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Tech-dinosaurs can still bite

Why Zuckerberg’s Congress appearance sounds a stark warning to financial services companies.

When Mark Zuckerberg was called in for two days of questioning by Congress earlier this month, the world waited to hear what questions these powerful lawmakers, many former lawyers, had to ask. With the CEO founder of Facebook in the hot seat, would they ask the questions that technology specialists and journalists on both sides of the Atlantic have been asking ever since the Cambridge Analytica scandal broke in March 2018?

The answer, when it came to the hearing in front of the Senate, was no. Much of the first day of questioning was taken up by questions which showed that the interrogators were not technically-savvy IT expects, but ordinary Facebook users with an average level of technical expertise.

Although labelled ‘tech dinosaurs’ by the media, the lack of technical knowledge showed by the Senate sounds two distinct warnings to financial services and technology companies who may one day be required to defend their technology processes in a regulatory or legal setting:

  1. They should not assume that the people they need to persuade (be they regulators, judges, politicians, or customers) have any specific IT or technical knowledge.
  2. Both a lack of evidence, and overly technical evidence which is difficult to understand or access, may fail to be persuasive.

Take for example, a bank who sign customers up to one of their products, let’s say loans, via a digital journey. Throughout that digital journey (from a customer application, identity verification to the signing of the agreement), the customer is sharing personal data, and the bank is using that data to make the transaction happen. This data could be simple elements such as their name and address, but it could take the form of more complex data, such as what the customer saw and did during the transaction, how they consented to the agreement, and what data was collected to verify their identity (perhaps biometric data, or facial recognition data).

Let’s now assume that that the customer believes that the agreement process was unfair or uncompliant, and that therefore they should not be bound by the agreement. If they take their argument to court, the bank will need to rely on the aforementioned data to help prove that the agreement process was fair and compliant, and to persuade the judge to uphold the agreement. When a company is relying on data as evidence, it suddenly becomes important to be able to present that evidence in a way which is simple, intelligible and persuasive. Companies who rely on a technical audience to which to present that evidence will be disappointed – as Zuckerberg’s Congress appearance shows, they cannot rely on judges to have any specific IT or technical knowledge.

In “E-signature best practice for UK financial services companies” leading electronic evidence lawyer Lorna Brazell advises that financial services companies may be helped in successfully refuting a challenge (from a customer, regulator or judge), if they provide ‘compelling evidence that is easily intelligible by non-technical individuals’. Financial services companies who fail to provide simple, persuasive, intelligible evidence will find themselves at a huge disadvantage when relying on data to help prove that their actions were fair, lawful and compliant.

The financial services industry may enjoy the spotlight being lifted from the banking to the tech industry at present, but in an age where more and more companies are digitising their processes, the lines between ‘tech company’ and ‘financial services company’ are increasingly blurred.

As banks and financial services companies transact digitally, and collect digital evidence, they might want to ask themselves: If they were required to persuade a ‘tech-dinosaur’ judge or regulator that their data could be relied upon as persuasive evidence, would they succeed?



Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 25 April, 2018, 13:101 like 1 like

Nice and thought-provoking post.

But, since times immemorial, banks have been going to courts to recover outstanding loans. The only new thing is, they're increasingly using a digital loan application process. But even there, banks generally seek wet-ink signature on the loan agreement at the last step before disbursing the money. I'm sure that's the copy of loan agreement they'll submit to courts. In front of the court, the borrower can't really claim that the process was any more unfair compared to a wholly paper-based process.

IMO, the real challenge will be faced by nonbank fintechs, who claim to be approving loans and disbursing funds without any physical step / documentation. Even in the case of some of them, their claim is only a go-to-market message to differentiate themselves from traditional FIs and I strongly suspect that they also have a physical step at the end. As I highlighted in Flight Delay Insurance - Why Blockchain?, the Blockchain-based flight delay insurance provider actually registers the insurance agreement with Malta Government and pays stamp duty.

A Finextra member
A Finextra member 01 May, 2018, 16:32Be the first to give this comment the thumbs up 0 likes

@Ketharamanswaminathan Thanks for your comment. You’re right that many banks still seek wet signatures. But they don’t always need to - in many jurisdictions, such as the EU member states where the use of eSignatures are governed by EIDAS, a wet signature is not necessary either for legal compliance or for enforceability. For this reason, and due to changing consumer expectations, many UK and European banks are investing in ways to fully digitise the financial agreement process. If digital agreements are challenged, then banks will need to present relevant digital documentation and evidence to the courts in a format that is easily understandable but also irrefutable. For this reason, banks should use specialist technologies that collect evidence at each stage of the agreement process, and store that evidence in a way in which it cannot be tampered with. If you’re interested in this area, Osborne Clarke have an interesting paper on the issue of the enforceability of electronic agreements. What’s interesting about their advice is that the signature alone isn’t enough – you need to be able to prove a number of other things such as ID verification and intent.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 02 May, 2018, 14:15Be the first to give this comment the thumbs up 0 likes

@Abe Smith:

I *know* banks don't need to seek wet ink signatures. What I'm saying is, it now makes a lot of business sense for banks to stick to their status quo of seeking wet ink signatures.

We've been hearing about this "changing customer expectations" for nearly a decade. Still, neobanks have received lukewarm response, fintech lending companies have managed to garner a negligible share of loans, and traditional finserv industry continues to be the most profitable sector in FORTUNE 500. 

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