Some banks have started using new technology as a sword, or as a means to make more money in the front-office, by producing better products or by optimizing distribution.
For some time, automation by means of machine learning from structured data has been widely used in trading and in asset management.
Maybe it is because many banks operate in inefficient markets, with local oligopolies, high barriers and insufficient competition.This is a basic theoretical postulate, which has no bearing on real life and is easily falsified.In real life, the rate of return is the result of the capital-weighted average of investors with different and individual investment horizons and, consequently, different risk preferences.Truly digital companies, such as Spotify and Tinder, regularly analyze hundreds of millions of events in order to understand their clients and to remain one step ahead of them—on an individual level.
Ironically, the finance industry is the only industry I know for which the legislator has to step in and order the operators to know their clients: “Know your client, or you will be hit with legal sanctions!
” In the light of reputation risks, fines and penalties, as well as missed business opportunities in the digital age, that’s quite bizarre, wouldn’t you agree?