I have the good fortune to be the ‘technology fellow’ at a London think-tank, the Centre for the Study of Financial Innovation (CSFI). They were asked by the law firm Dentons to put together a series of “horizon scanning” events, each looking at the major factors that will determine the shape of the financial services sector over the next 10-15 years.
As part of this series, they held a fintech breakfast to look at the world of tech-based challenger banks, P2P lenders, crowdfunding, new payments methodologies, AI, cryptocurrencies, blockchain and so forth. I was on the panel for the event, along with Clara Durodié (founder and managing partner of AI outfit Cognitive Finance Group) and Nick Ogden (the founder of ClearBank and, some years ago, the founder of WorldPay).
(In my opinion, Nick is at the heart of the current fintech revolution, the UK-centric whirlwind around open banking and the ‘platformisation’ of financial services, whereas Clara is at the heart of the current regtech revolution, using AI to change the markets themselves. We may be a long way from Terminators and HAL 9000, but the massive AI investments pouring into financial services around the world mean that the technology is going to change the sector soon.)
Now, futurology is jolly difficult, especially when you’re not someone trained in the discipline (such as, for example, my good friend Heather Vescent), so I thought I’d better pick three areas to focus on with short-, medium- and long-term impact. So for what it’s worth, my three main horizon-scanning observations were that:
- Open banking starts in January 2018 and I remain convinced it will be far more disruptive than many people think. It’s not far-fetched, as Wired magazine observed, that banks may go under because of this. At the risk of sounding like a broken record, this is about identity, trust and reputation, not money. Obviously, I left it to Nick to talk turkey on this one. He set up ClearBank to provide building societies, credit unions, other banks and fintech companies with access to all the major payment and card schemes, including Faster Payments, and is obviously pretty convinced that open banking is going to provide space for innovation.
- AI is an event horizon. In that 10-15-year timescale, it’s clearly the most important technological trend of the generation, and it’s impossible to see what is the other side of it. Obviously, I left it to Clara to run a few things up the flagpole here. What I will note is that analysts at Forrester have predicted that a quarter of financial sector jobs will be “impacted” by AI before 2020, and John Cryan (Deutsche Bank CEO) was quoted in the Financial Times in September saying that the bank is going to shift from employing people to act like robots to employing robots to act like people. The impact on employment is obvious, but we cannot hold back the tide, so we must take advantage of the changes and begin to explore new opportunities that can be built around a more productive financial services sector.
- I wanted to bring something from left field to the discussion, so in addition to these two obvious key trends, I spoke about the token and initial coin offering (ICO) marketplace. I think that a regulated and organised token marketplace will be one of the big financial services business moves in 2018, and I’m pretty sure that it will be successful (for a variety of reasons to do with liquidity and the elimination of clearing and settlement).
Nick, Clara and I set out our ideas and then had an open session. During the excellent discussion that followed, there were a number of questions and comments about the impact of AI on the financial services sector. I think this is in many ways quite unpredictable, not only because of the “event horizon” but because of the impending interaction. People tend to think in terms of robo-advisers and chat interfaces, focusing on the use of AI by financial institutions to either cut costs or deliver new services (some of which, of course, we can’t imagine) and these are of course important. But, to paraphrase Fred Schwed’s 1940s financial services classic … Where are the customers’ bots?
(I honestly wish I’d thought of that myself, by the way, but credit where credit it due – it was actually Damien McElblockhain who delivered this fantastic title for a new book. All I have to do now is write the rest of the book.)
What about a homage to Fred Schwed: “Where Are the Customers’ Bots?”
— Damien McElvanna (@damiendamien) October 24, 2017
This is a key question about the future of financial services. If you think about it, customers will have access to AI just as powerful as the banks’. The banks do not have the exclusive use of this technology – it will be available on demand to everyone. The customers’ smartphones will connect them, permanently, to an intelligence far greater than their own. Thus, if a bank is trying to sell me a mortgage or a credit card or whatever, it’s wasting its time showing me incomprehensible advertisements involving astronauts riding horses through fields of purple daffodils and people singing.
My AI is going to negotiate with the AI of the regulated financial institutions in order to obtain the best product for me. Since I’m not smart enough to choose the right credit card, pension or car loan, then clearly I’m going to want my own giant killer robot to take care of things. But which robot? Should I choose the Saga robots or the Virgin Money robots or the best performing robot over the past 12 months or the Google self-taught super-intelligent robot that’s also the world Go champion?
How the banks’ robots will interact with the customers’ robots is at the same time fascinating and frightening. I’m not sure I really want to be in the loop when the discussion of a pension plan or insurance project is taking place, but I do want some sort of confidence that there’s a regulator in the loop and that, should push come to shove, my robot will be out to explain why it made the decisions it did. All in all, what I can see on the horizon is giving my AI access to my account through open banking and then letting it decide which ICO to invest in.
READ NEXT: An island of artificial intelligence
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Image by JoeBakal, Shutterstock.com