Tag: banking

Innovation & Business Jochen Werne Society & Diplomacy

Mind over Machine

Jochen Werne April 7, 2024

Mastering the Power of AI and Large Language Models for Business Success and Positive Social Impact

By Jochen Werne

Düsseldorf, 6 April 2023.

Throughout human history, transformative technological innovations have heralded new eras, reshaping our societies, economies, politics, and daily lives in ways previously unimaginable. The printing press, introduced by Johannes Gutenberg in the 15th century, serves as a profound testament to the sweeping power of innovation. Not just a tool for mass-producing books, the printing press birthed the dawn of widespread literacy, transforming workplaces as manual scribes became obsolete and creating new vocations in publishing and literature.

The press also catalyzed a socio-political upheaval. As literacy rates surged, so did the empowerment of the masses. Ideas, once confined to the elite, became accessible to many, seeding the Renaissance, and later, the Reformation. Niall Ferguson, in his seminal work, “The Square and the Tower,” eloquently captures this revolution, asserting that the printing press restructured historical hierarchies and networks, shifting power dynamics in unprecedented ways.[1]

In economic terms, the press laid the foundation for capitalist markets. As information became accessible, trade routes expanded, local businesses thrived, and a burgeoning middle class began to wield economic influence. On the societal front, with the proliferation of ideas came the Enlightenment, propelling societies towards principles of liberty, fraternity, and equality.

Fast forward to the close of the 20th century, and another innovation emerged as a harbinger of transformation: the internet. Much like the printing press, the internet redefined workplaces, rendering some jobs obsolete while spawning new professions in digital technology, e-commerce, and online content creation. The globalized economy we witness today, underpinned by intricate supply chains and instantaneous communication, owes its existence to the digital revolution.

Politically, the internet has both empowered and challenged established structures. Grassroots movements, from the Arab Spring to global climate change campaigns, have harnessed online platforms to mobilize support and challenge the status quo. However, it’s also provided a breeding ground for misinformation, deepening societal divides in certain instances.

Yet, as we stand on the cusp of the AI revolution, it’s crucial to reflect on lessons from our past. Both the printing press and the internet came with their boon and bane. Their essence wasn’t inherently good or bad; it was humanity’s application of these tools that rendered them so. As we navigate the realms of AI and Large Language Models (LLM), this adage holds truer than ever: Technology and technological inventions are neither good nor bad – it’s the way we use them that bestows upon them such attributes.

Chronicles of Code – Decoding the Magic Behind Large Language Models

The realm of artificial intelligence is undergoing rapid metamorphosis, and Large Language Models, such as GPT-3 and GPT-4, stand out as the front-runners in this transformation.[2] To truly appreciate the intricate tapestry of LLMs, one must delve deep into their foundational technologies, unravel the plethora of practical applications they enable, and critically evaluate the challenges they pose.

At the nucleus of LLMs is their technological backbone. These models owe their prowess to deep learning and, more specifically, the transformer architecture.[3] This intricate design enables them to sift through colossal amounts of data, synthesizing human-like text that often mirrors our nuanced thought processes. The primary education of these models stems from vast datasets spanning the breadth of the internet, but their true finesse is achieved when they’re fine-tuned using more focused datasets, enabling them to excel in specialized domains.[4]

When it comes to their application spectrum, LLMs have left indelible marks across sectors. In the labyrinthine world of research, where professionals are inundated with vast pools of data and intricate academic papers, LLMs emerge as lighthouses, offering clarity by summarizing and presenting key insights.[5] Language translation, a domain that’s been historically challenging due to the nuances and subtleties of human language, has seen remarkable enhancements with LLMs. They’ve added a layer of contextual depth that was previously lacking in traditional translation tools.[6] The educational sphere is undergoing a renaissance, thanks to LLMs. Their capabilities in offering personalized content, adapting to individual learning curves, and providing immediate feedback promise a future where learning is both tailored and transformative.[7]

Yet, every silver lining has a cloud. The inherent challenges of LLMs are subjects of extensive discourse. Their reliance on training data can be their Achilles’ heel — biases in training data can lead to prejudiced outputs, a significant concern given the widespread influence of AI.[8] Additionally, their textual outputs, while sophisticated, can sometimes lack true human understanding, leading to contextually skewed results.[9] The broader societal implications of LLM adoption, especially the potential displacement of jobs and questions of ethical accountability, are pressing concerns that demand attention.[10]

The tapestry of LLMs in real-world scenarios paints a vivid picture of their transformative potential. Customer service has seen an overhaul, with AI tools streamlining interactions and enhancing user experiences.[11] The corridors of journalism echo with the influence of LLMs, aiding in content creation, editing, and even pioneering new forms of storytelling.[12] The legal world, often bogged down by voluminous documents, benefits immensely from AI’s precision in document reviews, bringing efficiency and reducing human errors.[13]

As we segue into “Redefining Workflows: The Profound Influence of LLMs on the Modern Workforce,” we’ll delve deeper into the myriad ways LLMs are reshaping our professional landscapes.

A New Work Paradigm: LLMs’ Crucial Contribution to Contemporary Business Achievements

The release of Large Language Models has initiated a paradigm shift in our understanding of the workforce dynamics. The ground-breaking research presented in the paper titled “Navigating the Jagged Technological Frontier: Field Experimental Evidence of the Effects of AI on Knowledge Worker Productivity and Quality,” authored by the illustrious team of researchers including Fabrizio Dell’Acqua, Edward McFowland III, Ethan Mollick, Hila Lifshitz-Assaf, Katherine C. Kellogg, Saran Rajendran, Lisa Krayer, François Candelon, and Karim R. Lakhani, brings forth significant insights into this transformation.

Praise is due to this team of researchers for conducting a well-structured, extensive experiment involving 758 consultants from the global management consulting firm, Boston Consulting Group (BCG). Their analysis offers invaluable insights into the applications and limitations of AI in knowledge-intensive tasks. The concept of a “jagged technological frontier” introduced in their paper signifies the nuanced capabilities of AI. It underscores the notion that while AI excels in certain tasks, others that might seem similar in complexity can be beyond its scope.

Their findings show that when consultants utilized AI in the realm of its capabilities, there was a noticeable uptick in productivity, with tasks being completed 12.2% more and 25.1% faster. The quality of results also soared, witnessing an impressive increase of over 40%. These figures paint a vivid picture of the transformative power of AI when applied within its domain of expertise. Yet, it’s essential to note that outside this domain, relying on AI may lead to counterproductive results.

The paper also identifies two distinct ways in which consultants engaged with AI. Some consultants acted as “Centaurs,” seamlessly dividing and delegating tasks between themselves and the AI, while others emerged as “Cyborgs,” integrating their workflows with the AI in an ongoing symbiotic interaction. Such observations are pivotal as organizations strive to harness the optimal potential of AI, while also understanding its limitations.

LLMs like ChatGPT, as highlighted in the research, have redefined the frontiers of automation, demonstrating capabilities in areas previously reserved for the most educated, creative, and highly paid workers. The research suggests that these models are more than mere tools; they are evolving entities with vast yet unpredictable capabilities. Their potential to transform workflows and elevate the quality of work output in the consulting realm, and possibly across other industries, is profound.

Yet, for all their potential, the research astutely underscores the risks associated with the blind adoption of LLMs. Misplacing trust in these systems for tasks outside their capabilities can lead to inaccurate results and compromise the integrity of the work. The inherent opacity of these models further complicates this dynamic. Without a clear understanding of their strengths and weaknesses, professionals may be navigating a minefield without a map.

The “jagged technological frontier” metaphor therefore poignantly encapsulates the ever-evolving landscape of AI capabilities. This invaluable research serves as a compass, guiding professionals and organizations on how to integrate LLMs efficiently into their workflows, optimize productivity, and elevate the quality of outputs. The ripple effects of LLMs on the workforce are profound, and as we traverse this technological frontier, it is paramount to tread with both enthusiasm and caution. The dedication and rigor of the research team in shedding light on this complex subject deserve commendation. Their work has undoubtedly laid a solid foundation for further exploration in the transformative world of AI and its implications on the workforce.[14]

The importance of discerning the “jagged technological frontier” concept is crucial. While some tasks may appear similarly intricate on the surface, not all can be executed efficiently by AI. Drawing from own research and the extensive studies by the German AI platform “Plattform Lernende Systeme“, it’s pivotal to distinguish which tasks are best tackled with human-AI collaboration.[15]

Harnessing the Power of LLMs: Best Practice approach from a global data insights market leader

Experian[16], as a global data leader, recognizes the transformative essence of information. Through AI and Machine Learning, Experian gleans significant insights from data, empowering businesses to make enlightened decisions. Additionally, the principle of ‘data for good’ resonates profoundly with the philosophy. By responsibly channeling data, the company not only catalyze economic progress but also mitigate societal challenges.

Experian has not only acknowledged the transformative potential of Machine Learning and Large Language Models but also fervently acted upon it.

Alex Lintner,[17] CEO of Experian Software Solutions, recently provided insights into the evolving role of artificial intelligence (AI) in the financial sector during a video conversation.[18] Lintner emphasized how AI, especially carefully constructed large language models, offer an unprecedented opportunity for the industry. He elucidated the scalability of such technologies, noting the potential to leverage machine learning for monitoring market trends and preempting credit risks as market circumstances change. This technological evolution allows machines to autonomously create prompts for decision makers, automate routine model monitoring processes, and even forecast variables that should be included in models in the future, thus enabling humans to channel their resources towards creating innovative solutions and supporting strategic initiatives.

Moreover, Lintner shed light on the vast potential of AI in financial services. He highlighted the importance of agile risk detection and swift response mechanisms, indicating that this is just scratching the surface. Experian alone has pinpointed over 200 potential use cases. However, the immense capabilities of AI also beckon significant accountability. Lintner underscores the paramount need for rigorous compliance, governance, and transparency measures to guarantee AI’s ethical and judicious application.

On the ethical front, Lintner asserted, “Protecting data and ensuring responsible use of generative AI is not just a priority; it’s an imperative.” Given Experian’s pivotal role in handling sensitive financial information, establishing and maintaining trust is of utmost importance. Therefore, integrating stringent ethical standards, principles, and methodologies is crucial to the successful and responsible rollout of AI technologies.

As for steering the future, Lintner offers a clear roadmap: focus on acquiring talent in the AI domain, consistently gather customer feedback, and astutely prioritize opportunities. He believes that truly innovative solutions emerge from a profound understanding of customer necessities—a philosophy that resonates deeply in his perspectives.

In data companies globally every decision, every product, every innovation stems from the intricate understanding of the numbers. As the vast amounts of data they manage continue to grow, there’s an increasing need for more sophisticated ways to handle, analyze, and extract insights from it. Enter Machine Learning (ML) and, more specifically, Large Language Models (LLMs).

Ahead of the Curve: Cultivating a Workforce Fit for the Future

It’s important to understand that the use of LLMs isn’t just about improving backend processes; it’s especially about equipping the workforce for the future. When I took the helm on August 1st, 2023 as the new CEO of Experian DACH, one of the first directives on day one – inspired by the example of other Country Managers within the group – was to motivate all employees in Germany, Austria and Switzerland to undergo the corporate GenAI training. This wasn’t just a nod towards technological advancement; it was a strategic move to ensure that the very culture of the company was aligned with the digital transformation wave sweeping across industries.

By doing so, Experian isn’t merely training its employees on a new tool; it was nurturing a mindset of innovation and adaptability. With hands-on experience from the GenAI training, employees were encouraged to conceptualize practical roll-out use cases. For example, marketing professionals can incorporate insights from LLMs into their engagements, delivering more personalized and impactful messages to clients. In the meantime, the sales teams were able to use LLM-generated insights to identify potential markets or niches that had not yet been tapped – today, the vast majority of Experian employees worldwide are not only trained, but use GenAI in their daily work and develop new use cases on the fly.

Training and Learning is not just about immediate benefits. It is a forward-thinking strategy to ensure that new technologies, as LLMs continue to evolve and their applications grow, the company’s workforce would not be left behind. It is about fostering a culture of continuous learning, adaptability, and leveraging cutting-edge technology to stay ahead in highly competitive industries.

Redefining an Industry’s Future

Large Language Models (LLMs) like GPT-4 are at the forefront of the AI revolution, harnessing the capability to understand, generate, and augment human-like text at a scale previously unimaginable. This progression in AI has significant implications for businesses, especially for data-centric industries that are looking to derive actionable insights from vast data volumes.

One of the key challenges for data-centric companies is extracting meaningful insights from massive data sets. Traditional methods are often cumbersome, and while they can yield valuable results, the increasing volume, velocity, and variety of data have made these methods less efficient. Machine Learning offers a solution to this challenge. By leveraging algorithms that can learn from and make decisions based on data, ML has revolutionized the way companies interpret complex data structures.

Therefore, as data continues to be the backbone of our digital age, companies that can harness its power most effectively will lead the charge. For data insights giants like Experian, integrating Machine Learning, and especially Large Language Models, isn’t just a technological upgrade; it’s a transformative strategy to redefine their industry’s future.

Conclusion: The Harmonization of AI and Humanity

Throughout history, innovations have undeniably transformed societies, leaving a lasting impact on the course of human progress.[19] Whether we consider the revolutionary impact of the printing press or the transformative power of the internet, each technological leap has reshaped our world and the way we live. In the face of these profound changes, humanity has consistently demonstrated its ability to adapt, evolve, and harness these tools for our collective betterment.[20] In this context, artificial intelligence and with-it large language models emerges as the latest frontier where the intricate interplay between humans and technology is being examined and refined.

Rather than surrendering to the allure of extreme narratives, such as an AI-dominated dystopia or a utopian world of boundless prosperity, it is imperative to acknowledge that the future most likely rests within the delicate equilibrium of harmonizing AI and humanity.[21] This harmonization goes beyond mere coexistence; it encompasses collaboration and synergy, merging human intuition and the computational prowess of AI to create a potent force capable of driving profound transformations in all aspects of our lives.

As we venture further into this uncharted territory, the wisdom of great thinkers continues to guide us. Albert Einstein once remarked, “Imagination is more important than knowledge. For knowledge is limited, whereas imagination embraces the entire world, stimulating progress, giving birth to evolution”.[22] In the context of AI and humanity, this sentiment resonates profoundly. Our imagination and creativity serve as the catalysts for progress, and AI serves as the tool that can amplify and expedite our ability to transform imaginative ideas into reality.

The future may indeed be obscured by uncertainty, but it is unquestionably a future that we, as a collective humanity, possess the power to shape.[23] It is a canvas waiting for us to paint our hopes and aspirations upon, guided by principles of meticulous consideration and ethical responsibility.[24] The horizon of AI’s potential is expansive, and the possibilities it presents are as vast as the human imagination itself.

To achieve this harmonization, several key principles must be prioritized. First and foremost is ethics.[25] The development and deployment of AI must be grounded in a robust ethical framework that ensures fairness, transparency, and accountability. We must diligently guard against biases and discrimination, guaranteeing that AI benefits the entirety of humanity, leaving no one marginalized.[26]

Second, education and empowerment are paramount.[27] As AI becomes increasingly integrated into our daily lives, it is essential that individuals have access to the knowledge and skills necessary to navigate this new landscape. Education empowers us to harness AI’s potential while mitigating its associated risks.

Lastly, collaboration forms the linchpin of success.[28] Governments, businesses, researchers, and individuals must collaborate, transcending borders and sectors to harness the full potential of AI. Interdisciplinary collaboration can pave the way for breakthroughs that benefit society as a whole.

The harmonization of AI and humanity offers a promising path forward.[29] It is a journey that requires us to draw upon the wisdom of the past, the imagination of the present, and the ethical considerations of the future.[30] As we navigate this uncharted waters, we must remember that the power to shape our destiny resides within our collective hands.[31]

With knowledge, responsibility, and a harmonious integration of AI with human expertise, the future horizon is indeed one filled with promise and potential. It is a future where the partnership between humans and AI can lead to a brighter and more equitable world for all.

[1] Ferguson, N. (2018). The Square and the Tower: Networks and Power, from the Freemasons to Facebook. Penguin Press.

[2] Brown, T. B., et al. (2020). “Language Models are Few-Shot Learners.” OpenAI

[3] Vaswani, A., et al. (2017). “Attention is All You Need.” NeurIPS

[4] Devlin, J., et al. (2018). “BERT: Pre-training of Deep Bidirectional Transformers for Language Understanding.” Google AI

[5] Chui, M., et al. (2018). “Notes from the AI frontier: Tackling Europe’s gap in digital and AI.” McKinsey Global Institute

[6] Hale, S. A. (2016). “Commercial Applications of Machine Translation.” The Oxford Handbook of Translation Studies

[7] Luckin, R. (2017). “Towards artificial intelligence-based assessment systems.” Nature Human Behaviour

[8] Bender, E. M., & Gebru, T. (2021). “On the Dangers of Stochastic Parrots: Can Language Models Be Too Big?” Proceedings of FAccT.

[9] Lipton, Z. C., & Steinhardt, J. (2018). “Troubling Trends in Machine Learning Scholarship.” arXiv preprint

[10] Russell, S. (2019). “Human Compatible: Artificial Intelligence and the Problem of Control.” Viking

[11] Huang, M. H., & Rust, R. T. (2018). “Artificial Intelligence in Service.” Journal of Service Research

[12] Graefe, A. (2016). “Guide to automated journalism.” Tow Center for Digital Journalism, Columbia University

[13] Surden, H. (2014). “Machine Learning and Law.” Washington Law Review

[14] Dell’Acqua, F. et al. (2023). Navigating the Jagged Technological Frontier: Field Experimental Evidence of the Effects of AI on Knowledge Worker Productivity and Quality. Harvard Business Review.

[15] acatech. Plattform Lernende Systeme (2023) https://www.plattform-lernende-systeme.de/home-en.html

[16] Experian Corporate website: https://www.experianplc.com

[17] About Alex Lintner: https://www.experianplc.com/about-us/board-and-senior-management/senior-management/alex-lintner/

[18] Lintner, A. (2023) Transforming Financial Services with AI and Automation – A video interview. YouTube https://youtu.be/_QnZf3FlNq0?si=Y4WditFgkX-aGaGt

[19] McKinsey Global Institute. (2021). “AI in the post-pandemic world: Five key trends.” https://www.mckinsey.com/capabilities/quantumblack/our-insights/global-survey-the-state-of-ai-in-2021

[20] Pew Research Center. (2019). “Americans and Privacy: Concerned, Confused and Feeling Lack of Control Over Their Personal Information.” https://www.pewresearch.org/internet/2019/11/15/americans-and-privacy-concerned-confused-and-feeling-lack-of-control-over-their-personal-information/

[21] World Economic Forum. (2020). “The Future of Jobs Report 2020.” https://www.weforum.org/reports/the-future-of-jobs-report-2020

[22] Einstein, A. (1931). “The Cosmic Religion: With Other Opinions and Aphorisms.”

[23] The Guardian. (2022). “The Uncertain Future of Artificial Intelligence.”

[24] World Economic Forum. (2018). “Ethics by Design: An Organizational Approach to Responsible Use of Technology.” https://www.weforum.org/whitepapers/ethics-by-design-an-organizational-approach-to-responsible-use-of-technology/

[25] The Royal Society and the British Academy. (2020). “Data Management and Use: Governance in the 21st Century.” https://royalsociety.org/topics-policy/projects/data-governance/

[26] AI Now Institute. (2019). “Discriminates in AI Hiring Tools and the Role of Human Oversight.” https://ainowinstitute.org/wp-content/uploads/2023/04/AI_Now_2019_Report.pdf

[27] UNESCO. (2020). “I’d Blush if I Could: Closing Gender Divides in Digital Skills Through Education.” https://unesdoc.unesco.org/ark:/48223/pf0000367416.page=1

[28] Stanford HAI. (2021). “AI Index 2021 Annual Report.” https://aiindex.stanford.edu/wp-content/uploads/2021/11/2021-AI-Index-Report_Master.pdf

[29] McKinsey & Company. (2018). “Notes from the AI Frontier: Insights from Hundreds of Use Cases.” https://www.mckinsey.com/~/media/mckinsey/featured%20insights/artificial%20intelligence/notes%20from%20the%20ai%20frontier%20applications%20and%20value%20of%20deep%20learning/notes-from-the-ai-frontier-insights-from-hundreds-of-use-cases-discussion-paper.ashx

[30] The Hastings Center. (2019). “Is Ethical AI an Oxymoron?” https://www.thehastingscenter.org/news/hastings-president-addresses-the-question-is-ethical-ai-an-oxymoron/

[31] United Nations. (2019). “The Age of Digital Interdependence.” https://digitallibrary.un.org/record/3865925?ln=en

Innovation & Business Jochen Werne Press & Publications

FinanzBusiness: THE SIX TOP CHALLENGES FOR BANKS THIS YEAR

Jochen Werne February 24, 2024

It was a great pleasure speaking with Torben Schröder of FinanzBusiness about “THE SIX TOP CHALLENGES FOR BANKS THIS YEAR”.

He writes in his article: In an increasingly regulated market environment, providers who use their data intelligently will be the most successful, says Jochen Werne from Experian in an interview with FinanzBusiness.

Data is the new oil, they say: “The quality of data will become the kingmaker in the credit risk market of the future and open the way to new market opportunities,” says Jochen Werne, CEO of data service provider Experian DACH. In an increasingly regulated market environment, providers who use their data intelligently and master the balance between data protection and customer experience will be the most successful.

Werne names six “top challenges” for this year. These arise from regulations from the European Banking Authority (EBA) – and from technological developments. On the one hand, risk management is to be significantly improved and sustainability criteria verified at the behest of the European Central Bank and the EBA supervisory authority. On the other hand, artificial intelligence (AI) is opening up completely new opportunities in an increasingly complex market environment.

Read the full article in original at FinanzBusiness

Innovation & Business Jochen Werne Press & Publications

Hot off the press: Data quality is crucial

Jochen Werne February 4, 2024

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.


“By the deadline of 30 June 2024, large banks must have adapted their systems and infrastructures in accordance with the EBA Loan Origination and Monitoring Guidelines (EBA-GL LOM) for effective credit risk management and monitoring.”

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

In view of the weak economic momentum, the expected increase in non-performing loans and challenging margin developments, financial institutions must develop new growth strategies.

“Investments in technologies such as generative AI and forward-looking risk management are becoming increasingly important.”

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

“Over the next 12 months, strengthening business resilience through automation and digitalisation will be key to responding to new risks such as AI, cyber threats and geopolitical tensions.”

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

Since the end of 2023, the EU Commission has been aiming to drive forward the “Consent Driven Economy” with new regulations such as PSD3 (Third Payment Services Directive), PSR (Payment Services Regulations) and FIDA (Access and Use of Financial Data) and to give consumers more opportunities to use the data available about them.”

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

“The EU AI Act will have a significant impact on the use of AI in the financial sector and further strengthen the financial sector’s technology focus.”

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

Cloud integration remains a significant but unfinished transformation challenge in the world of finance.

“The ongoing implementation of continuous development and continuous improvement, particularly in the areas of business, analytics and IT, is becoming increasingly important.”

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.

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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).

Jochen Werne – Chief Executive Officer Experian DACH
Innovation & Business Jochen Werne Press & Publications

Frontline Defense: Outsmarting Fraudsters and Shaping the Future of Fraud Prevention

Jochen Werne December 26, 2023

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.

#fraudprevention #dataliteracy #machinelearning

Innovation & Business Press & Publications Society & Diplomacy

Charting Uncharted Waters: Europe’s Place in a World Remade

Jochen Werne November 4, 2023

By Jochen Werne.

Duesseldorf, 5 November 2023

Introduction

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 European Central Bank (ECB) embodies Europe’s proactive stance^12. Recognizing the flux, the ECB’s vision for 2023-2025 zeroes in on three pillars:

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.

  1. 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.
  2. 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.
  3. 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.

Footnotes:

^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.

Innovation & Business Jochen Werne Press & Publications Society & Diplomacy

Decisions

Jochen Werne August 27, 2023

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.

Innovation & Business Press & Publications

Journal of Digital Banking: Same Game – Same Rules?

Jochen Werne March 29, 2023

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’.

The Journal can be bought online HERE

Journal of Digital Banking

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
  • FinTech innovation
  • Digital payments product management
  • AI and machine learning
  • Mobile banking and apps
  • Blockchain
  • Open banking
  • 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
  • Standardisation initiatives
  • 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:

  • Digital strategy
  • Digital banking
  • Mobile payments
  • Online banking
  • Payments innovations
  • Marketing
  • Customer insights and analytics
  • User experience
  • Payments
  • Social media
  • Payments strategy
  • Product management/strategy
  • Transaction banking
  • Payments operations and services
  • Payment systems; as well as
  • Presidents, CEOs, CTOs, CFOs, COOs and CIOs
Innovation & Business Press & Publications

New publication: The world’s most important currency 

Jochen Werne March 19, 2023

It was a great pleasure for me to contribute to Roland Eller’s, Markus Heinrich’s and Maik Schober’s latest, much acclaimed publication ”Investing money like the pros”.

As co-authors, Christoph Impekoven and Jochen Werne reflected on the topic ”The world’s most important currency”.

DO THE SAME RULES APPLY TO CENTRAL BANK AND CRYPTOCURRENCIES WHEN IT COMES TO MONETARY STABILITY? AND HOW DOES AN INVESTOR RECOGNISE THE SAFE HAVEN IN THE CRYPTO WORLD?

FIND OUT MORE IN THE NEW BOOK

The financial market offers numerous opportunities to achieve returns with manageable risk. For anyone who wants to take advantage of these opportunities and make long-term provisions, Geldanlage wie die Profis (Investing like the Pros) offers the knowledge and proven strategies of more than 25 renowned authors, which can be easily transferred to private investment.

On the one hand, the most important topics for beginners are covered: How do you find the right risk class for you? How beginner-friendly are shares, funds and ETFs? What tax issues need to be considered? On the other hand, the current megatrends are explained – alternative energies, cryptocurrencies and the real estate boom – where are high profits to be made, where does risk predominate? An indispensable guide for anyone who wants to make more out of their savings in the long term.

The book can be bought on Amazon – just click here

Innovation & Business Press & Publications

Hot off the press: What makes a stablecoin

Jochen Werne January 18, 2023

Author: Angelika Breinich-Schilly

Published on 11 January 2023 at Springer Professional – Follow this LINK to original text in German. Translation created with deepL.com

Experts quoted in the article: Stefan Behringer, Leef H. Dierks, Florian Follert, Jochen Werne, Dr. Johannes Winter, Joachim Wurmeling

What distinguishes so-called stablecoins from cryptocurrencies like Bitcoin, Ether & Co? By linking to one or more currencies, this form of digital money forms a bridge to classic FIAT currencies. How this works and where problems lurk is shown in our “Compact explained”.

Stablecoins are digital tokens, assets of private issuers that can also take on money functions. According to Leef H. Dierks, they usually replicate the value of a reserve currency, such as the US dollar, or even a whole bundle of official currencies.

Thus, they do not have to represent a claim on the issuer (the reserve currency) itself, but can also be backed by demand deposits of various currencies, securities or other assets. This so-called peg reduces the volatility of stablecoins compared to classic virtual currencies, such as Bitcoin,” writes the Springer author in the book chapter “Virtual Currencies and Monetary Policy” on page 234.

According to Dierks, stablecoins take on a bridging function to fiat currencies, “especially since, as long as they are backed by legal tender, they do not challenge the currency monopoly of central banks (analogous to bank deposits) at any time”.

Stablecoins make new business models possible

According to a thesis paper by the Landesbank Baden-Württemberg (LBBW) from mid-December 2022, stablecoins do open up new business models. At the same time, however, they are “anything but stable, but are subject to the risk of the holders fleeing from them if there are doubts about their collateralisation”. Digital money may have a negative impact on macroeconomic lending and reduce the influence of central banks on the aggregate money supply. One way to regulate it is to require issuers to hold central bank reserves.

The best-known stablecoin project is Tether, which is pegged one-to-one to the US dollar. “There has been repeated criticism of Tether, so that the company behind the issue has since admitted to using not only currency holdings in US dollars to collateralise the issued units of cryptocurrencies, but also other assets (for example, commercial papers of companies),” Stefan Behringer and Florian Follert describe the background in the book chapter “Controlling of cryptocurrencies” (page 187). This also explains why this stablecoin does not correlate exactly with the performance of the US dollar.

Risks of stablecoins

Jochen Werne and Johannes Winter explain in the book chapter “Cash, book money, cryptocurrencies and the digital euro” on page 84 that there are risks for the financial sector if stablecoins become widespread. They could undermine the banks’ deposit business and their business models. The Springer authors see in the central bank cash-backed stablecoins a possibility of a trustworthy transitional solution in hybrid form. This is a stablecoin that demonstrably holds any digital twin in the form of central bank money.

“Due to the tradability of the tokens, the flexibility of book money is paired with the guarantee of physical central bank money. Even the expected damage from a successful attack on the underlying blockchain could thus be minimised, since an unlawful acquisition of power of disposal over assets is quickly restricted in its usability. A regulated expert function guarantees that only central bank money or a digital twin is traded and thus the central supervisory function always lies with the central bank,” say Werne and Winter.

MiCA forms future legal framework

With the Markets in Crypto Assets (MiCA) regulation, the European Union has sewn a legal garment for the crypto industry in the 26 EU states. The new EU regulation is to enter into force by the beginning of 2023 and become effective 18 months later vis-à-vis all market participants.

“MiCA responds to the growth of the cryptoasset ecosystem and integrates a large number of new players into the European supervisory space,” explains Joachim Wurmeling, member of the Executive Board of the Deutsche Bundesbank, in a guest article on the occasion of the Bundesbank Symposium in November 2022. “In future, crypto service providers and issuers of crypto assets will not only have to ensure that the risks arising from the cryptoasset business are adequately managed; they will also have to apply for authorisation to issue crypto assets or to provide crypto services and be subject to ongoing supervision.”

In addition, he said, the regulation also applies to traditional financial institutions that provide services around cryptoassets. The regulatory approach for MiCA is new and is emerging alongside the traditional structure.

Innovation & Business

Hybrid Seminar: Banking Use Cases of Blockchain Technology

Jochen Werne January 8, 2023

The participants of the seminar acquire knowledge that enables them as decision-makers to understand projects that are to use blockchain technology more quickly, to recognise opportunities and risks and to evaluate them together with experts.

It is a pleasure for me, as Managing Director of Prosegur Crypto GmbH, to support the seminar together with other leading blockchain experts such as Christoph Impekoven (micobo), Markus Honvehlmann (micobo), Dr. Marc Henniges (d-fine), Dr. Timo Bernau (GSK), Lucas Zaehringer (verity) and Cara Reuner (Ecota) to train banking experts to create future innovative use cases. We will discuss:

Digital Money

  • Central Bank Digital Money – Stable Coins
  • Programmable Money
  • E-Money Tokens

For more details please refer to the website of BZ-Live: https://www.bzlive.de/veranstaltung/1606//