Don’t Panic: A Hitchhiker’s Guide to Fintech

It’s all over. All the jobs will be stolen by robots. There will be millions of robots – simple rule-based agents, hardware manufacturing machines, software robotic process automation platforms, large scale artificial intelligence systems, photorealistic rendered virtual reality chatbots, self-driving car operating systems, embedded neural link robots, immunotherapy robot blood cells, singularity robots. We will live under these infinite robots, all owned by the techno prophets Jeff Bezos and Elon Musk, subsisting on basic income and Pokemon Go.

So it would seem. Based on a LinkedIn sentiment survey of professional humans in Financial Services, a quarter (25%) are concerned about automation leading to job loss and redundancy. Anecdotally, it’s 100%. At the level of the individual, people are worried about not being as productive for financial services organizations as software. At the level of the organization, financial services incumbents are worried about not being as productive for society as their more cyborged cousins, Fintech startups. And everyone is worried about Amazon.

If a gigantic machine is about to bulldoze our industry, I’d suggest to take the sage advice of Douglas Adams in The Hitchiker’s Guide to the Universe: DON’T PANIC.

Source: Kotaku

Let’s first acknowledge that some part of this is likely to be true. There is nothing surprising about fundamental technology developments transforming human activity from one set of expressions to another (see Sapiens: A Brief History of Humankind). The industrial revolution changed food production and human longevity. The joint stock company enabled capitalism’s taking and slicing of risk. The information age is just another technological step in human evolution. And we have already seen digitization slowly digest industries and create digital twins. From music, to retail, to manufacturing, and now healthcare and finance, we are replacing human organization with that of software.

Source: Autonomous NEXT

Such transformation is happening all across the financial sector, and Autonomous Research has developed a framework for understanding this transition. Across the Front office of banks, insurers, asset managers and investors we see innovations in customer interfaces. Roboadvisors, Neobanks and Digital Lenders are all symptoms of the same thing, which is the development of new communications technology. From web, to mobile, to chatbot, conversational interfaces and augmented reality, new communication paradigms will shape how humans interact with software.

Across the middle office, digitization takes form in the Application Programming Interfaces (APOs) that sit on top of big datasets in the cloud. Robotic process automation transforms human workflows into machine workflows. The messiness of organizations is structured and made readable for our technology. And in the back office, digitization of abstract concepts like assets and money through distributed ledgers is redefining what downstream services look like. When legal contracts become software, surely the rest of the financial organization built around evaluating, enforcing, and managing such contracts will follow. Artificial intelligence will increasingly play a role in slicing risk, measuring exposures, making limited but difficult decisions, and powering the engines of our Fintech industry.

Source: Autonomous NEXT

There are things we know and do not know today. We do not know how soon all the transitions will happen, or how humans will stay in the loop. We do not know if Artificial Intelligence can reason more broadly and develop sufficient emotional intelligence to replicate human empathy, candor and relationships. We do not know what the economics of Finance will be once the transition occurs, other than we are likely looking at 40%+ reductions.

We know that technology trends to winner-take-all outcomes, and there is not a #20 search engine or a #350 photo sharing app of any significant economic value. We know that machine learning can create mass-customization to our individual preferences, and that software is likely to know us better than we know ourselves. We know that being a follower, and not a digital leader, creates large tail risk and fragility for those organizations. We know that Financial Services is only one piece in a much larger jigsaw puzzle that shows a completely different future. We know that humans create new technology and society adjusts to the changes that technology brings.

This transitional time, it is a time we will remember.

DON’T PANIC.

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• This content is not investment research or investment advice, is not intended to lead to a transaction, and should not be used by retail investors (see disclosure).

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