Question: What are Treasurers looking for from Open Banking? Part 1

08-11-2022 | Cobase | treasuryXL | LinkedIn |

Save the date 13 December: Webinar on the Future of APIs.

 

Ahead of our joint webinar with Cobase, some questions were asked to their COO Jack Gielen on the usecase of APIs. In this series, Jack answers the questions most frequently asked when it comes to APIs.

Question: What are Treasurers looking for from Open Banking?

“𝘐𝘯 𝘰𝘶𝘳 𝘦𝘹𝘱𝘦𝘳𝘪𝘦𝘯𝘤𝘦 𝘵𝘩𝘢𝘵 𝘢𝘳𝘦 𝘵𝘩𝘳𝘦𝘦 𝘵𝘪𝘯𝘨𝘴 𝘛𝘳𝘦𝘢𝘴𝘶𝘳𝘦𝘳𝘴 𝘸𝘢𝘯𝘵 𝘧𝘳𝘰𝘮 𝘰𝘱𝘦𝘯 𝘣𝘢𝘯𝘬𝘪𝘯𝘨”

“𝘍𝘪𝘳𝘴𝘵 𝘰𝘧 𝘢𝘭𝘭, 𝘵𝘩𝘦𝘺 𝘦𝘹𝘱𝘦𝘤𝘵 𝘪𝘵 𝘵𝘰 𝘣𝘦 𝘢𝘯 𝘦𝘢𝘴𝘺 𝘸𝘢𝘺 𝘵𝘰 𝘤𝘰𝘯𝘯𝘦𝘤𝘵 𝘵𝘰 𝘢𝘭𝘭 𝘵𝘩𝘦𝘪𝘳 𝘣𝘢𝘯𝘬𝘴 𝘢𝘯𝘥 𝘢𝘭𝘭 𝘵𝘩𝘦 𝘳𝘦𝘭𝘦𝘷𝘢𝘯𝘵 𝘴𝘦𝘳𝘷𝘪𝘤𝘦𝘴 𝘧𝘰𝘳 𝘵𝘩𝘦𝘮 𝘢𝘵 𝘢 𝘣𝘢𝘯𝘬”

Stay tuned for the rest of the interview

 

How Treasurers Can (Still) Get Ahead During Uncertain Times

08-11-2022 | treasuryXL | GTreasury | LinkedIn |

Victoria Blake, the Chief Product Officer at GTreasury, recently ran through four trends that corporate treasurers ought to be paying careful attention to—particularly as ongoing economic uncertainty heads into 2023.

Blake argues that “treasurers without a connected treasury are left playing an ever-widening game of catch-up.” She offers specific advice for how treasurers can approach FX rate visibility, cash forecasting, bank fee analysis, and API connectivity. This is a must-read treasurer as they plan their treasury technology strategies for 2023.

Read more at Treasury Management International

The Impact of Rising Interest Rates on Working Capital

07-11-2022 | treasuryXL | ComplexCountries | LinkedIn |

No apologies for the second report on working capital and interest rate rises in a short period: we are seeing significant changes in the business environment, and treasurers are being challenged.

Source

This call focused primarily on the higher interest rate environment. One participant was mostly concerned about how to invest excess cash – the others are grappling with rapidly increasing working capital, driven by the need to keep bigger buffers, due to COVID and the Russia/Ukraine war, and the long delays in logistics circuits.

Funding challenges:

  • One participant manages treasury for South America, where there have been significant rises in interest rates, and, in some countries, funding shortages, with banks unable to provide cash and prioritising local companies. The challenges have been manageable, and they have not had to resort to drawing down all their lines to make sure they are available. This behaviour, which is akin to the rush on toilet paper in supermarkets, has been an issue in many markets, including more developed ones. However, there has been some, limited, pre-funding around significant events.
  • This has led to an increase in the number of banks in the funding panel.
  • One participant prefers their subsidiaries to fund themselves locally – but the cost of higher interest rates (for example, 35% in Turkey) is dissuasive, even if, economically, they are significantly below the inflation rate (>80%).
  • There is an increased focus on being more efficient in the use of cash within the company, so more pressure on cross-border pooling, accessing trapped cash, intercompany netting, etc.
  • Some participants are using the situation to selectively get higher discounts for pre-paying suppliers: this can be an effective way to increase the return on cash
  • Generally, the participants are at the point where these challenges cause additional work, but none of them is particularly serious.

Working Capital Management

  • Typically, treasurers have to fund working capital, but they do not manage it.
  • In all cases, there is a dialogue with the business about how much working capital the business can support, and how it can be reduced.
  • Higher interest rates are resulting in increased expense. Depending on the company, this may, or may not, be reflected in the measurements of the business units.
  • The participants all agreed with the business need to hold more inventory, but a dialogue is required to make sure this doesn’t get out of control. One participant works with the business on resisting calls to change payment terms, while another helps arrange pre-funding for suppliers, when needed.

Contributors:

This report was produced by Monie Lindsey based on a Treasury Peer Call chaired by Damian Glendinning

To access this report:

Access to the full report is available to Premium Subscribers of ComplexCountries. Please log in on the website of ComplexCountries to access the download.
Please contact ComplexCountries to find out about their subscription packages.

MENA Investment Banking Review First Nine Months 2022

02-11-2022 | treasuryXL | Refinitiv | LinkedIn |

Refinitiv Deals Intelligence brings you the MENA Investment Banking performance review, covering First Nine Months 2022.
Access this report for Investment Banking fees, volumes, and league tables across M&A, Equity Capital Markets, and Debt Capital Markets. Examine deal flows, top deals, most active nations, and most active sectors.

 


Report Highlights

INVESTMENT BANKING FEES 
An estimated US$1.1 billion worth of investment banking fees were generated in the Middle East & North Africa during the first nine months of 2022, 5% more than the same period in 2021 and the highest first nine-month total since 2008.  Almost half of this year’s fees were generated during the first three months of the year, with quarterly fees declining in the following two quarters.  Fees totalled US$186.4 million during the third quarter of 2022, the lowest quarterly total in the region in six years.
MERGERS & ACQUISITIONS
The value of announced M&A transactions with any MENA involvement reached US$69.7 billion during the first nine months of 2022, 17% less than the value recorded during the same period in 2021.  Despite the decline in value, the number of deal announcements in the region increased 5% from last year to the highest first nine-month total since our records began in 1980.
EQUITY CAPITAL MARKETS
MENA equity and equity-related issuance totalled US$15.3 billion during the first nine months of 2022, the highest first nine-month total since 2008.  Proceeds raised by companies in the region increased 166% compared to the first nine months of 2021, while the number of issues increased 110%.
DEBT CAPITAL MARKETS
MENA debt issuance totalled US$18.3 billion during the first nine months of 2022, down 80% from the value recorded during the same period in 2021 and the lowest first nine-month total since 2011.  The number of issues declined 68% from last year at this time.

Download the report

Interview | 8 questions for Konstantin Khorev, Seasoned Treasury Professional

01-11-2022 | treasuryXL | Konstantin Khorev | LinkedIn |

 

Meet our newest expert for the treasuryXL community, Konstantin Khorev.

Konstantin has 18+ years of experience in corporate treasury, gained in various environments: from public companies with +100BUSD turnover, to PE and privately owned companies, as well as at a prominent treasury consulting firm.

Being exposed to a wide range of different challenges and projects, Konstantin has built a strong expertise in the full spectrum of treasury and risk activities and in cross-functional collaboration and treasury partnership with business operations, tax, accounting, audit, and internal control.

Konstantin holds a Ph.D. degree in financial mathematics and is a CFA charter holder since 2009.

 

We asked Konstantin 8 questions, let’s go!

INTERVIEW

 

1. How did your treasury journey start?

In 2005 I changed my career path from investment management to corporate finance with a leading oil major. Couple of years later, being already a professional with several years of experience in related areas, I decided to join the treasury department within the same company. I made my decision mainly because of a great team and a lot of challenging projects there – we basically were requested to bring best practices into treasury function in multinational corporation with +100BUSD turnover. The first project was setting up an international multicurrency cash pool structure.

2. What do you like about working in Treasury?

Cross-functional collaboration (business, accounting, FP&A, tax), possibility to implement projects that make structural changes, e.g. in how company manages cash and financial risks, make payments, automate processes, etc.

3. What is your Treasury Expertise and what expertise gives you a boost of energy?

Change and project management, setting up a function from scratch or bringing best treasury practices, with special personal interest in the area of automation and data analysis. Having my first background in mathematics and computer science I also like to develop my own IT solutions (python, VBA, SAP scripting) that can solve certain automation or data problems and thus bridge a gap between client’s needs and available market solutions. Observing the professional growth of team members, I am coaching or used to coach is also a big source of excitement to me.

4. What has been your best experience in your treasury career until today?

I would say I can not highlight one single project. I enjoy and I am proud of every moment when I see the change realized, or cost-reduction/value-added created.

5. What has been your biggest challenge in treasury?

Setting up supply chain financing in a country where our team and company have been among pioneers implementing the product. Apart from tax, legal, accounting challenges related to the jurisdiction, as well as bank negotiation it required a lot of effort to explain the benefits and persuade all the stakeholders (from CFO to supply managers and suppliers). The ultimate result was more than rewarding: win-win solution both for the company decreasing working capital needs by 50% and for the suppliers getting access to much cheaper (and sometimes even unavailable at all) bank financing.

6. What’s the most important lesson that you’ve learned as a treasurer?

Invest time explaining what treasury is about and why certain things are crucial for internal counterparties.

7. How have you seen the role of Corporate Treasury evolve over the years?

Playing bigger and bigger role as a business partner to other functions. Embedding more opportunities that are provided by IT solutions.

8. What developments do you expect in corporate treasury in the near and further future?

Automation and machine learning to play more role in daily and later strategical treasury operations. Distributed Ledger Technology (blockchain is an example) still to show its full potential. Fintech companies substituting banks in more areas and having bigger market size.

 

Want to connect with Konstantin? Click here

 

Thanks for reading!

 

 

Kendra Keydeniers

Director Community & Partners, treasuryXL

Optimising cash and liquidity through currency management

31-10-2022 | treasuryXL | Kantox | LinkedIn |

Can you improve cash and liquidity management with the help of more effective currency management? The answer is: yes, you can! In this article, we see how currency management and cash management are, in effect, joined at the hip.


Five important touchpoints

There are at least five crucial, yet sometimes unduly neglected, touchpoints between FX risk management and cash or liquidity management. Let me briefly set the stage first. Then I will discuss their interactions.

(1) Swapping. Adjusting the company’s hedging position to the cash settlement of the underlying commercial exposure requires a lot of swapping.

(2) Collateral. In a world of shifting interest rates, treasurers need solutions that allow them to optimise collateral management.

(3) Working capital management. Solutions to improve working capital and liquidity are rarely mentioned in the context of FX risk management. Yet, they exist!

(4) Netting. Netting allows companies to generate savings in trading costs and in terms of the cash balances needed to satisfy collateral requirements.

(5) Cash flow forecasting. According to a recent survey by HSBC, more than half of treasurers worldwide say that cash flow forecasting is the most important task in treasury.

How and when currency management meets liquidity management

Take the case of a hedging program designed to protect the FX budget rate. It includes stop-loss orders to protect the FX rate used in pricing or a ‘worst-case scenario’ FX rate. It can also include profit-taking orders to lock in more favourable exchange rates.

As long as the stop-loss orders are not hit, hedge execution is postponed. This means that the cash required for collateral requirements can be set aside at a later date. It also means that treasurers have more time to improve their cash flow forecasts.

And it’s not over yet! Hedging incoming firm sales/purchase orders or invoices leads to very precise currency hedging. This means that purchasing managers are in a position to buy confidently in the currency of their suppliers. These, in turn, will be more inclined to grant extended paying terms.

With the perfect end-to-end traceability that comes with automated programs, managers can safely aggregate exposures without fear of losing the benefits of data granularity. This can create more netting opportunities, again reducing the need to set aside cash in terms of collateral.

Finally, swapping can be easily automated.

And voilà!

Feedback effects

That’s how effective FX risk management ends up improving liquidity management. Note that the process feeds on itself. Let me give you an example. Because swap automation releases valuable treasury resources, treasurers can take advantage of the benefits of using more currencies. Automated swap execution, therefore, improves not only the cash management part of the FX workflow but also —indirectly— working capital management.

That’s what I call a win-win situation!

Brush up on your treasury knowledge? Get our eBook: What is Treasury?

27-10-2022 | treasuryXL | LinkedIn |

How can you fast brush up on your treasury expertise, Treasurers, CFOs, Cash Managers, Controllers, and other Finance Addicts? Or how would you describe “What Treasury is” to family and friends? Well, there is an easy solution for it. Download our free eBook here: What is Treasury?

This eBook compiled by treasury describers all aspects of the treasury function. This comprehensive book covers relevant topics such as Treasury, Corporate Finance, Cash Management, Risk Management, Working Capital Management.

This eBook was prepared by treasuryXL based on the most useful best practices offered by Treasury professionals throughout the previous years. We compiled the most crucial information for you and wrote clear, concise articles about the key topics in the World of Treasury.

We took a deeper dive into each of the above-mentioned treasury functions and highlight:

  • The purpose of each named Treasury function (What is?)
  • What specialists do
  • Examples of Activities
  • Summary of Frequently Asked Questions and answers
  • Conclusion

How to receive the eBook ‘What is Treasury’ for Free?

We simply giveaway two presents for you! By signing up for our newsletter you will automatically receive the following in your inbox:

  1. On Fridays, our Coffee Break weekly newsletter will land in your inbox. In this weekly newsletter, we will highlight the whole week full of the latest treasury news within our community.
  2. The 41 pages eBook, What is Treasury?
Subscribe and Download

 

Subscribe, Join, Download and Relax.

Welcome to our community and have fun reading!

 

 

Kendra Keydeniers

Director, Community & Partners at treasuryXL

 

 

Live Panel Discussion: Treasury Trends for 2023

25-10-2022 | treasuryXL | Nomentia | LinkedIn |

 

Join us on our live panel discussion about treasury trends for 2023. Together with Nomentia we invited industry experts who will have an open discussion on the things you need to consider as a treasurer in the year 2023. There’s the possibility to ask questions as well.

 

 

Some of the topics we’ll cover:

  • Market and FX Risk management in current times of uncertainty.
  • Top treasury technologies to consider for 2023.
  • Will APIs deliver their promises?
  • Building the bridge between Ecommerce and treasury.
  • The rapidly changing role of treasury to facilitate business success
  • Treasury technology visions beyond 2023.p

 

SIGN UP TODAY

November 17 | 11 am CET | 45 minutes

Panel discussion members:

Pieter de Kiewit, Owner of Treasurer Search (Moderator)
Patrick Kunz, Independent Treasury Expert (Panel member)
Niki van Zanten, Independent Treasury Expert (Panel member)
Huub Wevers, Head of Sales at Nomentia (Panel member)

 

 

 

 

 

Interview | 8 questions for Sugandha Singhal, Vice President – Head Treasury at SRF Limited

24-10-2022 | treasuryXL | LinkedIn |

 

We are so happy to embrace Sughanda Singhal as one of our newest treasuryXL experts for the community.

Sugandha is a Treasury Professional with diverse experience in Treasury, Strategic Planning, MIS, and Business analytics. She is passionate about breaking down complex problems and solving them using system-oriented thinking. With strong focus on process improvement, she has lead transformation of the treasury function both in terms of cost-effectiveness and process agility. A firm believer that real change in society must start at individual level she channelizes her spare time in volunteering for the cause.

Sugandha is also the highly commended winner of Adam Smith Asia Award for ‘Best working capital management solution’, winner of ‘Finance Transformation Initiative award of the year’ with C2FO and ‘Out of box thinker Award’ by SRF Limited.

 

Sugandha’s impressive career is an example for many. What is her secret? What drives her to perform at such a high level every day?

Well,…. let’s find out!

 

We asked Sugandha 8 questions, let’s go!

INTERVIEW

 

1. You have an impressive career in Treasury coming all the way up where you are right now. What is your secret?

The secret of success is not just one single mantra but a combination of smart habits. I realized very early that in treasury you spend most of your working hours networking and executing. Back home being a mother to two lovely teenage girls, I have always been hard-pressed for time. Thus changed my early morning routine to dedicate an hour to planning my work. I started setting up weekly learning goals to be completed flexibly during the week. Another important change was developing independent opinion through research rather than being influenced by what others say. These small habits practiced over the years helped me achieve my targets successfully.

2. The last two years must have been incredible for you, winning great awards for example. We are curious about what makes you most proud in your career?

While yes, I have been fortunate to lead certain critical projects that were recognized widely. When I think of what makes me proud it’s not any one project or an award but the journey I have taken as a woman and especially as a mother. I feel proud when I see youngsters, especially girls getting inspired by my journey and motivated to become leaders themselves. Being in a position where one can more effectively encourage and empower young women and girls to become leaders is an accomplishment that matters.

3. What do you like about working in Treasury?

We are living in very exciting times when digital transformation is still unfolding and is providing a wealth of learning opportunities. What I love about my current role is the fact that I have this unique opportunity to shape the future of the Treasury function and how it interacts with other processes/people in the business. It’s the everyday challenges and fast-paced work that excites me about my role.

4. What is your Treasury Expertise and what expertise gives you a boost of energy?

While I had the opportunity to lead multiple aspects of corporate treasury like borrowing, investment, policy formulation, working capital management, risk management, hedging, etc. what excites me the most is transforming the working capital landscape through business process re-engineering and digitalization.

5. What has been your biggest challenge in treasury?

The biggest challenge in treasury has been managing people while driving change.  On one hand, you have new technology, new compliances, new solutions that you need to implement, and on the other hand you have internal teams resisting change. This means while you are busy implementing the project through data architecture, solution design, onboarding suppliers & customers, etc. you are also leading a cultural change within the organization. To succeed, one needs to ensure the wider adoption of a digital mindset and overcome resistance to change through upskilling and communication.

6. What’s the most important lesson that you’ve learned as a treasurer?

The two most important lessons that I have learned as a Treasurer are first, the only constant in our profession is change, and second, people are the anchor helping you sail through this sea of change. While we all know that change is inevitable and that people are the key, somehow, it’s often easily forgotten. In my experience, if you know the right person at the right time, half the task is done. I feel what has made a difference in my career is networking and relationship building.

7. How have you seen the role of Corporate Treasury evolve over the years?

I would say over the last few years the role has not just evolved but has completely transformed from being transactional to being strategic. Internally, in the past, treasury was all about ensuring fund availability, dealing with trade products, hedging, and managing excess funds. Today we are seen as the strategic partner to businesses who actively provide solution sales, re-engineer business processes, and act as an advisor to top management. Externally, the environment in which we operate has transformed, we now see very high volatility, significantly increased speed of information sharing, digitalization, enhanced compliances, and ESG focus that has made corporate treasury more agile and tech-oriented than what it was a few years back.

8. What developments do you expect in corporate treasury in the near and further future?

In the future, corporate treasury will become pivotal in driving the corporate sustainability initiatives. With corporates formalizing their ESG pledges, the treasury department will be expected to apply the ESG lens on everything from raising capital and investing surplus cash to supply chain finance. Secondly, the treasury team will become more and more connected to core business activities such as sales or procurement focusing on meeting fast-changing expectations/requirements of both customers as well as suppliers. Lastly, technological disruption will continue in ways beyond what we can imagine today, and treasury teams will be expected to be the front leaders in driving this transformation.

 

Want to connect with Sugandha? Click here

 

Thanks for reading!

 

 

Kendra Keydeniers

Director Community & Partners, treasuryXL

Sibos 2022 | How did our expert Philip Costa Hibberd experience the event?

19-10-2022 | Philip Costa Hibberd | treasuryXL | LinkedIn |

 

We sent our expert Philip Costa Hibberd to the SIBOS conference to discover and explore the World’s Premier Financial Services event.

Last week, the SIBOS conference took place in Amsterdam. Sibos 2022 brought together more than 10,000 participants in Amsterdam and online, as this event returned in-person for the first time in three years.

Philip is delighted to share his experience with you. Happy reading!

 

What is Sibos?

The Sibos conference is an annual event organized by Swift that brings together leaders in the payments, banking, and financial technology industries. The conference provides a forum for attendees to discuss the latest trends and developments in the industry, but – as it turns out – it is mostly used as a venue where bankers meet other bankers with the occasional FinTech thrown in the mix.

During the 4 days of the 2022 edition, I learnt that little focus is given to the needs of the corporate treasurer. Throughout the conference, a few interesting recurring themes emerged nonetheless, which I’ll describe in the paragraphs that follow.

Purpose of the financial industry

Queen Maxima – acting as the “United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development” – kicked off the opening plenary by speaking about the importance of financial inclusion and access to banking services for all.

 

The first priority is to make sure we do no harm […] but we have a chance today of moving beyond doing no harm to actually doing good. So, beyond transaction volume and customer acquisition can we create the rails for transformative change to help users become more financially healthy?

 

Sadly the answer I heard from the bankers speaking on stage during the sessions that followed was not promising. “Maximising shareholder value” was still the dominating mantra… which – as experience teaches us – has seldom led the banking industry to “doing no harm”, let alone “doing good” in the past.

 

Banks vs FinTechs

A bit more hope for the industry “doing good” came from the voice of FinTechs on stage. As it turns out, a mantra based on “innovation and disruption” makes it easier to attract scarce resources (such as talent) and ironically deliver shareholder value as a consequence.

It was interesting to observe the evolution of the Bank-FinTech relationship. The change in how banks perceive FinTechs today compared to a few years ago was remarkable. Once seen as a threat, FinTechs are today considered an ally by banks.

 

When asked “Are FinTechs Friend or Foe?”, bankers gave answers as:

 

“Partnership with FinTechs is our main strategy”. 

“Partnership with FinTechs is crucial. They bring agility and they are a matter of survival for us”.

 

It was hardly a surprise then to learn on day 2 of the conference about BNP Paribas’ acquisition of Kantox, a leading fintech for automation of currency risk management. The relationship between banks and FinTechs will probably only get warmer and tighter from here… but only time will tell if that is good news for us.

 

Regulation-driven innovation

Besides FinTechs, another often cited source of innovation for banks was “the regulator”.

Singapore was the most cited example of successful regulator-driven innovation. Its central bank has been encouraging innovation in the financial sector with generous grants to adopt and develop digital solutions, AI technology, cybersecurity capabilities, etc. On top of that, it has developed an exceptionally accommodating regulatory framework. It has for example introduced a “regulatory sandbox” for FinTechs and banks to test their products and services in a live environment without them having to be concerned with compliance hurdles (at least for the delicate initial phases of innovation).

There are hopes that Singapore’s success will be taken as an example by other regulators across the globe, but the most basic expectation from the industry is for regulators to at least set guidelines to improve standardization across the market. As nicely put by Victor Penna, there is still a lot of work to be done:

 

“Can you imagine if I sent an email from Singapore to Belgium and they couldn’t process it? That is exactly what is happening today with payments. This has to change.”

 

One last often cited trend where regulators are expected to play a dominant role in innovations, are Central bank digital currencies – CBDC in short.

CBDC (Central bank digital currency)

CBDCs are digital currencies issued by central banks. Typically central banks have two kinds of liabilities:

  • Cash: takes a physical form and is available to the general public
  • Central bank deposits: which take a digital form but with limited access

CBDCs are a third form of liability that complements cash and central bank deposits: they take a digital form and are directly available to the general public.

More than 100 central banks are estimated to be working on their own projects. They are important in the context of innovating the financial sector because they have the potential to provide greater efficiency and transparency in financial transactions. Additionally, CBDCs could help to reduce the cost of financial services and increase access to financial services for underserved populations.

There is still little consensus today on what exactly the impact will be, not least because of the fragmentation of all the initiatives. For example, when it comes to the digital Euro project, the impact on corporate treasury payments is expected to be limited. The project is still in the validation phase, but the assumption is that even if/when the project were to move into the realization phase (decision expected in September 2023) usage will be limited by design with the introduction of low limits to the maximum balances which could be held (exact limits need to be defined, but think of a few thousand euros max).

 

Realtime banking and 24/7/365

Banks have invested a lot in the technological backbone needed to support open banking and instant payment requirements across the world and seem to be puzzled by the modest adoption. The ambition is to move away from batches, cut-off times, and end-of-day statements in favour of instant payments 24/7 and provide information-on-demand via APIs.

From a treasury perspective, this brings some challenges. Moving to APIs can be hard, especially if you have a fragmented ERP/TMS/Banking landscape. But the biggest challenge is probably the way that we organize our work and our processes. As jokingly put by Eddy Jacqmotte group treasurer at Borealis:

 

 “Instant Treasury is nice: but I don’t like the idea of instant treasury on Saturday and Sunday”.

AI and (big) data

The ever-decreasing cost of storage and processing information, combined with the ever-increasing flow and value of user data has transformed the “AI” and “(big) data” brothers from geeky kids in the corner to rockstars in the centre stage.

Besides the obvious use cases such as fraud detection, sanction screening, reconciliation, payment repair, etc. the new trend is to use AI to generate new tailored content and to feed it to users to measure their interest in a specific topic and nudge their behaviour. Instead of asking you directly if you are interested in a mortgage, the algorithm might casually inform you about the price per square meter of properties in the neighbourhood where you go for coffee every weekend. If you interact with the prompt, the algorithm will take notice and will keep on feeding you with “property-related” information, until you find yourself asking for a mortgage…or showing interest in something else that the bank can do for you.

Sounds sketchy? It might be, that’s why another trend in this area has been making its way to the foreground: Explainable AI.

Explainable AI is a form of AI that can provide understandable explanations for its predictions and decisions. This is important especially in the financial industry because it can help to build trust with customers and regulators and avoid (or at least make explicit and controllable) unwelcome biases.

For example, the Apple Card / Goldman Sachs scandal in 2019 could have been prevented if the algorithm used by Apple had been more transparent and accountable. According to researchers, the algorithm used by Apple was biased against women, resulting in lower credit limits for women than men. If the algorithm had been more explainable, the bias could have been discovered and corrected before the card was launched.

 

 

 

 

In essence: AI is powerful, but transparency is key. On that note, I have a confession to make: the previous paragraph was written by an AI and not by me…

 

 

 

 

 

 

 

Thanks for reading!

 

 

 

Philip Costa Hibberd