More on this book
Community
Kindle Notes & Highlights
by
Brett King
Read between
July 29 - September 16, 2019
Of the major banks in the UK, only RBS has made progress towards a 100 percent digital account opening process9. Let that sink in—every challenger bank in the UK offers digital account opening, but only one incumbent bank can claim the same.
If you want to compete with FinTechs now and in the future, there’s something you absolutely must do—you need to get rid of the requirement to sign an application form with a wet signature. Full stop.
Figure 3: Challenger banks by country (Source: Burnmark as at December 2016).
PwC and Accenture research shows that between 28 and 30 percent of existing banking and payments businesses are at risk from FinTech disruption by 2020 alone. That’s two years away, folks.
Innovation is simply not in the DNA of most bankers. They’ve been trained throughout their whole career to identify and avoid risks, and innovation is about taking small risks and failing fast and cheaply and learning from those mistakes to get to the right answer quickly.
If you’re a bank, then, statistics indicate you have two choices. Deliver it internally at a slower and more expensive rate than a technology player, or partner with a FinTech to do the same, but faster and cheaper.
If you can get the same result for one-tenth of the price in one-third of the time, why are you screwing around trying to copy what a FinTech has already built?
One of the cultural reasons FinTechs and banks clash is that a FinTech has likely grown up with venture capital funding designed to give the startup some time to develop and test their product in market. Profitability is not a strong consideration, even for mature FinTechs like Ant Financial—the focus is predominantly on growth.
However, regulatory compliance may not be the flashing stop sign it used to be for banks. Increasingly, FinTechs are getting adept at working with central banks and regulators to prototype new technology approaches that circumvent current regulations. Regulators are even setting up regulatory sandboxes to test these new offerings, or issuing waivers to existing regs.
This does require a different compliance approach from the incumbent. In the past the compliance team acted as gatekeepers, preventing the bank from doing projects like this because they would put the bank in breach. But FinTechs don’t work like that. FinTechs will knock on the front door of a regulator, explain that other countries already allow them to implement their technology in their markets and that the technology has resulted in higher levels of customer satisfaction and lower incidents of fraud, and that this might be a justification for allowing a trial of that technology in your
...more
In 2016 banks invested around $5 billion in FinTech deals and collaboration, but $50 billion internally on their own systems and innovation projects19. If you want to be a digital-first organisation, that ratio is definitely going to have to change.
Future scenario-planning is a core skill for incumbent banks in particular. They should ask themselves: are the changes we’re seeing in the experience layer and core building blocks of financial services led by FinTechs the boiling water in this metaphor? Or are there incumbents smart enough to realise the danger and act accordingly—in this case, adapting to the new standards in day-to-day banking created by FinTech startups?
FinTech companies usually have a faster and cheaper innovation process and are extremely customer-focused, qualities that are out of reach of probably all banks today.
Accelerator, incubation, innovation and hackathon initiatives by banks simply do not provide the desired effect of becoming more innovative, often because the culture of the bank does not allow innovative ideas to be adopted at the same rate as with a FinTech.
For many people, when they hear the word corporate it implies: slow moving, bureaucratic, potentially out of date. Not words that we associate with the dynamic FinTech companies that we read about in the press.
When we look at the growth of FinTechs, what we see is often the development of a business from a first principles basis, and this is true across all business functions, and in all of the inherent organisational processes within the business.
Secondly, we are seeing a regulatory environment that is struggling to accommodate for, support and govern a range of rapidly emerging payment and financial services companies. As the FinTech startups hit true scale they are entering a phase where the incumbents are able to play to their own strengths. So the transition from a high-growth, even-scaled FinTech to a company that has served the test of time is a tricky one. The giant financial services corporates have mainly been able to weather the storm of economic downturn, and create a true legacy across generations. And that leads us to
...more
the primary threat from AI’s may well be technological unemployment as opposed to robot overlords taking over the planet and enslaving humanity.
However, when we look at AI in financial services right now, the lion’s share of progress appears to be coming from players like Ant Financial and smaller FinTech’s who are able to specialise in these emerging technologies. Ant Financial themselves is reportedly investing more than $15 billion over the next three years in AI and quantum computing3. On their current valuation that’s about 10 percent of their total market cap.
Goldman Sachs Strats division (quantitive strategy/technology) now makes up around 30 percent of GS’ headcount, and they’ve recently been seen aggressively recruiting AI specialists in machine learning (ML), artificial intelligence (AI), program management and digital product design.
The ability to anticipate the needs and preferences of individual customers doesn’t exist in banking today, but will be a requirement going forward...There’s such little talent and expertise in the AI space, and for us to be able to partner with organisations like Layer 6, who are considered both best-in-class from a research and a pragmatic perspective, is really the secret sauce. —Rizwan Khalfan, TD Bank Group
AI is an entirely new skill set and banks don’t have any real expertise in the space and, frankly, are a long way from having world-class capabilities that could compete with the tech majors. Given AI is not a core capability, and banks are starting behind the eight ball on both budget and talent, it’s pretty clear that strategic partnerships, acquisitions and such will be essential.
In the 2000s, UBS moved their trading floor out to its headquarters in Stamford, Connecticut. The trading floor housed more than 5,000 traders holding pride of place in their 700,000 square-foot building. Today the trading floor stands empty, abandoned as a result of automation of the trading arm of UBS’ business. In quantifying the rate of change, Goldman has found that today one computer engineer can replace four or five traders. Today one-third of Goldman’s staff are already computer engineers as they speed up automation internally.
while last year, the Bank of England’s chief economist said that 80 million US jobs and 15 million UK jobs might be taken over by robots
Research shows that facial recognition software is 15–20 times more accurate at identifying a customer than a typical face-to-face interaction
How many of us would want our borders compromised by inferior technology today? Wouldn’t we all want the best chance of catching a criminal or identity thief? In these scenarios, it’s pretty straightforward to prove that algorithms, biometrics and identity databases can consistently outperform human workers.
In airports the applications are straightforward. Airlines like JetBlue and Finnair are trialling facial recognition systems to bypass checking your boarding pass at the gate. Before long you may be able to enter the airport, board your flight and pass through customs at the other end just by using your face. The golden age of travel may return simply thanks to biometric tech powered by an algorithm.
Very soon, based on both cost and performance, humans won’t be competitive when it comes to the front line on the basis of identity verification alone. If your business is built on in-branch customer acquisition, you will find that AI capabilities in general are a big threat to your primary acquisition approach.
Today that toy manages more than $10 billion in AuM (assets under management), and Betterment’s growth is estimated at around 106 percent annually, although it appears to be slowing as they get larger (it was around 300 percent just three years ago). Stein says he is aiming for $1 trillion in AuM, so they have big aspirations and more growth to go.
Today, we’re at a pivot point for personal investing. In the past the assumption was you’d need both advice and financial literacy in order to be able to successfully invest as an individual. That’s a problem today as the data shows that financial literacy amongst millennials is actually significantly worse than that of their forebears
Assuming that millennials will be both literate enough to invest and seek out human advisors in the future is a big assumption. The emergence of automated investing tools like Stash, Digit and Acorns, and the development of robo-advisory tools, seems more likely to fill this gap in skills and behaviour.
Robo-advisors today are performing right in that range of expected returns. Barron’s conducted a survey of robo-advisors over the 2016 calendar year and found annual returns for the better-performing robos were in the 11–12 percent range
BI Intelligence forecasts that robo-advisors will manage around $1 trillion of AuM by 2020, and around $4.6 trillion by 202215. As a trend, by 2030 we would expect robo to dominate the mass market investment industry.
Thus, it seems entirely reasonable that robo-advice will come to be seen as one of the greatest tools for large-scale affluent wealth management since the creation of “premier” banking. Accessible, automated portfolio management without the friction.
ICBC in China has made a big bet on AI and robo-advice.
Human advisors will just look slow, clunky and bound by friction. Robo-advising will quickly become the benchmark on experience, and then on asset management performance. Regulators will be forced to adapt too.
Voice assistants are already being used to make purchases by 40 percent of millennials, with that number expected to exceed 50 percent by 2020
Today more than 50 percent of customers in most developed economies use their mobile for checking their balance versus any other bank channel. Twenty years ago it was dominated by ATM or phone banking. In 10 years it will be dominated by voice-based or agency-based commerce engines
Now, you would be wrong to dismiss this as simply another channel in the bank arsenal, because this is the start of actually redefining your day-to-day relationship with technology, not just your bank account. Voice has the potential to become the underpinning of day-to-day advice for you and your money, but increasingly it will be just the way you access a range of basic technology capabilities. ComScore says 50 percent of search will be voice-based by 2020, and commerce is obviously going the same way. But search leads to conversational commerce, which is more than just asking a
...more
The growth in capabilities behind smart assistants like Alexa is frankly unbelievable. At current growth rates, Amazon Alexa will have approximately three million skills by September 2018, and 10 million by the end of 2018.
This all adds up to one undeniable trend. The capabilities of conversational commerce on smart assistants is growing at such a rate that its impact on the way we use computing technology is greater today than the internet’s potential for impact back in the year 2000. The frictionless, conversational nature of this technology will absolutely force service providers to adapt to a world where their services will have to be delivered via a voice-based technology.
Various categories of personal AI impact emerging over the next 5–10 years.
The seamless nature of voice will force us to create compelling, frictionless experiences where advice and utility meld together. The movements toward “open banking” will give Google, Apple and Amazon amazing abilities to incorporate this data into voice assistants.
Frankly, if a bank doesn’t start thinking about the digital bank account, accessible through voice and mobile, as their primary channel for day-to-day access and advice to their customers, then they will be caught off guard in the same way banks were when both internet and mobile apps first appeared. This time, however, the risks are much greater, because the shift from product to experiences will dramatically erode the ability to simply retrofit voice onto the existing channel middleware or bank core systems architecture.
“If the customer ‘interface’ is happening elsewhere, the bank has zero visibility over transactions,” said James Lloyd, Asia-Pacific FinTech Leader at EY. “That’s not a good situation to find yourself in.”
Voice as the customer interface will result in increasing pools of financial-related behavioural, merchant and location data that sit outside the bank ecosystem within voice or aggregated technology platforms (mobile, augmented reality glasses, etc). For banks to be able to respond to your needs, they’ll need the data that captures real-time behaviour—but Alexa, Google and Siri may not share what led up to an API request for a credit facility, they may just share the request.
This is behavioural gamification, economics and psychology as a design competency. In the voice world you are an experiential solutions provider. You are not pushing an offer for an existing bank product down a new channel—if you are, you will fail!
Pitch me a product that I don’t immediately need, and you will lose access to the channel, because I’ll block you faster than a bad Tinder date.
In our bank we have people doing work like robots. Tomorrow we will have robots behaving like people. It doesn’t matter if we as a bank will participate in these changes or not, it is going to happen… The sad truth for the banking industry is, we won’t need as many people as today. —John Cryan, CEO of Deutsche Bank, September 2017
Table 1: AI competencies and drivers in banking.
