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Banking tech could lead to discrimination, says ex-regulator


Advances in banking technology are putting vulnerable customers at risk of discrimination, a former City regulator has said.

Mick McAteer, a former board member at the Financial Conduct Authority, said lenders and insurers were gaining access to tools to more accurately identify “unprofitable” or costly customers, increasing the risk of exclusion for certain sections of society.

The issue has gained fresh attention after an algorithm used to set credit limits for the new Apple Card sparked claims of gender discrimination. David Heinemeier Hansson, a tech entrepreneur, said he had been offered 20 times more credit than his wife.

The Apple co-founder Steve Wozniak said he and his wife, who share all the same assets, faced similar problems with the Goldman Sachs-run algorithm, which is now under formal investigation by a US regulator.

Steve Wozniak
(@stevewoz)

The same thing happened to us. I got 10x the credit limit. We have no separate bank or credit card accounts or any separate assets. Hard to get to a human for a correction though. It’s big tech in 2019.


November 10, 2019

“Everyone’s getting very excited about fintech and open banking and all this new technology but the fact is … this actually risks more people being excluded from the financial system,” McAteer said.

“Technology and the use of big data actually allows banks – and insurance companies, for that matter – to identify more precisely which customers are profitable, which customers are not, [and] which customers cost more to maintain.”

Financial firms already differentiate between customers to some degree, resulting in different rates for products such as credit cards and mortgages. McAteer said technology could amplify bias.

“A lot of the business models are built around standard males with average earnings, with certain predictable patterns of earnings growth. There’s a risk that those that exhibit different behaviour end up being discriminated against,” said McAteer, who now runs the Financial Inclusion Centre, a thinktank.

In the UK, firms are not allowed to segment customers based on gender, race or physical ability, but it has become easier to identify customers based on technical analysis of data such as spending habits and income.

“The whole point of this tech is to allow very, very precise profiling to people’s behaviour. Some firms will use that for good purposes, others won’t,” McAteer said.

Last year the FCA raised concerns that certain customers were being racially profiled by insurers who were buying extra data to set their prices. Some firms decided to scrap the use of that data after the regulator said it contained information that could identify race or ethnicity. But others defended their data mining as a “proportionate means of achieving a legitimate aim” around pricing.

“We’re very concerned about the downsides about the growth and use of technology and big data,” McAteer said. “We think it will lead to more exclusion unless regulators constrain the way that it’s used.”

Charlotte Crosswell, the chief executive of the UK’s fintech lobby group Innovate Finance, said diverse hiring practices would help address discrimination by financial technologies. “In the race to leverage artificial intelligence, we must ensure that algorithms are set without bias of offerings to consumers, based on gender and social background. Diversity is therefore imperative at all levels of all companies, from those who work in engineering through customer-facing roles and in the leadership team.”

Responding to the Apple Card controversy, Goldman Sachs said all its credit applications were evaluated on income and creditworthiness factors such as personal credit scores and debt levels. “Based on these factors, it is possible for two family members to receive significantly different credit decisions. In all cases, we have not and will not make decisions based on factors like gender.”





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