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22 January 2020 General
Mensen die fietsen bij de zee met windmolens in het water

The loans, savings and payments market is changing and becoming increasingly more challenging with the advent of new parties and the dawn of the data age. In this highly dynamic environment, institutions must give first priority to the security, governance, optimum use and quality of data. We will remind financial institutions more emphatically of their responsibilities in this regard.

Data are increasingly important

The market for banking services is changing further in the coming years due to the growing importance of data. The report “Building trust through change. Lending, saving and paying in the data age”, DNB outlines the current state of affairs in the market for banking services and describes trends and future scenarios. In all future outlooks, the importance of data increases. Data related to e.g. transaction moments, purchase behaviour and personal characteristics are used to improve banking core processes and to enable targeted offerings, such as mortgage loans or savings accounts. Developments in artificial intelligence (AI) and data analytics touch upon almost all aspects of banking services, and their role is steadily increasing. New market participants with a technology background are also entering the market for banking services now and start competing with established market operators.

Trust depends on careful use of data

More attention for data is required to maintain people's trust. Surveys show that consumers have more trust in banks than in tech companies where the careful handling of personal data is concerned (see Figure 1). Dutch consumers attach great importance to the careful handling of their personal data, and banks should work hard to retain this relationship of trust. Under PSD2, consumers must give their explicit consent if they wish to share their payment data with third parties. The Dutch Data Protection Authority monitors compliance with the General Data Protection Regulation (GDPR). As the central bank and supervisory authority we must also stay alert, since careless or unauthorised use of data has a negative effect on public trust.

 

Figure 1 - More trust in bank than in tech company with respect to...

Figure 1 - More trust in bank than in tech company with respect to

Data use has an impact on banks’ future business models

Banks must improve the quality of their data to optimise utilisation and safeguard the viability of their business models. Inadequate quality of data leads to inaccurate risk assessments. The use of data has an impact on banks’ profitability on the costs and income side. While data analytics initially require higher investments, they are necessary to improve core processes and will eventually result in lower costs and higher revenues. Data utilisation is essential to ensure effective prevention of financial crime and to bring down the costs of fraud. It offers opportunities for personalised digital customer contact and perfectly ties in with the requirements relating to convenience and user-friendliness (see Figure 1). The importance of data analytics for the core process of lending is set to increase still further. In some cases, credit scores based on new types of data and AI are already delivering better results than traditional credit assessment methods. Nevertheless, the use of personal data is at all times subject to explicit consent from the customer and must be permitted by law. Winners and losers will eventually emerge in this world of increased data utilisation and new data applications. Risks may concentrate with the latter group and market shares may shift as a consequence. As a supervisory authority we will stay alert and monitor the banks’ capacity for change and resolvability.

Focus on data in supervision

We will remind financial institutions of their responsibilities regarding the quality and viability of their data operations. We will monitor the governance of data used in core processes as part of institutions’ sound and ethical operational management. We will focus on questions about e.g. the origin of data, their intended use, data access rights, storage and security, updating and testing procedures and representativity. A new dimension is the application of AI, which uses data in e.g. chatbots and loan offers. We are actively exchanging knowledge with the sector and consult with institutions on the General principles for the use of AI in the financial sector, including soundness, accountability, fairness, ethics, skills and transparency aspects.

Transforming for trust. Lending, saving and paying in the data age

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General principles for the use of Artificial Intelligence in the financial sector

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