As part of its application to the National Science Foundation to establish a research center in fintech, the School of Business at Stevens Institute of Technology submitted letters of support from more than a dozen companies.
Now that NSF has approved the grant to create such a center, it's worth giving those letters a second look.
As you'd expect, financial services firms like UBS, Bank of America, Citi and RBC supported Stevens' application. But look closer and you’ll also see companies like PSEG, a major electric utility; OneMarketData, a database management company; and Capco, a global management consultancy, albeit one with an intense focus on financial services.
That, perhaps more than any other fact, shows the value of fintech in today’s business world. It’s no longer just a concern for finance companies; businesses in every discipline are affected by the sweeping changes that data, analytics and machine learning have brought to the industry.
“Finance wasn’t previously viewed as a science field,” said Dr. George Calhoun, director of the Hanlon Financial Systems Center at Stevens and a co-principal investigator on the project. “Now, markets are high tech and very dependent on new and emerging technology, as well as scientific content in the study of what drives these markets.”
Research with a focus on industry
The NSF center at Stevens will be what’s known as an Industry-University Cooperative Research Center. The IUCRC format is unique for its intensive emphasis on industry involvement, ensuring that research coming out of the center is relevant to real problems. It’s the first such center that has financial technology as its core concern, and will challenge Stevens researchers to put their expertise to work in identifying ways companies can become more agile, solve more complex problems and seek advantages through integration of new technologies — artificial intelligence, automated markets, more robust algorithms, smarter fraud detection and so on.
In recent years, more than 7,500 fintech firms raised more than $110 billion in financing, said Dr. Steve Yang, the principal investigator on the center and an associate professor at the School of Business. Meanwhile, traditional firms are racing to keep pace with changes driven by analytics, artificial intelligence and blockchain.
“These developments in the finance sector are motivating innovations in other sectors, such as health care and energy,” said Dr. Yang, who's currently serving as a visiting scholar at the Securities and Exchange Commission. “Rigorous academic research for the optimal design of solutions, business strategies, risk assessment and the societal impact of these innovations is, however, seriously lacking.”
Along with the nearly 20 companies that supported Stevens’ bid, Georgetown University and Rensselaer Polytechnic Institute are partners in the endeavor.
“Georgetown and RPI complement our strengths very nicely,” Dr. Calhoun said. “Georgetown is good in traditional finance and the regulatory end of the business — what is the Federal Reserve going to do, what is the Treasury going to do — in ways that reflect their own location advantage. And RPI brings additional scientific and technological capabilities to the table.”
To say Stevens is close to the financial services industry is an understatement. The School of Business offers a full complement of undergraduate, master’s and Ph.D.-level academic offerings in finance; graduates of these programs are in significant demand each year, drawing starting salaries far above average. Those programs benefit from the input of an active board of advisors, featuring leaders from companies such as Goldman Sachs, JPMorgan Chase and American Express. Finance is now the most popular destination for Stevens students; for the Class of 2019, 22 percent of undergrads accepted employment in this industry.
Furthermore, the high-tech Hanlon Center — home to two state-of-the-art financial analytics and data visualization labs — supports education, research and thought leadership that meets the needs of a workplace and an industry seeking an edge through the data revolution.
For Dean Gregory Prastacos, Stevens’ leadership in this IUCRC is evidence of a research culture founded on exploring ways that technology can create value in the business world, while also advancing knowledge in this core discipline.
“I couldn’t be more excited to have Stevens play such an important leadership role in an NSF research center,” Dr. Prastacos said. “Our faculty have done some incredible work in topics like optimization, portfolio structuring, asset valuation, and A.I. and machine learning. The IUCRC will not only help us bring our work to the companies that would benefit from these insights, it also gives us another channel to engage industry and better understand the unique challenges they face.”
High-tech research challenges
Among the initial areas of focus for researchers in the IUCRC, according to Dr. Calhoun, will be cybersecurity; high-frequency automated markets; technology risk and regulation; commercialization; and applications of blockchain, quantum computing, natural language processing and artificial intelligence to the finance industry.
That diversity is reflected by the broad expertise of the co-PIs on this project, which include professors Giuseppe Ateniese (computer science), Jeffrey Nickerson (information systems and networks) and Darinka Dentcheva (mathematics and optimization). Working with such a broad panel of experts — in addition to thought leaders at Georgetown, RPI and industry — will empower a multidisciplinary approach that should break traditional research silos, Dr. Yang said.
“For example, fintech companies that applied machine learning algorithms to consumer credit decisions soon found that the algorithms ran afoul of fairness in lending regulations. This helped accelerate research on model fairness in machine learning, leading to ongoing innovations in modeling, visualization and explanation,” he said. “Such innovations may drive regulatory changes that require clearer explanations from algorithms that make decisions which are susceptible to bias.”
Stevens is now in the planning phase for the project, which runs for one year. The next step is applying to the operating phase of the project, during which the NSF and the industry partners would contribute funding toward research.