Mar 21 – Tech for Tech’s sake

Press headlines get me intrigued, motivated, disappointed but sometimes genuinely challenged.  “Big, dumb mortgage products” was one.  Would this be revolution, evolution or innovation?

Dr Louise Beaumont, chair of the open finance and payments working group at TechUK, was cited as saying that, ”Open banking has a rich and valuable future, building from humble beginnings in the banking sphere to open finance and through to the rich, sunlit uplands of open data. This means an ever-richer suite of data to pull into ever-more valuable services — hyper-personalised, predictive and pre-emptive services.”

“This spells the end of big, dumb mortgage products manufactured without consideration for the end consumer.  Mortgages will be bespoke for the individual, based on what data they choose to share with the provider. And the products will flex, as the individual’s circumstances change, again based on the flow of data.  It’s time to unleash your imagination and think about the data you need to create genuinely valuable services and to leave lumpen, inflexible products behind.”

Open finance is where data is sourced from financial organisations like insurers and others. Open data brings in information from a wider range of sources such as fitness apps or online retailers.  It is hoped to provide a secure way for financial information to be shared across different finance providers with customers’ consent.  However, most of us give this consent as part of the general terms and conditions without giving express consent and our data is now being manipulated and used in many ways.

The question to be considered is whether this a genuine renaissance or just the dreams of technology experts who have clever new “intelligent” systems that need somewhere to operate.  Is it tech chasing markets or genuine needs looking for a technology solution?

I wish these tech firms would show me where the genuine consumer demand for this is – or why the lender might want to move in this direction.  In the world of insurance, risk directors worry about being caught in the vortex of adverse selection, where they get all the bad risks at an average premium.  Similarly, as we think we can use correlated data for lending we face into the huge risks of both the false positive issue and the risk of both positive and adverse selection.

As an industry we are charged with having limited genuine societal benefit.  However, by placing people in relatively wide risk buckets more can benefit from the product and its averaged pricing than perhaps if each deal was individual.  Half would get worse prices or some no product at all.

The regulator has spent decades warning the industry against forcing new products or solutions on consumers that barely fit and not meeting identified needs – the challenge has been to show your market research during your product design phase.  We have spent decades understanding risk and pricing through LTV, LTI, credit score and applying improving sourcing to assess suitability of product terms.  The new intelligent product is yet to awaken my inner revolutionary fervour.

Robert Sinclair
Chief Executive, AMI