By Aparna Gupta, professor in the Lally School of Management and co-director of CRAFT
Banking and investing in the years to come are unlikely to resemble what they looked like or how they worked for our grandparents. An enormous amount of data and a high rate of digitization has been transforming the landscape of the financial services sector and how customers engage with it. Ubiquitous and vast varieties of data combined with the sector’s reliance on technology are also posing new challenges, threats, and vulnerabilities.
The newly formed industry-guided research center, the Center for Research toward Advancing Financial Technologies (CRAFT), funded by the National Science Foundation’s Industry-University Cooperative Research Center Program, is setting out to leverage the opportunities for advancement and innovation in the industry and to address the many threats and vulnerabilities it faces.
At a recent launch event for CRAFT, industry leaders discussed many examples of such pressing challenges and research opportunities. For example, in banking, opportunities lie in advancing open banking and more broadly, open finance; supporting innovations and customizable services that respond to changing customer needs and expectations; and engaging innovative enterprises to offer value-added solutions.
The high pace of digitization requires robust solutions for protecting digital identities and highly sensitive data. Another challenge is ensuring robust interoperability, or the ability of different financial service systems to connect to one another, and standardizations for seamless and reliable service provisioning for customers. Modernized technological platforms for financial institutions and market infrastructure for retail, wholesale, and cross-border transactions need to be resistant to malicious agents by utilizing AI-based capabilities for real-time financial crime detection and mitigation.
While data is readily available and voluminous in social media enabled-channels and in decentralized financial systems, its reliability, trustworthiness, and security is a major concern that must be addressed. Moreover, easy access to investment platforms and data, and a resulting high degree of participation by investors, presents the need for new frameworks for financial literacy to reduce risks, such as the spread of misinformation and high market volatility.
CRAFT researchers are addressing many of these very compelling and pressing issues. They are also developing AI-based financial decision-making tools that provide explainable and fair decision recommendations utilizing large volumes and varieties of data, as well as building natural language processing-based techniques for investment and risk management decision-making that can be used for a spectrum of financial services. Activities in decentralized finance platforms are being studied and methodologies are being developed for the detection of malicious activity and fraudulent behavior. Network innovations are being developed to support interoperability and Internet of Things-enabled provisions of financial products in domains such as insurance and lending.
CRAFT researchers are also developing solutions to address climate change and sustainability challenges in the financial services industry. Through these projects, and many more to come, CRAFT will drive the transformation of financial services of the future.