Banking data at the heart of the financialization of society
The last book I read in 2019 was “Postcapitalism – A guide to our future” by Paul Mason.
Mr. Mason is an award-winning writer, broadcaster and film-maker and his book is a fascinating voyage to the upcoming, but apparently not futuristic anymore, post-capitalist society.
He argues that the 2008-crisis “proved that everybody enjoying the consumer lifestyle without wages rising was a fiction at the heart of neoliberalism” and that “capitalism might have lost its ability to adapt.”
In order words, the times in which the economy was characterized by cycles of almost theoretical frequency and duration might belong to the past.
In his book, he suggested some approaches to modelling an information economy, covering the transition to a “post-capitalist society”, and how to factor in climate change, extreme events, and the ageing population.
Would they work? We don’t actually know. Instead, what we know is that risk models based on previous century paradigms like supply and demand, consumers and producers, and utility theory might not clear this uncertainty.
I personally like Jacek Marczyk’s approach. In his article “What Lies Beyond Risk Management?”, Mr. Marczyk says that “risk models, especially those based on the calculation of probabilities and probability distributions, are not the best alternative when it comes to managing uncertainty.”
The author believes that “the most practical way to face uncertainty is to increase one’s resilience” and suggests that “more-natural”, model-free methods might help make an organisation more resilient.
To use his words: “All we need is data… and an open mind.”
This is very much in line with Mr. Mason’s statement: “for a successful transition [to postcapitalism] we should maximize the power of information.”
Mr. Mason dreams up a world where Walmart or Tesco are prepared to publish their (anonymised) customer data for free.
Doing so, everybody from farmers to epidemiologist could mine the data and make more accurate data-based decisions. Individual customers could see at a glance whether they’ve been making rational or irrational shopping decisions.
You may call it a utopia, or even a dystopia (depending on your ideology), but I can confidently tell you that this is already happening at the very heart of capitalism: banking.
For instance, when in 2012 the European Central Bank kicked off the Loan-level initiative, the official aim was to foster transparency in the Asset-Backed Securities markets.
This loan-level data contains extremely valuable information – e.g. banking products, clientele demographics, collateral characteristics, default cohorts, etc… – about the underlying assets that back the bonds issued by each bank.
So what did they do? The ECB standardised and made the data public.
The beauty of this initiative is that the data deriving from different financial institutions, which were merely snippets on their own, have been combined to create a significant sample of various credit markets such as mortgages, auto loans, etc…
Any interested party such as banks, institutional investors, universities and strategy consultants, can access, mine, and use this data.
For instance, a bank can use the data to learn that its close competitor is charging a 1.5% margin for a 15-year, fixed-rate mortgage granted to a 35-year-old, foreigner-but-resident-for-more-than-3-years-in-France full-time employee earning EUR 60K per year, to renovate his second home in Paris – a flat built during the belle époque.
Our 21st-century machines paint detailed customer portraits like no other artists ever could. Not artists, not analysts, and certainly not the usual systems we’ve had until now.
What a blast, right? Imagine what a company like Google could do, or is already doing, with all these details.
So, what should you take away from this? The key thing is that the world is changing. Call it “post-capitalism”, call it “open data” – change has come.
It’s not “on its way” and it’s not “impending” – it’s here. And some companies already have, or have invested in, the tools to deal with this change effectively, while others have not.
One of the government’s roles, as we all know, is to encourage innovation and to help society avoid inequalities. It is only fitting that governments pay closer attention to the data-related inequalities of the new age.
Through regulations, leaders can make sure that the whole of society benefits from the data it is producing.
Now, to finish off, we don’t know whether Tesco’s will open their data.
We do know that Tesco is a bank.
We no longer live in a world where each company has a single, immutable role in society. A supermarket can also be a bank, an online shop can be your insurance provider.
When a technology company decides to take up finance as a hobby, it has the ability to deliver true value to customers by using cutting-edge technology and more than a wagonful of data.
These “jacks of all trades” use their diverse data-sources to predict future trends and risks – a very familiar concept for banks, don’t you think?