Mining Financial Data Without Actually Seeing It Can Detect Fraud

Quite interesting.  

 Mining Financial Data Without Actually Seeing It Can Detect Fraud  By Arnout Jaspers, Commissioned by CACM Staff, September 9, 2021

Large-scale data sharing is a potential goldmine for research, health, and security, but until recently this goldmine was largely inaccessible, due to privacy considerations. Now, banks are starting to use secure Multiparty Computation (MPC) to detect potentially fraudulent transactions while protecting the privacy of their customers.

MPC distributes computations on data between several parties in such a way that none of the parties can see the raw data, but the desired result can still be computed. Software to achieve this has been developed over the past years. A similar concept is homomorphic encryption, which guarantees that certain classes of computations performed on encrypted data give the same result as computations on the raw data.          

TNO, the Netherlands organization for applied scientific research, is working closely with two large Dutch banks, ABNAmro and Rabobank, on a pilot project to detect suspicious financial transactions using MPC and an algorithm inspired by Google's page-rank algorithm. The basic idea is that networks of financial transactions can be analyzed in similar fashion to how a search engine determines the importance, or rank, of a website. A website is 'important' if other 'important' websites link to it; although this is a self-referential definition, the page-rank algorithm can, after a number of iterations, produce a consistent ranking of websites. 

In this case, bank accounts are the nodes in the network, and two accounts are linked if a money transfer between them has taken place. Other than in the Internet page ranking, a link can have a weight, depending on how often and how much money was transferred. An account gets a high risk score, for instance for money laundering, if another high-risk account transferred money to it.

Each bank can create such a 'risk propagation network' for the accounts of its own clients because it has their financial transaction data, but many transactions happen between different banks. Risk scoring would improve significantly if the algorithm could add those external accounts to the network, but banks are hesitant to share these data because of their potential impact on privacy. Said Tjebbe Tauber, business developer for innovation and design at ABN AMRO's Detect Financial Crime unit, "We are carefully looking at what is, and what is not possible under the European privacy law."  .... ' 

Fintech AI Applications

AI and influence on financial moves, large and small.

How AI is Helping Mastercard, Siemens, John Deere   By AI Trends Staff 

AI is having an impact in business, government and healthcare. But nowhere is it having more impact than for the biggest companies with the most resources. 

Advantages big companies have include access to lots of data and funds to buy smaller companies with the expertise to do something innovative and profitable with the data. Each company has had to decide on the best way to leverage AI for their business.   

Ed McLaughlin, Chief Emerging Payments Officer, Mastercard

“The question is how do you use AI right or use it wisely,” stated Ed McLaughlin, Chief Emerging Payments Officer for Mastercard, at the recent EmTech Digital event on AI and big data, as reported in MIT Sloan Review. “The biggest lesson learned is how to take these powerful tools and start backwards from the problem,” McLaughlin stated. “What are the things you’re trying to solve for, and how can you apply these new tools and techniques to solve it better?” 

Mastercard is very focused on fraud prevention, while it wants as many good transactions as possible to go through. Mastercard built a data platform that holds over two billion card profiles and performs analysis tuned for accuracy. Using 13 AI technologies and some rules-based tools, the system makes decisions within 50 milliseconds.   

“We were able to have a three-time reduction in fraud and a six-time reduction in false positives using AI with that graded dataset,” McLaughlin stated.  

Mastercard has been investing in AI for fraud protection for years. Its 2017 acquisitions of technology vendors Brighterion and NuData Security were strategic.   ... " 

Quantum Computing Catching up for Market Analysis

 Quite an interesting prediction.  Will there be a post-quantum market analysis era?   I can see some of the combinatorics coming in, but the accuracy of results are not yet there.  

Goldman Sachs Predicts Quantum Computing is 5 Years Away from Use in Markets  By Financial Times

Quantum computing could be brought to bear on some of the most complex calculations in financial markets within five years, considerably earlier than expected, according to research jointly conducted by Goldman Sachs.

The findings come as banks and other companies at the leading edge of quantum research have turned their attention to trying to get practical results using the imperfect quantum computers that are expected to be in use in the next few years, rather than wait for the much more powerful systems that are one day expected to bring a revolution in computing.

The bank's research, conducted with quantum start-up QC Ware, suggests that programmers looking to harness the machines could achieve practical results sooner in return for giving up some of the huge gains in performance that quantum systems promise.

From Financial Times

Wharton: Planning for AI Risk Governance

Useful thoughts on the concept of governance of AI in the paper linked to below.

How Can Financial Institutions Prepare for AI Risks?

Apr 13, 2021 Analytics Wharton Research North America

Artificial intelligence (AI) technologies hold big promise for the financial services industry, but they also bring risks that must be addressed with the right governance approaches, according to a white paper  by a group of academics and executives from the financial services and technology industries, published by Wharton AI for Business. 

Wharton is the academic partner of the group, which calls itself Artificial Intelligence/Machine Learning Risk & Security, or AIRS. Based in New York City, the AIRS working group was formed in 2019, and includes about 40 academics and industry practitioners. ..." 

RPA for Fintech, a Use Example

Here a good intro to RPA (Robotic Process Automation) for finance applications.  Nice too because most of us can understand basic financial statements, arithmetic and goals.   Below just the intro, full look at the link. 

RPA Guide For Fintech Industry   Posted by Amit Dua  from DSC

Technology is changing the way we live and breathe. We’d even go a step ahead, and quote: Everything we do as humans, including every feat we’ve achieved as a modern civilization, is marked by dynamic leaps in technology. 

What is a dynamic leap, you ask? Let’s understand technological advancements through an example of linear and dynamic steps.  When talking in the Linear terms, if you go from 1 to 30, you cover 30 steps.  Common sense, right? But wait. When talking in Dynamic terms, if you go from 1 to 30, you cover a Billion.  That’s what a dynamic leap is; and technology is evolving at a dynamic pace. Marshall McLuhan puts it best: ‘First, we build the tools; then they build us back.’

The same is true with the BFSI (banking, financial services, and Insurance) sector. 

Since the advancements in automation and digital technologies, it has become preemptive for financial institutions to change the dynamics and inculcate automation in their regulatory requirements.  If we follow the automation trend, it suggests that intelligent automation technologies like Robotic Process Automation (RPA) and AI can reduce costs in Fintech by up to 25%. 

Alt: RPA Implementation in Fintech Industry

What’s Fintech? According to Investopedia, ‘Financial technology (Fintech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services.’.... "

IoT and Fintech

FinTech probably not an area you would first think of IOT,   but this non technical piece outlines some useful thoughts in the space.

How IoT Changes Banks and FinTech Companies  By Vova Shevchyk in ReadWrite

Can financial services benefit from the Internet of Things? Absolutely, and to the fullest extent. Not only for gathering more and better data about assets but IoT also changes the way we access banking and manage wealth, invest, and monitor assets.  Let’s see how IoT changes banks and FinTech companies.

To improve efficiency and customer service, banks eagerly invest in the Internet of Things. The technology has great potential and a wide range of uses.

How to ensure your financial company makes the best use of this technology? What are the benefits of implementing IoT? What does it take to build an IoT project? We’ll lay out and explain all of the above in this post.  ... " 

Fintech Reality

On Fintech, hype or promise?

Wharton's Itay Goldstein and Andrew Karolyi from Cornell discuss a new research intitiative that aims to clarify where the actual promise lies regarding fintech.

Three years ago, the editors at a top academic journal in finance were concerned. A lot of venture capital was flowing into fintech, or financial technology, but there wasn’t much research about the topic coming from academics, who are known for their rigorous testing and analysis. So they decided to adopt a new editorial protocol to encourage more research: They would accept a paper regardless of the final results, taking pressure off the researchers to have conclusive findings. Of course, proposals for papers have to pass tough scrutiny first to get pre-accepted.

It worked. The Review of Financial Studies received 156 proposals from 409 authors representing 183 universities and 22 research organizations or government agencies. They came from more than 20 countries, and nearly half were from outside North America. The top nations outside of the U.S. were China, Germany, U.K., Australia, Canada and India. The editors ultimately chose 10 proposals, which fell into three categories: blockchain, financial services and big data. The papers will be featured in the Review’s May edition.

“Fintech is really a group of technologies that have been emerging in recent years and potentially are going to completely reshape the finance industry,” said Itay Goldstein, Wharton finance professor and executive editor of the Review, on the Knowledge@Wharton show on SiriusXM. “What is unique about the current fintech revolution is that a lot of these technologies are happening outside of the traditional finance sector.” (Listen to the podcast at the top of this page.)


For decades, financial innovations such as ATMs and wire transfers largely came from the financial institutions themselves. But with the advent of connected mobile devices and consumers’ increased comfort in transacting business by cell phone, non-financial companies are getting into the game, such as tech giants and startups. They are offering mobile payments, money transfers, peer-to-peer loans, crowdfunding, blockchain, cryptocurrencies, robo-investing and other services, according to the Review.

With billions of dollars being pumped into fintech, it was thus surprising to the editors of the Review that there weren’t more academics looking into it. “We were absolutely struck by the fact that there was such a dearth of research,” said Andrew Karolyi, deputy dean and dean of academic affairs at Cornell SC Johnson College of Business and a former executive editor of the Review, who joined Goldstein on the radio show. “We felt like we needed to do something to stoke [interest].”

“What is unique about the current fintech revolution is that a lot of these technologies are happening outside of the traditional finance sector.” ... "

Rise of the Financial Robo Advisor

Much interested in the dynamics of how systems will dynamically and perceptively give advice.   In this blog have called them 'Assistants'.    How will they disrupt in giving financial advice?

The Rise of the Robo-advisor: How Fintech Is Disrupting Retirement  In Knowledge@Wharton

Artificial intelligence is changing the world of retirement planning. By using improved datasets and algorithms to efficiently deliver solutions tailored to people’s needs, AI can help them save, invest and retire better. One of the hottest trends to emerge in this area in recent years is the use of robo-advisors. These are software programs that use the data supplied by clients to create and automatically manage their investment portfolios. They’re gaining in popularity, but are they better than human advisors?

“Robo-advisors are a potential solution to the complexities of financial decision-making,” particularly in retirement planning, said Jill E. Fisch, law professor at the University of Pennsylvania. “But at the same time, there’s a lot we don’t know about robo-advisors — exactly how they work and how effective a solution they’re going to be.” She and other experts from Wharton and elsewhere spoke at a conference hosted by the Pension Research Council titled “The Disruptive Impact of FinTech on Retirement Systems.”   ... " 

Blockchain Disruption of Financial Services

How Blockchain Technology Will Disrupt Financial Services Firms
In the second article of the series, “The Network Revolution: Creating Value through Platforms, People and Technology,” authors Barry Libert, Megan Beck and Jerry (Yoram) Wind look at how blockchain technology will prove to be a major disruptor to the public and private sectors, starting with the financial services industry. Libert is CEO of OpenMatters and Beck is the chief insights officer. Wind is a Wharton marketing professor and director of Wharton’s SEI Center for Advanced Studies in Management. The authors would like to thank LiquidHub for sponsoring the research for this series.  .... "

Kasisto Virtual Assistant

My continued look at virtual assistants "  ..... AI-Driven Virtual Assistant from Kasisto Powers India's First Mobile-Only Bank ... Asian banking innovator DBS Bank makes strategic investment in Kasisto ... "  Some good details in the press release.

AI for High Frequency Trading

Via the Financial Revolutionist:

Note the statement that this simulates the insights of experienced traders.   So more of an expertise based system rather than a machine learning approach?  Likely some combination of the two. Which brings together business process knowledge and deep analytics.   An ideal mixture!

Securities Houses turn to AI for High-frequency trading
 In the age of ultra-high-frequency trading, financial institutions are turning to artificial intelligence to improve their stock trading performance and boost profit.

     One such company is Japan's leading brokerage house Nomura Securities. The company has been pursuing one goal: to simulate the insights of experienced stock traders with the help of computers. After years of research, Nomura is set to introduce a new stock trading system for institutional investors in May. ... " 

Blockchain Explained

In O'Reilly.  Good, but still technical, utilizes code to make the comparisons.

" ... Defining blockchains by analogies and applications

Blockchain is a buzzword, and though it's thrown around often, it's rarely explained. Here's how blockchain compares to Git, Raft, and other technologies to give you a sense of what blockchains really are and how they present a unified framework to solve problems that are presently solved by many disparate tools. .... " 

Blockchain Technology Spreading

Not new, but Notably in some unexpected areas.

From fine wine to lotteries: Blockchain tech takes off
By Mark Smith Technology of Business reporter

Imagine a world where you can vote in an election with your phone, where your buy a house in a matter of hours, or where cash simply doesn't exist.

These are some of the scenarios being mooted by an increasingly excited blockchain community.

The technology that underpins the cryptocurrency Bitcoin is nothing new - it's been around for decades. It's just an encrypted database that that's distributed across a computer network ... " 

MicroInsurance

This and commentary on it made me think.    Recently dealt with a related  insurance problem:

"  Explore New Kinds Of Insurance ... 
Customers and businesses are desperately seeking workable solutions to their problems. With microinsurance, they have the ability to handpick features that offer the right amount of financial protection for the shortest period of time.

Take Opendoor, the startup radically changing the way we buy and sell homes. Not only does the company buy your home over the web instantly and let you close in three days, they also guarantee handling every aspect of the tedious escrow process for you, saving you time, money and headaches.

We’ve also seen companies like Oscar that, in less than five minutes via mobile, connect users with quality and easily accessible healthcare insurance.

Affirm and Klarna offer a new form of consumer financing during checkout, insuring the seller against any defaults in payment. ... ? 

BlockChain as Game Changer

So what is it.  A good non technical and somewhat visual introduction.  In BusinessInsider:

Goldman Sachs says the technology "has the potential to redefine transactions" and can change "everything."

JPMorgan last month announced it was launching a trial project with the blockchain startup led by its former executive, Blythe Masters.  .... 

If you're wondering what a blockchain actually is, or how its works, you're not alone. Autonomous Research, which calls the technology a "game changer," has released a report to answer all of your blockchain questions.

The important thing to understand is that it has nothing to do with bitcoin — at least for Wall Street's purposes. Blockchain is the technology behind bitcoin, but it has many other uses too.

Wall Street wants to use blockchains to simplify the way it processes transactions.  ... " 

Fintech Evolves, and this Blog Does too.

I just noticed that the term Fintech had never been used in this blog before this year.  So is it that a new term?  I have just updated the text tags for Fintech to point to related articles.   Which points to another way to explore this blog.  You can search for words or phrases in quotes, at the upper left of the blog.  Or you can search by tag at the bottom of each post.  Most posts have been tagged.

I frequently update tags. Such as the newly discovered Fintech. without indicating the update.   If I update the body of a blog I will usually indicate the update with an edit.  Links may go out of date, and I will update them when discovered.

Meanwhile I see that Fintech has been used since at least the 90's, at first as the name of a group, and continues to evolve.

Financial Revolutionist

Newly discovered, the Financial Revolutionist weekly newsletter on Fintech.  I admit even the term Fintech (Financial Technology).  Was new to me.   Nicely done pieces to date.  By Wescott Capital.

On the State of Human Capital

From Growthology  Kauffman Foundation.

" ... This post is the first in a series by the Growthology team, where we will take a look at some of the topics discussed in State of the Field, a compilation of knowledge on entrepreneurship research written by the leading experts in the field. .... 

Brink Lindsey, author of the book Human Capitalism, writes that “the central importance of human capital in today’s economy is a response to the rise of social complexity.” As society has become increasingly complex, jobs have become more highly skilled, the workforce has changed, and the study of human capital has become increasingly mainstream.

While financial means are important for a startup’s success, I argue that human capital is equally important. Human capital within entrepreneurship is one area Growthology will expand on throughout the course of this year. Several of my colleagues’ posts have presented different points of view on human capital matters (workers, students and crowdfunding to name only the most recent). ... " 

Blockchain Ledger: Hyperledger

And imagine the hyperledger linked to the smart contract.   A new kind of compliance measure?

" .... Most people know alternative currencies such as bitcoin make use of a distributed transaction ledger technology called blockchain. But what isn’t well-known is how numerous businesses are investing heavily in blockchains for noncurrency applications.

Blockchain Technology Poised to Grow
Last month, the Linux Foundation announced a major new initiative called Hyperledger, which will create one of the largest open-source projects ever attempted. The goal is to build blockchains with a series of standard protocols and processes that could be used by a wide variety of industries both in and outside of the financial services sector, including manufacturing. The first set of computing partners includes IBM, Intel, VMware and Cisco, among dozens of other companies. .... 

Study of Human Capital in the Cognitive Era

Mention and further discussion

Study of Human Capital in the Cognitive Era   Via Jim Spohrer.   Pointing towards how jobs will evolve.   My recent experience has indicated that jobs, even those that are focused technically, are getting more socially complex.   In order to translate, curate and deliver results.

" ... This post is the first in a series by the Growthology team, where we will take a look at some of the topics discussed in State of the Field, a compilation of knowledge on entrepreneurship research written by the leading experts in the field.  ... 

Brink Lindsey, author of the book Human Capitalism, writes that “the central importance of human capital in today’s economy is a response to the rise of social complexity.” As society has become increasingly complex, jobs have become more highly skilled, the workforce has changed, and the study of human capital has become increasingly mainstream.

While financial means are important for a startup’s success, I argue that human capital is equally important. Human capital within entrepreneurship is one area Growthology will expand on throughout the course of this year. Several of my colleagues’ posts have presented different points of view on human capital matters (workers, students and crowdfunding to name only the most recent). ... "