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Wednesday, December 28, 2016

Digital Banking





What is 'Digital Banking'?

For simple understanding, call it 'Uber-Banking' - that of customers having a myriad of choices of cheap financial services at their fingertips, literally a call away. It is safe to assume that banks in their current form, will be not be able to compete with the disruptive and innovative financial products (Fintech) popping up ubiquitously. 



These disruptive technologies cover a wide range of services like crowdsourcing (donations, investments, or loans), new payment gateways, tailored healthcare insurance, wealth management...etc.

Here are two examples:


1. Microbanking - A smart card value storage application system that operates among small corner convenience stores, that accepts the low income groups as customers - a category that conventional  banks would consider as 'unbankable'. That means the lower income have values stored in their smart cards where they can either purchase goods or withdraw/deposit cash at convenient stores. 

2.Small Farmer Trading - A Over-The-Counter Small Farmer trading system that is authenticated and verified using BlockChain Technology. For more about blockchain, click here. This means that small farmers can work as a cooperative to sell their produce directly to their customers, by passing the middle man.

Note that both examples above do not necessarily need to transact through conventional banks.


Banks vs Fintech

At the moment, Fintech is mostly unregulated, while in contrast, banks are heavily regulated. This is akin to freewheeling Uber cabs versus regulated taxi companies. Some central banks are planning to regulate Fintech,  albeit lightly, so as not to strangle them to an early death.

It is inevitable that banks must change, or die. That said, many Fintech startups are not immune to the tough world of commerce either, eventually, many will die too, like most startups do. Besides, their scalability, extensibility and resilience against regulatory compliance, are yet to be truly tested.

I liken Fintech to be experimental films, where most are wild and imaginative, with only a few managing to find their symbiotic positions in the ecosystem.



Technologies: There are three areas that banks may like to dip their toes in the waters to get a feel of the Fintech revolution, namely:

1. BlockChain Technology. For simple understanding, a Block Chain is a chain of hash values. Each hash value correlates to a transaction. Hash values are non-repudiatable , so it is possible to mathematically demonstrate that the chain of transactions did indeed happen. For more about one-way hash, click here.

2. Internet of Things (IOT). Soon billions of devices will be intelligently interconnected, generating tetrabytes of data and meta data.  Vending machines, for instance, may be connected to suppliers' inventory systems, that are in turn connected to outsourced fulfillment vans plying the roads every hour; that in turn have navigation systems connected to GPS....etc.  And it goes on....

In time, Artificial Intelligence will be required to monitor the tetrabytes of data generated and passing through every few hours into perpetuity.

3. Common APIs. These will emerge among major players so that any bank or Fintech developer can use them to connect to the financial services eco-system.



What does this mean for Information Security?

The weakest links have to be identified. Where is the weakest link in the Block Chain Transaction? It is unlikely to be in the one-way hash algorithm, but more likely in the processes, perhaps processes that are vulnerable because of their need to interoperate with legacy systems, or the need to fulfill customer experience requirements.

How are we going to make sure that IOT is doing what it is supposed to be doing and not used as part of a Distributed Denial Of Service (DDOS) attack? With such volumes of data, it is not humanly possible to monitor manually. Inevitably, Artificial Intelligence (AI) will have to come in. Then the task will be to check the AI to make sure that they do not run tangent to the original plan. An AI rebellion or mutiny will be scary.

With Common APIs, we have to ensure that they are programmed to Secure Programming Standards and changes in control infrastructures will be necessary, since these APIs are now exposed to the outer and wider Cyberspace.


There are a lot more details we can go into, but the above is a good start.




Note:

The term 'digital banking' is superfluous. Banks have gone digital since the early 1980s. The real revolution in banking is in the decentralisation and democratisation of information. 

The prolific author and futurist Alvin Toffler had predicted the above trends, plus the odd problems of overchoice and mass customisation in the economy. These are mentioned  in his books "Future Shock" and "The Third Wave" back in the 1970s.

These trends are turning conventional economies on its head, disrupting the finance, transportation, travel, education, news and information, software development and film production industries; with many more others to follow. 

Automation in many industries will soon render many jobless, causing unemployment in big cities and workers returning to subsistence living in the countryside, this time aided by technology. So, more neo-hippie communes will sprout in the next fifteen years with their own system of barter, digital currencies, energy generation,...etc.

We are indeed living in exciting times.



For more about the changing trend of the: 

TV and Film industry, click here.

Future of information security, click here.

Management of one such disruptive startup, click here.


For more about the future of cryptography

click here.