Theses on digitization of the credit and insurance industry

Digitalization – not just the financial sector – is the present and the future at the same time. This poses new challenges for banks and savings banks, but also for supervisory authorities. Five theses highlight the effects.

The increasing digitalization of the financial industry is presenting banks and savings banks, as well as supervision, with new challenges.

Digitization has long had an impact: FinTechs, Open Banking, and Cloud Computing are just a few of the most popular buzzwords. But the transformation process is far from over. We are only at the beginning of development and can only see the silhouette of the new digital world in an outline on the horizon.

Five theses on the digitalization of the financial industry


The following five theses are intended to investigate the effects of digitization in the financial sector for credit institutions and regulators:

  • Thesis 1: Digitization will significantly accelerate the pressure to develop more focused business models.
  • Thesis 2: Digitization is once again accelerating the battle for the customer interface.
  • Thesis 3: Artificial intelligence cannot replace human responsibility.
  • Thesis 4: Digitalization requires regulators and supervisors more than ever before multilateral approaches. And finally:
  • Thesis 5: We do not yet know exactly who we will be supervising in the future. People, machines or infrastructures?

Digitization will significantly accelerate the pressure to develop more focused business models

In the digitized world, private customers are less and less interested in branches and their opening times. They simply expect financial service providers to have the conveniences they are used to from other industries, including 24/7 accessibility as well as convenient access to services or customer-specific service.

With the best-known and largest online platform providers, this is naturally part of DNA. These BigTechs offer their customers their own and third-party goods and services – tailored from a single source in compact ecosystems.

Such an ecosystem is completely complete if, in addition to the platform, the technical access also comes from the same provider. We all know something like that from our smartphone. With a single device, we can download music, buy plane tickets and theoretically even control our home appliances.

This has been made possible by companies that have built the platform for this at some point and are now at the center of a digital ecosystem and control it. Other companies can dock onto this ecosystem with their services, such as the app developers in the app stores of the smartphone manufacturers.

Such a platform first creates a benefit for everyone involved: anyone who participates in this ecosystem can specialize in the work processes that they are best at the control and also gain access to a broad customer base. In return, he must comply with the rules and access regulations that the operator specifies.

The platform operator itself also has access to a great deal of customer data, which is something like the new gold of digitization. In this way, companies gather a lot of knowledge about their customers, their needs and their wishes. In the end, they pretty much know how to best align their own products and prices. Of course, they could in principle also make this aggregated customer data available to third parties, with the Facebook scandal such a case has just caused a sensation.

Because platform action obviously creates added value and reduces costs, more and more banks and insurance companies in the financial sector will also try to position themselves as platform providers and thus offer their own and third-party products from a single source. At the same time, we are already seeing that value chains in the financial market are increasingly being split and decentralized.

Digitization is once again accelerating the battle for the customer interface

Digitization is once again accelerating the battle for the customer interface

It could soon be very tight at the customer interface. Many an established bank threatens to lose a lot of earnings potential and, above all, first-hand knowledge of its customers if the BigTechs enter the market. Small and medium-sized credit institutions in particular, which cannot develop into a platform themselves, run the risk of losing touch. For some of these companies, only the role of a highly focused specialist provider could remain.

The fact that comparison platforms have now also recognized the opportunities open banking and the trend towards platforming in the financial markets will further intensify competition for the customer interface. It is more difficult to make predictions about exactly how this competition will develop.

One possibility would be real competition for market share, in which different platforms would fight against each other. However, a “ The winner takes it all” scenario would also be conceivable, in which the actual competition ultimately burns out over who can participate in a dominant platform and who cannot.

As important as competition issues may be, they are not the home of a financial regulator or supervisor. I see the ball here primarily in the field of antitrust and competition law as well as the responsible authorities.

However, as supervisors, we should make sure that no market participant in a platform economy is discriminated against from the outset. Distorted competition could also have consequences for the stability and integrity of the financial markets.

Artificial intelligence cannot replace human responsibility

Artificial intelligence cannot replace human responsibility

Of course, digitization enables many processes to be made more efficient and innovative. For example, insurers are now able to handle operations such as risk assessment and claims processing automatically without the use of a single person.

However, the management should not be tempted to shift the responsibility to machines and algorithms in addition to the work processes. The ultimate legal responsibility remains with the respective management. If anyone in the industry sees it differently, lawmakers and financial regulators must intervene.

What we can in no way allow attempts to clarify the methods of machine learning, which are the basis of many automated processes, into a miraculous black box. Such a black box would also make it difficult to prevent a possible bias of the algorithms. The often praised objectivity of computer-aided decisions only exists if it is also preserved when developing the algorithms and selecting suitable data.

Applications of big data analysis, in which the most personal characteristics of consumers are disclosed, are subject to regulatory supervision because they directly affect questions of collective consumer protection. And BaFin also has a legal mandate for him.

However, the industry should have a vested interest in being correct and law-abiding on these points. If consumers, but also industrial customers, start to lose confidence in the integrity of their data and the integrity of their companies, this could ultimately damage the financial market as a whole. The undisputed advantages of this technology will then not be able to fully develop.


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