Fintech, AI, and the Effects of Next-Generation Infrastructure: Research Roundup May 2018


*The Research Roundup is a semi-regular list of outside research we have found interesting and think is worth sharing. The views and conclusions of the papers’ authors do not necessarily reflect the opinions of anyone affiliated with TPI.*


This month, the Research Roundup reflects the breadth of issues relevant to technology policy. The articles presented below cover topics ranging from financial technology to use of net neutrality to ethical questions associated with algorithms.


We highlight in particular an NBER working paper that finds that using consumers’ “digital footprints” across the web can improve access to credit for people who, based on traditional FICO scores, are likely to be denied today. In their paper On the Rise of FinTechs – Credit Scoring using Digital Footprints, Tobias Berg, Valentin Burg, Ana Gombović, and Manju Puri examine the value of a consumer’s digital footprint – comprised of easily identifiable information such as the type of device used, the customer’s email server, the channel through which the customer found a website, and the time of day it was visited – as a complement to more traditional variables in financial decisions. The authors note that information pulled from a digital footprint is often used as proxies for customers’ income, marketability, or character. From a dataset of more than 250,000 observations, the authors determine that lending institutions that use both FICO scores and information contained in a digital footprint make superior lending decisions than those institutions that use either method alone. They further note that the combined data has the power to address inequities or discriminatory in lending, as it will overcome information asymmetries between lenders and borrowers. Finally, they posit that a greater understanding of the value of a digital footprint may increase the amount of attention paid to it by both consumers – who may consciously change their behavior in order to leave a “better” footprint – and lenders – who may anticipate (correctly or incorrectly) such changes. Click through for more detailed descriptions of this and other work from around the technology policy sphere.


On the Rise of FinTechs: – Credit Scoring using Digital Footprints

Big Data in Finance and the Growth of Large Firms

Trends and Priority Shifts in Artificial Intelligence Technology Invention: A global Patent Analysis

Is Artificial Intelligence a Help or Hindrance?

Never Mind the Trolley: The Ethics of Autonomous Vehicles in Mundane Situations

The Use of Drones in Spain: Towards a Platform for Controlling UAVs in Urban Environments

The Internet of Things as an Accelerator of Advancement of Broadband Networks: a Case of Thailand

Impact of 5G Technologies on Smart City Implementation


Descriptions of papers below are edited abstracts from authors


On the Rise of FinTechs – Credit Scoring using Digital Footprints

Tobias Berg, Valentin Burg, Ana Gombović, and Manju Puri

We analyze the information content of the digital footprint – information that people leave online simply by accessing or registering on a website – for predicting consumer default. Using more than 250,000 observations, we show that even simple, easily accessible variables from the digital footprint equal or exceed the information content of credit bureau (FICO) scores. Furthermore, the discriminatory power for unscorable customers is very similar to that of scorable customers. Our results have potentially wide implications for financial intermediaries’ business models, for access to credit for the unbanked, and for the behavior of consumers, firms, and regulators in the digital sphere.


Big Data in Finance and the Growth of Large Firms

Juliane Begenau, Maryam Farboodi, and Laura Veldkamp

One of the most important trends in modern macroeconomics is the shift from small firms to large firms. At the same time, financial markets have been transformed by advances in information technology. We explore the hypothesis that the use of big data in financial markets has lowered the cost of capital for large firms, relative to small ones, enabling large firms to grow larger. Large firms, with more economic activity and a longer firm history offer more data to process. As faster processors crunch ever more data – macro announcements, earnings statements, competitors’ performance metrics, export demand, etc. – large firms become more valuable targets for this data analysis. Once processed, that data can better forecast firm value, reduce the risk of equity investment, and thus reduce the firm’s cost of capital. As big data technology improves, large firms attract a more than proportional share of the data processing, enabling large firms to invest cheaply and grow larger.


Trends and Priority Shifts in Artificial Intelligence Technology Invention: A Global Patent Analysis

Hidemichi Fujii and Shunsuke Managi

This study is the first to apply a decomposition framework to clarify the determinants of AI technology invention. Consisting of 13,567 AI technology patents for the 2000–2016 period, our worldwide dataset includes patent publication data from the U.S., Japan, China, Europe, and the Patent Cooperation Treaty (PCT). We find that priority has shifted from biological and knowledge-based models to specific mathematical models and other AI technologies, particularly in the U.S. and Japan. Our technology type and country comparison show that the characteristics of AI technology patent publication differ among companies and countries.


Is Artificial Intelligence a Help or Hindrance?

Johnathan Wilkins

A recent report by Cisco found that over half of cyber-attacks reported in 2017 resulted in financial damages of more than $500,000. As cyber-attacks become more common, manufacturers need to secure their industrial data to avoid losing more than just their money to hackers. But what part can machine learning and artificial intelligence (AI) play in this? Cisco reported that companies lost more than money because of cyber-attacks – they also lost the trust of customers and future opportunities with potential new business. Cyber-attacks are becoming more common and more sophisticated and we work hard to protect our personal data, so why do we not do the same for industrial data? As manufacturers automate more processes on the factory floor, there are more opportunities for hackers to enter the system. The Internet of Things (IoT) allows equipment to connect to the cloud and report real-time data on machine condition and processes. However, connected devices are also vulnerable. Manufacturers must consider how to protect their system when introducing more automation to the factory floor.


Never Mind the Trolley: The Ethics of Autonomous Vehicles in Mundane Situations

Johannes Himmelreich

Trolley cases are widely considered central to the ethics of autonomous vehicles. We caution against this by identifying four problems. (1) Trolley cases, given technical limitations, rest on assumptions that are in tension with one another. Furthermore, (2) trolley cases illuminate only a limited range of ethical issues insofar as they cohere with a certain design framework. Furthermore, (3) trolley cases seem to demand a moral answer when a political answer is called for. Finally, (4) trolley cases might be epistemically problematic in several ways. To put forward a positive proposal, we illustrate how ethical challenges arise from mundane driving situations. We argue that mundane situations are relevant because of the specificity they require and the scale they exhibit. We then illustrate some of the ethical challenges arising from optimizing for safety, balancing safety with other values such as mobility, and adjusting to incentives of legal frameworks.


The Use of Drones in Spain: Towards a Platform for Controlling UAVs in Urban Environments

Pablo Chamoso,  Alfonso González-Briones, Alberto Rivas, Federico Bueno De Mata, and Juan Manuel Corchado

Rapid advances in technology make it necessary to prepare our society in every aspect. Some of the most significant technological developments of the last decade are the UAVs (Unnamed Aerial Vehicles) or drones. UAVs provide a wide range of new possibilities and have become a tool that we now use on a daily basis. However, if their use is not controlled, it could entail several risks, which make it necessary to legislate and monitor UAV flights to ensure, inter alia, the security, and privacy of all citizens. As a result of this problem, several laws have been passed which seek to regulate their use; however, no proposals have been made with regards to the control of airspace from a technological point of view. This is exactly what we propose in this article: a platform with different modes designed to control UAVs and monitor their status. The features of the proposed platform provide multiple advantages that make the use of UAVs more secure, such as prohibiting UAVs access to restricted areas or avoiding collisions between vehicles. The platform has been successfully tested in Salamanca, Spain.


The Internet of Things as an Accelerator of Advancement of Broadband Networks: a Case of Thailand

Tatcha Sudtasan and Hitoshi Mitomo

The advanced development of broadband access is an inevitable step toward supportive daily lives and sustainable economic growth. However, the decisive outcome of the development relies heavily on the demand side. Consumer choice among advanced Internet broadband technologies will determine the achievement of the development. This study aims to illustrate that consumer decisions on choices of advanced Internet access are influenced by the emergence of the Internet of Things (IoT) applications. A bivariate probit model is applied to examine the effects of IoT, consumer’s individual characteristics, and their current use of networks on their decision pertaining to the choice of advanced Internet access. Using Thailand as a case study, the result indicates that the emergence of IoT applications accelerates the adoption of both advanced mobile broadband (5G) and advanced fixed broadband (FTTH). This finding may help policymakers to optimize the future direction of the Internet infrastructure development in Thailand, and also countries in a similar stage.


Impact of 5G Technologies on Smart City Implementation

Sriganesh K. Rao

The concept of “Smart Cities” is very important as it aims to uplift the living standards of the residents by greatly improving the City’s Infrastructure, Traffic management, Governance, Water and Waste management, Power management, Health systems, Safety and Security systems, Education systems etc. This paper describes the concept of Smart Cities and enumerates its various benefits. It describes various Services and Applications required to make a City Smart and the role of ICT technologies in their implementation. Further, the challenges in the current ICT systems are discussed in their role to Smart City implementation. The paper discusses the proposed features of 5G technologies and describes how 5G could be the best answer for successful, implementation of Smart Cities. It lists down a few Smart City Use Cases which are enabled by 5G. 5G will act as the backbone of IoT and pave the way for the development of Smart Cities.