AI could price consumers out of credit market
Artificial intelligence could lead to some consumers being priced out of the credit market, a joint report from the Financial Conduct Authority and the Bank of England has warned.
The report from the City watchdog and the central bank noted that AI “can lead to more tailored financial services and products” but said that it could also lead to some consumers being priced out of these products.
“Customers may also be unable to get credit or insurance cover if they are deemed to be higher risk,” the report said.
“Other risks to consumers include competition and fiduciary concerns, such as unfavourable and/or unfair penalties or product conditions (such as level of collateral needed).
“The combination of AI and personal data could also risk breaching consumers’ personal data rights.”
The report also warned that financial services firms could face challenges if they misuse AI.
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“For firms, inappropriate use of AI could result in financial loss (e.g. from a poor credit algorithm), reputational risk, regulatory risk (e.g. being fined or sanctioned because of breach of responsibilities to customer), operational risk (e.g. being unable to recover or debug), and risk of loss of intellectual property,” it said. “Certain adaptive AI models need large amounts of data and are open to ‘adversarial attacks’, which can expose firms to even greater cyber risks.”
Furthermore, AI can introduce non-financial risks such as those involving data privacy, the report said. “This is important to consider as protected characteristics may be needed to measure or establish the fairness of AI predictions.”
Peer-to-peer lending industry stakeholders have predicted rising uptake of AI within the sector.
Last year, Funding Circle executive Alex Allen said that technological innovations including AI would drive the sector’s future growth.
““With AI and machine learning and technological innovation I think the next 10 years will continue to evolve and will be rapidly different,” he said at London Fintech Week.
And more recently, Atuksha Poonwassie, co-founder and managing director of Simple Crowdfunding, said “potentially more platforms will look at AI”, commenting that “customer journeys will improve, and platforms are constantly evolving”.
