Automation doesn't cut jobs...executives do, $3.4B raised by token offerings in 2019 is deciphered, IoT wasn't really a thing -- Autonomous ?NEXT #152

Hello and welcome to Fintech Focus --

The Greek tragedian Euripides once said "Question everything, Learn something, Answer nothing". This week we take a leaf out of his book to approach some chunky topics from a different perspective. Should you wish to share your opinion further, please find us on LinkedIn or twitter -- links below. . As always, we would like to remind you that should you ever wish to refer back to previous newsletter entries, you can find them on our website HERE.

If you have any questions, comments, or suggestions regarding the content and/or structure of the newsletter, feel free to reach out to me directly on LinkedIn, Twitter, or via my email. I look forward to hearing from you.

Our top 3 thoughts for this week are:

1. ARTIFICIAL INTELLIGENCE: When it comes to automation, executives get their priorities straight
2. CRYPTOCURRENCY: Deciphering $2.26B of Blockchain venture and the $3.36B raised via token offering projects in 2019 so far
3. INTERNET OF THINGS & APIs: The Internet of Things wasn't really a thing

Our artist of the week is Liesbeth Willaert and her Nothing Is What It Seems piece. A perfect metaphor for the theme of this week's newsletter.

ARTIFICIAL INTELLIGENCE: When it comes to Automation, executives get their priorities straight

It takes two to tango, and as per a report published on The State of AI and Machine Learning suggests, 82% of technical practitioners and 94% line-of-business owners believe that both humans and machines will collaborate in the future, rather than one dominate the other. The concept of such an idealistic future should instill some comfort in those whose jobs are directly threatened by automation i.e. an average of 63% of front office employees across banking, investment, and insurance industries. However, the journey to get there will be messy. With no greater example of this than Deutsche Bank's 18,000 workforce cut, complimented by a $14.5 billion IT budget injection by 2022. As noted in a recent blog entry, Deutsche's move can be viewed as the former of two possible outcomes of automation: "(1) remove $1 billion of cost by slashing your team, or (2) make your team $1 billion more productive". Amazon is undertaking an effort towards the latter outcome by spending $700 million on up-skilling its workers.

This raises an interesting point -- automation does not directly drive the loss of jobs, the priorities of c-suite executives does. In a briefing paper by The Economist on The Advance of Automation, less than half (47%) of all executive respondents strongly agree that automation is most effective when it complements humans, not replaces them. Whilst 57% believe automation will change the skills and requirements the workforce needs. Put simply, there seems to be no true preference between the two outcomes amongst the 500+ surveyed executives. Additionally, only 18% saw automation free up employees to take on higher-level roles, and 17% saw enhanced employee engagement and experience. But, is it too early to truly lean on these statistics?

Lastly, this week saw JP Morgan roll out a new digital investment service i.e. roboadvisor called 'You Invest' via the Chase mobile app. The service will target younger clients with as little as $2,500 to invest across a mix of JPMorgan ETFs, costing 35 basis points per annum. Similarly, an ex-Coutts banker has launched a digital wealth management platform called Rosecut Technologies. Combining artificial intelligence and human advice to provide a bespoke investment solution aimed towards high-net-worth clients. What we are seeing here is more evidence of automation not being the culprit behind looming job cuts. Rather its the B2B consultants promising automation solutions to executives, the pitched cost benefit of replacing workers with algorithms, and the prioritization of lean machine-driven profits, that are the true culprits. 

Source: Figure Eight (The State if AI and Machine Learning Report), The Economist Intelligence Unit (The advance of automation Report)

CRYPTOCURRENCY: Deciphering the $2.26B of Blockchain venture and the $3.39B raised via token offering projects in 2019 so far

According to reports by Inwara and the Crypto Valley Association, as many as 583 token offerings were launched during the first half of 2019, raising a total of $3.39 billion, whilst traditional venture funding into Blockchain-first companies raised $2.26 billion. We think the token offering figure is inflated despite our attempts at scrubbing it, and reserve the right to revise. Quality of the data continues to decline, and several projects self-reported raises in 2019 are suspicious. If anything, our intuition is that real (rather than aspirationally self-reported) ICO funding is below the venture number. 

Let's break down the token offering figure. The $3.39B is made up of 69% Initial Coin offerings (ICOs), 21% Initial Exchange Offerings (IEOs), and 10% Security Token Offerings (STOs) -- see figure below for the distinction between them. Projects stemming from China raised the lion's share ($1.18 billion or 33.2%) of the total, helped by Hong Kong based Bitfinex's $1 billion IEO raise. The USA, trailed behind China raising $255 million or 7.6% -- supported by Algorand's $122 million. Trading and investing (including crypto exchanges) has been the vertical receiving the majority of investor attention with $1.25 billion raised, and core Blockchain projects following within $338 million.

Unsurprisingly, the rise of regulator "friendly" IEOs and financial services "friendly" STOs, has meant that the number of ICO projects have declined 74% to a mere 403 in the last year. IEOs have grown from 6000% to 123 projects, and STOs 16% to 57 projects. The growth of IEOs and STOs "emphasizes a higher degree of institutionalization of large crypto exchanges around the world as cornerstones of the global Crypto Finance infrastructure – and may also be seen as a response to established exchanges moving into crypto".

So is this enough to maintain a consistent growth trajectory for the crypto industry as a whole? Hard to say, but it seems that tokenizing securities tied to real estate, and repackaged ICOs sold via exchanges may or may not result in better capital markets infrastructure, democratization and roboadvisor-led asset allocation. And second, the crypto economy needs non-financial activity to succeed. People should be building software using the global decentralized computer of Ethereum (or R3 Corda or Dfinity or soon-to-be-launched Calibra) and paying for it using the global decentralized currency Bitcoin. More crowdfunding ain't that.

Source: Crypto Valley & PWC (5th ICO/STO Report), Inwara (Half-Yearly Report H1 2019)

Internet of Things & APIs: The Internet of Things wasn't really a thing

Look, we love our buzzwords as much as you do, but this one has gone on long enough. The Internet of Things (IoT) is one such buzzword that is synonymous with product design, connectivity, infrastructure, and the future. Pretty broad right? To enforce this point, IoT can be simply defined as a network of interconnected digital devices in order to exchange data. Doesn't this sound like the definition for the internet? Effectively the Internet of Things is purely a term of scale, in which the "things" are any device that can be connected to the internet. The issue of scale has resulted in a mass of tech companies -- such as Google, Apple, LG, Samsung, and Huawei -- each building and protecting their own IoT solution vertical with which they compete. An example of such verticals that fall into the scope of IoT include automated temperature, lighting, and security controls for your home, or fleet tracking and driver safety controls for a logistics company. For a consumer, having multiple apps to control the functions of their home is no better than using the analogue controls IoT sought to replace. For regulators, ensuring the safety, reliability, standardization and efficiency of each solution has massively hindered the deployment of IoT across the globe.

The assumption that the future of technology relies on faster, better, newer, and more hardware is debatable. Something that big tech companies like Apple are starting to realize. Rather, the future of technology should be centered around machines working together to make magic. How this is achieved is via the gatekeepers enabling the solutions -- Application Programming Interfaces's (APIs). Essentially APIs store and dispense both data and services for hardware and software. Enabling the data source(s), the data consumer(s), and the tech manufacturer(s) the opportunity to compete within the foreign land of tech platforms (i.e., App stores and e-commerce). This generally means prices fall and economic rents go to fewer winners that have strong APIs, integrations, and a nimble balance sheet. Consumer facing services such as Zapier, IFTTT, and Signalpattern form part of an emerging segment, allowing for consumers and businesses to connect devices and services together to build truly innovative solutions. Similarly, payments Fintech InstaReM launched an API-based digital B2B platform enabling companies to create their own branded credit cards. Via APIs to InstaReM's card-issuing platform, customers are said to have greater control over the creation, distribution and management of card accounts -- a Visa-supported parallel to Brex.  

For the network of interconnected digital devices in order to exchange data to succeed device manufacturers need to open their APIs, like items on a menu, and users assemble them together into the perfect meal. The level of inter-connectivity we are talking about here is, for example, when the machinery in a factory stops operating whenever a maintenance person swipes into the main floor, or your car's navigation depended on your calendar, financial well-being/budget, and personal well-being (taking scenic routes when stressed). That is truly an internet of API-enabled things. READ MORE.

Source: Nordic APIs (APIs power the Internet of Things)

FURTHER READING:

• Facebook won't make Libra available until regulators are happy
• Bitcoin use soars in Zimbabwe after foreign currencies ban
• Wall Street finds blockchain hard to tame after early euphoria
• Korea’s Biggest Credit Card Firm Wins Patent for Blockchain Credit System

• Virgin Money Spot is taking on Snapscan in South Africa - and it already has 400,000 users
• Fintech start-up Curve valued at $250m after $55m investment
• Brexit be damned: UK fintech sector sees record growth

• The human ears that listen in via Google Assistant
• Facebook and CMU's poker AI beat five pros at once
• VW invests $2.6 billion in self-driving startup Argo AI as part of Ford alliance

• Raisin nets $28m from Goldman Sachs, says US launch now in 2020
• This AI chatbot built by Morgan Stanley could change Wall Street
• Our investment in d1g1t — the system you wish your wealth manager was using

• Google placed 'Stranger Things' AR ads in 'The New York Times'
• Why Did Apple Abandon Its AR and VR Headset Dreams?
• The AR Industry's Continuing Growing Pains Are Necessary

We put this together at Autonomous NEXT, where we love Fintech, Crypto and our community. Contact us with questions and ideas.

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Thanks for reading!  

Best,

Matt