop in global automotive production^9.
As chips become smaller, denser, and more powerful, the precision and capability of lithography machines must evolve in tandem.
Here’s where Europe and ASML, a Dutch gem, comes into play. The company is the sole producer of extreme ultraviolet (EUV) lithography machines^8, an advanced technology that allows for the creation of incredibly dense and efficient chips. With transistors now approaching atomic scales, EUV lithography is no less than a technological marvel, allowing chipmakers to etch circuits just a few nanometers wide.
However, the conversation around ASML isn’t merely about technological mastery. Given its unique position as the only producer of these EUV machines, ASML enjoys a quasi-monopolistic status in this niche yet profoundly impactful domain. In an era where technological supremacy is increasingly intertwined with geopolitical power, also ASML’s importance cannot be overstated. The machines they produce are not just expensive and sophisticated pieces of equipment; they are, in many ways, gatekeepers to the next generation of digital innovation.
Such a near-monopoly naturally draws attention. Nations and corporations are keenly aware of the strategic value inherent in controlling or accessing state-of-the-art chipmaking technology. With the ongoing technological cold war, where semiconductor supply chains have become part of the geopolitical chessboard, ASML finds itself in a spotlight it never sought but cannot avoid.
Europe’s Crucial Pivot
Europe’s position in this evolving tech landscape is unique. While traditionally viewing the Atlantic alliance as a cornerstone of its foreign policy, the rise of China necessitates a recalibrated approach^10. Europe’s interlinked trade with China, especially through critical chokepoints like the Malacca Strait, underscores the strategic dimension of this relationship^11.
In this whirlwind of technological and geopolitical flux, Europe is not an idle spectator. With a collective GDP nearing $22 trillion, it wields considerable influence. Europe’s role is multi-dimensional: an economic powerhouse, a voice of reason in tumultuous times, and often a mediator in global disputes.
The ECB recognizes that the financial institutions it oversees must adapt to these transformative times. A crucial element of this adaptation is embracing digitalization, with a special emphasis on robust data-driven risk management.
Strengthening Resilience: The intricate web of global economies translates to shared vulnerabilities. It’s imperative for Europe’s financial edifice to be robust, equipped to handle external shocks, and maintain systemic stability.
Digitalisation & Institutional Strengthening: The burgeoning fintech sector necessitates a complete metamorphosis for legacy banks. This isn’t a mere cosmetic digital overhaul. Banks need to internalize and deploy intelligent digitalization. Central to this transformation is data analytics, supercharged by AI. Harnessing data, drawing meaningful insights, and predicting trends will determine who thrives in this new era.
Climate Change Initiatives: Europe has consistently championed sustainability. The financial sector’s alignment with green, sustainable practices isn’t just altruistic; it’s also economic prudence, ensuring long-term viability and stability.
The above mentioned ECB focus is highlighted by Experian’s 2023 report on why AI-driven, regulatory-compliant analytics solutions are becoming imperative for European banks^13.
The AI Paradigm: Europe’s value-based Ethical Approach
Europe’s approach to AI regulation, championing the cause of ‘explainable AI’, shows its commitment to integrating technology with ethics. This dedication harks back to its legacy of literacy and the importance of accessibility, a theme explored by Graff^14. As Europe navigates the ‘Asian Century’^15, it does so with a clear vision: to leverage its historical experiences and chart a course that balances innovation with ethical considerations. The European AI Act encapsulates this approach. The Act’s core philosophy revolves around ensuring AI applications are safe and respect existing laws and values. This includes transparency obligations, strict criteria for ‘high risk’ AI applications, and a provision for setting up a European Artificial Intelligence Board.
One might wonder, why the emphasis on explainability? As AI systems permeate critical sectors, from healthcare to finance, their decisions can profoundly impact individuals. An ‘explainable AI’ ensures that these decisions are not just accurate but also comprehensible to the average person. This empowers individuals, fostering trust in AI systems.
The Act, however, isn’t just about explainability. It recognizes the diverse applications of AI and categorizes them based on risk. For ‘high-risk’ applications, stringent requirements, from transparency to accuracy and security, are mandated. This stratified approach ensures that while innovation isn’t stifled, critical areas receive the scrutiny they warrant.
Economic Powerhouses: A Comparative Analysis
Any discussion on global transformation would be incomplete without examining the economic engines driving these changes. China’s astounding growth, with a GDP of $17.7 trillion by 2022^16, and its decade-long average annual growth rate of 6.5%, contrasts with the US’s $25.3 trillion GDP and a more conservative 2.3% growth rate^17. The European Union, showcasing resilience and integration, clocks a collective GDP nearing $22 trillion^18, with trade figures underscoring its global economic clout^19.
Conclusion: Europe’s Way Forward
Our world is in a state of flux, reminiscent of those transformative moments in history. From the monumental shifts of the Printing Revolution^2 to the divisive yet transformative Reformation^3, Europe has witnessed and shaped global trajectories. As it stands at the crossroads of another transformation, it draws from its rich historical tapestry, aiming to strike a balance between embracing the future and preserving its core values.
The digital future beckons, but it’s not without its challenges. Whether it’s the complex web of tech geopolitics or the imperative of sustainable growth, Europe’s journey forward will need to be both adaptive and principled. At the heart of this journey lies the potent combination of data and ethics. And as Europe strides into the future, it carries with it a clear message: progress, when rooted in ethics and driven by knowledge, can usher in an era that’s not just technologically advanced but also just, balanced, and peaceful.
^1 Shakespeare, William. “Henry V.” Act IV, Scene 3. ^2 Eisenstein, Elizabeth L. “The Printing Revolution in Early Modern Europe.” Cambridge University Press, 1983. ^3 MacCulloch, Diarmaid. “Reformation: Europe’s House Divided 1490-1700.” Penguin UK, 2004. ^4 Ferguson, Niall. “The Square and the Tower: Networks and Power, from the Freemasons to Facebook.” Penguin, 2018. ^5 Kramer, Heinrich and Sprenger, James. “Malleus Maleficarum.” Dover Publications, 1971. ^6 Maddison, Angus. “Contours of the World Economy 1-2030 AD: Essays in Macro-Economic History.” Oxford University Press, 2007. ^7 Fuller, Douglas B. “Cutting off our nose to spite our face: US policy toward Huawei and Taiwan in the shadow of the Chinese tech challenge.” International Security 45.3 (2021): 52-89. ^8 Chappell, Bill. “ASML: The Obscure Dutch Company That’s Enabling Big Advances In Tech.” NPR, 2019. ^9 “The Economic Impact of a Taiwan Crisis.” Nikkei Asia, 2023. ^10 Casarini, Nicola. “The Rise of China and the Future of the Atlantic Alliance.” Oxford University Press, 2020. ^11 Lanteigne, Marc. “China’s Maritime Security and the ‘Malacca Dilemma’.” Asian Security 4.2 (2008): 143-161. ^12 “European Central Bank Annual Report.” 2023. ^13 Experian PLC. “Annual Report and Financial Statements.” 2023. ^14 Graff, Harvey J. “The Legacies of Literacy: Continuities and Contradictions in Western Culture and Society.” Indiana University Press, 1987. ^15 Khanna, Parag. “The Future is Asian: Commerce, Conflict, and Culture in the 21st Century.” Simon and Schuster, 2019. ^16 “World Bank Data: China.” 2022. ^17 “World Bank Data: United States.” 2022. ^18 “World Bank Data: European Union.” 2022. ^19 “European Commission Trade Statistics.” 2022.
About the author
Jochen Werne is CEO of Experian DACH. Large-scale global data powerhouses like Experian with it’s more than 20.000 data and analytics experts and a market cap of nearly €30bn have a pivotal role to play in this evolving narrative. As a global vanguard in data analytics, Experian is uniquely poised to offer financial institutions the insights and tools essential for navigating the multifaceted challenges of our times. In a world inundated with data, discerning patterns, understanding trends, and anticipating potential pitfalls will be the linchpin of success.
I had the distinct honor, alongside CCO Björn Hinrichs, to represent Experian DACH at the Gala event 2023. Our heartfelt gratitude goes to acatech for their warm invitation.
It’s clear that fostering a robust relationship between science and industry is paramount. The National Academy of Science and Engineering stands as a beacon, guiding and correcting, making technological innovation the cornerstone of transformation. This union of strong research, pioneering companies, and forward-thinking policies is the backbone of what acatech and countless others strive for. In this journey, while competition fuels our drive, it is cooperation that offers the platform for greatness.
In the infinite expanse of space, we are but astronauts on a tiny speck called Earth. Regardless of our political and geopolitical landscape, science and research must always be the bridge, the “Bridge over Troubled Water” that connects us and ensures progress, says Jan Wörner, President of acatech, wisely.
In reflecting on this, Germany’s Federal President Frank-Walter Steinmeier’s words resonate deeply: “I think we should base our perspective more on Max Frisch and trust ourselves as individuals and society alike to be able to shape the future. And that means developing perspectives, broadening our horizons and, yes, always daring to try something new. We need all this in the phase of upheaval we are in. Holding on to the past, ignoring change, refusing change, that is not an option – especially not in an open society like ours. But: We have to give change – that is the task of politics, business and science – a direction!”
Drawing from these profound insights and looking through the lens of our work at Experian DACH, the era we are entering can be aptly described as a new Age of Enlightenment, where data and therefore data literacy is paramount. As the Enlightenment thinker Voltaire astutely pointed out, “Judge a man by his questions rather than by his answers.” It’s a sentiment that is even more relevant today. Taking cues from Immanuel Kant’s wisdom, enlightenment is about emerging from our limitations. In the context of our time, achieving data literacy and harnessing data effectively signifies our evolution from technological naivety.
While AI stands as a monumental tool to decipher this data, its effectiveness lies in the quality of the data it is fed. It brings to the fore the urgent need for data literacy. An AI is only as good as its data. Thus, a distorted understanding could lead to distorted outputs. The onus is on us, leaders in data, to champion the responsible use of AI and advance the narrative on the symbiotic relationship between data and AI.
This new Enlightenment is our journey towards an era where society is mature and informed, utilizing the strength of data and AI for the betterment of all. Knowledge, in this context, isn’t just power but the foundation for positive societal transformation.
Concluding with my personal reflection, data isn’t merely a quantified entity; it’s a potent instrument to comprehend and address pressing challenges. Our collective aim should be to cultivate an understanding of data – its collection, utilization, and, importantly, its ethical application.
Our commitment at Experian DACH, backed by our ‘data for good’ principle, is to be at the forefront of this change, guiding, and contributing to this transformative journey.
Artificial Intelligence: The German Economy on the Cusp of Transformation
By Jochen Werne
1st October 2023, Düsseldorf
The “Experian 2023 Business Insights” report, released in September 2023, provides a revealing insight into the priorities of the global business community in the coming year. Particularly of interest to us in Germany is the insight into the transformative influence of Artificial Intelligence (AI) on areas such as analytics, risk assessment, and customer experience in the EMEA/APAC region.
Our German decision-makers are well aware of the pivotal role of AI in innovations. An encouraging finding: 60 percent of businesses in our country have already taken active steps to integrate AI into their processes.
However, the report also shows that not all executives in Germany are fully convinced of the benefits of using AI. The efficiency of AI in companies will determine how Germany stands as an economic location in an increasingly digital age. The transformation of raw data into meaningful insights and analyses will become a crucial competitive advantage for us.
It’s heartening to see that many of our international counterparts already recognise the benefits of AI. For more than half of the global companies, the productivity gains from AI already outweigh the initial costs.
One thing is clear: Our data infrastructure and the amount of data available will play a key role in the successful implementation of AI. Here, we as German businesses have some hurdles to overcome, especially regarding the availability of relevant data for critical business decisions.
In conclusion, I want to stress that, even with all the technology and data, we must never forget our ethical responsibility. AI must be employed in a transparent and responsible manner. The fact that already 61 percent of businesses in the EMEA/APAC region have a comprehensive AI risk management programme in place is promising.
The future is clear: businesses that properly harness AI will lead the competition. They’ll be able to leverage process efficiency and automation to unlock new growth opportunities.
For those who wish to read the full “Experian 2023 Business Insights Report”, you can find it here.
There’s a peculiar phenomenon that often goes unnoticed: we vividly remember the moments in our lives when we made pivotal decisions, but the lazy Sundays we spent lounging on the couch tend to blur into obscurity. Why is that? From the standpoint of psychology and neuroscience, active decision-making engages multiple brain regions, specifically the frontal cortex. This engagement imprints these moments deeply in our memory.
Decisions are the very essence of our existence. On a daily basis, we make around 35,000 decisions, from what to wear to how to react in crucial life situations. In the realms of politics and business, decisions are made amidst uncertainty. The quality and timeliness of these decisions often determine success or failure. The better we are at decision-making, the more successful we become.
However, decisions aren’t made in a vacuum. They are greatly influenced by our emotions, past experiences, and even biases. Let’s delve into game theory, a study that examines mathematical models of strategic interaction. This theory was so revolutionary that scientists like John Nash were awarded the Nobel Prize for their contributions. It showcases the intricacies of making decisions when multiple players are involved, each trying to maximize their own benefits. For instance, the “Prisoner’s Dilemma” is a classic example. It illustrates how two individuals, aiming to minimize their punishments, often don’t cooperate, even if it’s in their best interest. Their decision, influenced by a lack of trust and the inability to communicate, usually leads to a suboptimal outcome for both.
Another interesting lens through which to view decision-making is behavioural finance. This field has shown that people don’t always act rationally, and their decisions are swayed by psychological factors. The Dot-com Bubble of the late 1990s offers a poignant example. During this period, a frenzy around internet-based businesses led to skyrocketing stock prices, despite many of these companies having no solid profits or clear business plans. Overconfidence and herd behavior drove investors to pour money into these stocks, leading to massively inflated valuations. The bubble inevitably burst in the early 2000s, resulting in significant financial losses for countless investors. This incident underscores the dangers of letting emotions and biases overrule rational financial decision-making.
Given the complexities, decision-makers often seek a solid foundation for their choices. This is where data comes into play. But data is not just essential; it’s omnipresent. It’s estimated that 2.5 quintillion bytes of data are created every day. Like water, it’s everywhere. And just as water can flood a village if not channeled properly, unstructured data can overwhelm and mislead.
Take the banking sector, for instance. Banks use data to assess creditworthiness. In e-commerce, data-driven algorithms suggest products to consumers. Telecom industries utilize data to enhance customer experience and predict churn. The cornerstone of these industries is state-of-the-art data analytics capabilities paired with robust decision engines.
However, with the influx of data, it’s crucial to discern the essential from the redundant. Much like converting saltwater to drinking water requires precision and expertise, sifting through raw data to extract meaningful insights is the forte of data analysts. They refine data into actionable decision-making parameters, reducing uncertainty. And in business, reduced uncertainty translates to reduced risk and increased profitability.
To conclude, data is indeed akin to water. Left unchecked or misused, it can wreak havoc. But when used right, when structured, analyzed, and enriched, it becomes invaluable. This is the essence of using “Data for Good” – transforming the ubiquitous into the indispensable, guiding decision-makers toward better, more informed choices.
After my first week as CEO for Experian in the DACH region (Germany, Austria, and Switzerland), I find myself profoundly thankful for the warm welcome and the many highly inspiring encounters with some of the best data and technology professionals on our planet. Experian is not only a data insights industry titan, one that operates in 32 countries, employs over 20,000 outstanding personalities worldwide but would also rank with its more than USD 30 billion market capitalisation compared to Germany’s leading stock index as the 19th largest DAX company in Germany. Experian serves as a global leader millions of consumers and businesses, leveraging data to make a transformative difference in people’s lives.
Yet, with tremendous reach and influence comes immense responsibility.
Just as the Age of Enlightenment in the 18th century reshaped society through the dissemination of knowledge, we find ourselves at the precipice of a new era, one marked by the power and potential of data. The 21st century, in my view, must herald a fresh Age of Enlightenment, one underpinned by data literacy.
The Age of Enlightenment, Literacy and the Dawn of Data Literacy
The Age of Enlightenment, a period dating from the late 17th to the late 18th century, marked a profound shift in the course of human history. This era, also known as the Age of Reason, encouraged critical thinking, decoupling minds from the shackles of superstition and unquestioned authority. The spotlight was placed firmly on rational thought, scientific inquiry, and individual rights – underpinnings of the modern world as we know it.
Several factors catalyzed this significant shift, not least of which was the advent and proliferation of printing technology. As philosopher Immanuel Kant noted, “Dare to know! Have the courage to use your own understanding,” a statement that encapsulates the Enlightenment’s spirit. This courage was largely fostered through increasing literacy rates.
The advent of the printing press revolutionized the dissemination of information. Books were no longer a luxury exclusive to the elite; knowledge became democratized. This sparked an increased demand for literacy. As more people learned to read, ideas were more freely exchanged, fueling a critical examination of existing societal structures.
For example, “The Encyclopédie,” a massive reference work edited by Denis Diderot and Jean le Rond d’Alembert, exemplified the spread of Enlightenment thinking. Its contributors, including leading intellectuals like Voltaire and Rousseau, aimed to collate all the world’s knowledge into a single work, accessible to the common man. This unprecedented venture into free access to knowledge set the stage for many of the democratic, scientific, and industrial revolutions that followed.
Fast forward to the present day, we see parallels in the advent of the internet, a digital revolution that democratizes information at a scale unimaginable to the Enlightenment thinkers. However, this superabundance of information has led to a paradoxical effect. As stated by Nobel Laureate Herbert A. Simon, “a wealth of information creates a poverty of attention.”
In an age characterised by short attention spans and reactionary behaviour, the challenge lies not in accessing information but in sifting through its vastness to discern truth from falsehood. A study conducted by Microsoft, 2015, found that the average human attention span has dropped to eight seconds, primarily due to the digitalised lifestyle.
Like the literacy of the Enlightenment Age, the 21st century calls for a new form of literacy: data literacy.
In a world where data is hailed as the new oil, our ability to critically interpret, analyse, and question data is of paramount importance. This skill set empowers individuals and corporations to make informed decisions, a process integral to our society.
In a report by The Data Literacy Projectof which also Experian is a partner, only 21% of the global working population was confident in their data literacy skills. This gap highlights the pressing need for an educational shift towards fostering data literacy, much like the push for literacy during the Enlightenment era.
In conclusion, as we navigate the information deluge, a new Age of Enlightenment beckons, one centered around data literacy. With this new ‘Enlightenment,’ we can harness the true potential of information abundance, steering our societies towards more informed, rational, and democratic spaces. As the Enlightenment thinker Voltaire wisely said, “Judge a man by his questions rather than by his answers.” This insight seems more pertinent now than ever.
Such a renewed Age of Enlightenment also draws inspiration from one of the original Enlightenment’s most influential thinkers, Immanuel Kant. As he famously stated, “Enlightenment is man’s emergence from his self-imposed immaturity.” To transpose his wisdom to our context, data literacy and the effective application of data might be seen as emergence from a state of technological immaturity.
Furthermore, in our modern context, the Enlightenment’s emphasis on reason and logic has a fascinating analogue in the field of artificial intelligence (AI). AI, a critical tool in making sense of complex data, is designed to mimic human reasoning, albeit on a scale and at speeds we could never achieve unaided. As such, it holds a pivotal role in our future, helping us glean insights from the vast sea of data.
However, while AI’s potential is significant, it further underlines the importance of data literacy. The algorithms that power AI are only as good as the data that feeds them. Poor understanding of data and its nuances can lead to skewed AI outputs, with far-reaching implications.
Leaders in data need to focus on responsible use of AI by promoting data literacy and improving understanding of the interplay between data and AI.
New Enlightenment, then, is a journey towards a mature, informed society that harnesses the power of data and AI for good. In this era, knowledge isn’t just power; it’s the key to creating a world where data and technology act as catalysts for positive change.
In this new age, data is not merely a collection of numbers, facts, or figures; it is a powerful tool for understanding and addressing the most pressing societal issues.
However, just as literacy was not universal during the initial Enlightenment, data literacy is not yet a universal skill. As a society, we need to foster an understanding of data, how it’s collected, how it’s used, and most importantly, how it can be used ethically and responsibly.
Harnessing Data for Good – The Experian way
Experian, as a data powerhouse, has a crucial role to play in this journey. Experian has been a pioneer in harnessing data for good, from helping individuals gain access to credit, to assisting businesses flourish, to aiding governments in delivering crucial services.
For the DACH region specifically, the path to growth is intertwined with our mission to empower individuals and corporations with data and to protect from risks. In our regional market in the heart of Europe, we see significant potential to enhance consumer and corporate credit, improve business services, and support governmental programs.
Trust, innovation and reliability go hand in hand
To achieve this goal, we need to aim high and develop state-of-the-art products like AiDRIAN, which, by intelligently combining and using the latest AI technologies and data, are able to protect customers from fraud with more than 99.9% accuracy. Developing trustworthy solutions is of paramount importance. Trust comes from long-term reliability and independent audits. For AiDRIAN, for example, Fraunhofer IPA audited the heart of the solution, the Transaction Miner. The machine learning model compares several hundred customer characteristics and then assesses the risk of a transaction. Millions of data records are evaluated in a matter of seconds. Fraunhofer therefore came to the test result that the Miner’s predictive power is comprehensible even to experts and leads to better decisions.
Such results are only achievable by having an exemplary team.
The Experian DACH team, which I had the pleasure of meeting during my first week, is made up of dedicated, forward-thinking people who understand that work is not just about data, but about using data as a tool for progress and prosperity. A team that is eager to innovate, build trust, and act as responsible stewards of the data – every single day. As we delve deeper into a new era, we should aim to be instrumental in fostering a society that uses data ethically, responsibly, and for the greater good.
The Enlightenment brought knowledge to the masses, revolutionizing societies, and shaping the modern world. It is my belief, a new Age of Enlightenment will bring data literacy to all, empowering societies in ways we are just beginning to imagine.
I am excited and honoured to be a part of this transformative journey.
17. Carinthische Dialoge – Schloss Bach – 14.-16. Juli 2023
Es ist mir eine besondere Ehre den Eröffnungsvortrag der 17. Carinthischen Dialogen geben zu dürfen. Unter dem Leitthema “Das Jahrzehnt der Transformation – Optimistische Perspektiven eines Umdenkens” wird der Beitrag, “Ein neues Zeitalter der Aufklärung” drei inspirierende Tage einläuten.
Bei dieser bemerkenswerten Veranstaltung teilen sich die Bühne angesehenen Persönlichkeiten aus verschiedenen Fachbereichen. So wird Horst von Buttlar, Chefredakteur der Zeitschrift “Wirtschaftswoche” und Autor des Buches “Das grüne Jahrzehnt”, Veränderungen ausgelöst durch Krisen thematisieren.
Nobelpreisträger Anton Zeilinger, emeritierter Professor der Universität Wien, widmet sich dem spannenden Thema des Zufalls.
Ich möchte mich herzlich bei den Organisatoren, insbesondere bei Generalsekretärin Johanna Franz und Maximilian Franz, für die Einladung und ihre unermüdliche Arbeit zur Realisierung dieser bedeutsamen Veranstaltung bedanken.
Horst von Buttlar, Wissenschaftsjournalist und Chefredakteur der Zeitschrift Capital. Buchautor „Das grüne Jahrzehnt“, Berlin
Klemens Fheodoroff, Dr., FA für Neurologie, OA Gailtal-Klnik, Obmann bei Carinthischer Sommer, 2.stv. Vorsitzender der Gesellschaft zur Förderung interdisziplinärer Dialoge, Carinthische Dialoge
Bernhard Gaul, Journalist im innerpolitischen Ressort der Tageszeitung Kurier
Arnold Mettnitzer, Prof. Dr., Theologe, Psychotherapeut in eigener Praxis, freier Mitarbeiter des ORF, Autor zahlreicher Bücher, Wien
Michael Musalek, Univ.-Prof. Dr., Ordinarius für Allgemeine Psychiatrie, SFU Med Wien, Vorstand des Intistuts für Sozialästhetik und Psychische Gesundheit, SFU Wien u. Berlin
Elisabeth Juliane Nöstlinger – Jochum, Wissenschaftsjournalistin, Producerin von WissensART, Vorsitzende der Jury zur Vergabe des Watzlawick-Ringes, Mitglied in zahlreichen wissenschaftlichen und kulturellen Gremien, Wien
Manfred Prisching, Univ.-Prof. i.R., Dr. jur., Mag.rer.soc.oec., Institut für Soziologie der Universität Graz
Philipp Weiss, österreichischer Schriftsteller, u.a. Buch: „Am Weltenrand sitzen die Menschen und lachen“, Wien
Jochen Werne, Autor, Keynotespeaker, international ausgezeichneter NGO-Gründer und Spezialist im Bereich Unternehmenentwicklung und -transformation, sowie internationaler Diplomatie.
Anton Zeilinger, em. o. Univ.-Prof. Dr., Universität Wien und Österreichische Akademie der Wissenschaften
The Decade of Transformation – Optimistic Perspectives of a Rethink
17th Carinthian Dialogues – Bach Castle – 14-16 July 2023
It is a special honour for me to give the opening lecture of the 17th Carinthian Dialogues. Under the guiding theme “The Decade of Transformation – Optimistic Perspectives of a Rethinking”, the contribution, “A New Age of Enlightenment” will usher in three inspiring days. At this remarkable event, the stage will be shared by respected personalities from various fields. Horst von Buttlar, editor-in-chief of the magazine “Wirtschaftswoche” and author of the book “The Green Decade”, will address changes triggered by crises. Nobel Prize winner Anton Zeilinger, professor emeritus at the University of Vienna, will address the exciting topic of chance. I would like to express my sincere thanks to the organisers, especially Secretary General Johanna Franz and Maximilian Franz, for the invitation and their tireless work to realise this momentous event. Further information on the event, including more details on the speakers below and the programme, can be found on the Carinthian Dialogues website https://www.carinthische-dialoge.at/aktuelles-programm/.
The Economic Council (Wirtschaftsrat der CDU e.V.) is a German business association representing the interests of more than 11,000 small and medium sized firms, as well as larger multinational companies. We provide our members with a platform to engage in a continuous dialogue with leading decision makers, both in Germany and Europe. We advocate economic policies which best reflect the principles of a social market economy as envisaged by Ludwig Erhard, Minister for Economic Affairs in the German Federal Republic between 1949 and 1963 and one of the co-founders of the Economic Council.
Our members are drawn from all sectors of the business and entrepreneurial community, including banking and finance, insurance, the automotive and chemical industries, healthcare and high-tech. Members can be companies, independent business executives or freelance professionals.
The diverse nature of our membership yields significant political weight when addingpolicy proposals to the political agenda. We ensure that the principles of the social market economy are taken into account within the decision making process, not only in Berlin and Brussels but also in the German federal states.
What does the Economic Council do?
We organize over 2,000 events annually at all levels of the council. These range from one-off events aimed at highlighting particular areas of interest to regular annual events such as the Europe Symposium, Conference on Energy Policy and Wirtschaftstag. These events are attended by high ranking politicians, academics as well as members of the business community. They attract significant regional and national media coverage.
The way the economic council works reflects the three tier structure of the association with offices in Berlin, the German federal state capitals (with the exception of Bavaria) and Brussels.
It was a pleasure contributing once again to a Henry Stewart Publication. This time in co-authorship (Christoph Impekoven & Jochen Werne) we delineate for the Journal of Digital Banking the differences between stablecoins, in particular, and ‘fiat’ currencies, in general. When you have read this paper, you will know what a stablecoin is, what types there are, how it differs from the US dollar or the euro and why the most important currency in all worlds is ‘trust’.
Journal of Digital Banking is the major professional journal publishing in-depth, peer-reviewed articles and case studies on FinTech innovation, digital disruption and how to develop a profitable, customer-focused digital banking strategy – specifically by using technology and automation to deliver efficient, secure and seamless customer experiences with lower operating costs.
Each quarterly 100-page issue – published in print and online – will feature detailed, practical articles showcasing the latest strategic thinking on how to exploit new and existing digital banking markets, business models and FinTech innovations along with actionable advice and ‘lessons learned’ from fellow digital banking professionals on the key business, risk and operational requirements for putting that strategy into practice. It will not publish advertising but rather in-depth analysis of new thinking and practice at a wide range of financial institutions, FinTech innovators and start-ups, investors, central banks and financial regulators worldwide for readers to benchmark their organisation against, with every article being peer-reviewed by an expert Editorial Board to ensure that it focuses on the digital banking professional’s perspective, the challenges they face and how they can tackle them.
Journal of Digital Banking is listed in Cabells’ Directories of Publishing Opportunities.
Journal of Digital Banking is abstracted and indexed in the Research Papers in Economics (RePEc) database IDEAS
As such Journal of Digital Banking publishes articles on:
Innovative digital payment services
Digital payments product management
AI and machine learning
Mobile banking and apps
Customer service, personalisation and user experience
Digitisation initiatives and replacing legacy systems
Investing in digital banking start-ups
Big Data and analytics
Risk, fraud and security
Regulation and compliance
Barriers to consumer adoption and how to overcome them
Digital, alternative and cryptocurrencies
Business models and partnerships
Digital banking operations and services
Rather than publishing advertising or the ‘bite-sized’ articles all too common on the internet, Journal of Digital Banking provides in-depth guidance and analysis on the key issues facing financial services in today’s rapidly evolving digital world, with high-quality articles from leading banks and other financial institutions, FinTech innovators and startups, central banks, financial regulators, investors, consultants and service providers, plus researchers and educators in the field.
Essential reading for Departmental Heads, Directors, Managing Directors, VPs, SVPs, EVPs and Senior Managers of: