The global fintech industry has seen some remarkable developments since we launched Level39 two years ago. But what of the future? I’d like to suggest two possibilities for what might happen, and challenge one that, contrary to some current thinking, I don’t think will.
Eric Van Der Kleij
More than any other social media platform, Facebook is the custodian of the narrative of our lives. While the debate over privacy rages on, one fact remains: Facebook knows stuff about us that no other firm does. It’s in an unrivalled position to offer financial services to us because it can evaluate demand, risk, and potentially character in a deeper way than has ever been possible before.
Unlike traditional credit rating houses, Facebook’s trove of personal insights adds many more layers to risk assessment than conventional trawls though legacy data, transactional histories, and the electoral roll. Sure, traditional credit checks yield essential data on your debt profiles, payment defaults and declined credit cards, but they fail to take account of your large and growing extended family, your love of extreme sports, or a tendency for weekend binge drinking, all immortalised in pictures. A social media-informed risk assessment could even evaluate those who influence you, especially those perceived “negative” influencers among your friends and family who shape your more risky behavioural traits.
Scary stuff? Yes, if poorly handled and inadequately or overly regulated. But a key contributor to the financial crisis was the poor lending positions of mortgage firms. If those lenders had had an additional signal – such as a simple traffic light system based on a rich, life narrative-based profile – do you think their mortgage-backed securities would have been more secure? My hunch is yes.
Major social media platforms like Facebook, Instagram, Twitter, WeChat, and even WhatsApp could offer financial services tailored to our needs and de-risked in a way that has previously been impossible. As they can access such rich data, they could compute the lifetime value of a portfolio of financial products, informed by our spending patterns and the behavioural traits that determine our ability to save or service debts. And they could even extend these products to our families and communities, at a potentially lower rate due to a “community risk” profile.
The extent of Facebook’s ambitions in finance is unclear, but we know of some early collaborations, like 2012’s CommBank Kaching for Facebook, a service from the Commonwealth Bank of Australia, which gave the country’s 12m Facebook users the chance to bank without leaving their social media platform. Facebook would have a phenomenal disruptive advantage if it chose to enter the sector fully. If handled well and with transparency, a move into finance could delight its community. But get it wrong and it risks losing the users who are not sure if they trust the platform completely, but like the benefits for the time being.
A decade ago, Sean Park, author of the Park Paradigm blog, mooted the spawning of AmazonBay, a fictional global financial market exchange, formed from the merger of Ebay and Amazon. Park saw the potential for a $2 trillion organisation surpassing all others in scale and disruptive capability. AmazonBay, the world’s largest corporation by market capitalisation, was to be many things, acquiring lesser trading exchanges and virtual economies, and creating a platform for the kind of big-time financial intermediation previously the preserve of investment banks.
Ten years on, there remains the distinct likelihood of an AmazonBay of some kind being born, with one crucial possible variation. From our vantage point on the 39th level of Canary Wharf’s One Canada Square, we might see relatively new entrants, such as our neighbours Alibaba Group, stepping into their own megamerger with an Ebay or an Amazon. Alibaba wowed the market at IPO in September 2014, surpassing Facebook with a $230bn market capitalisation. If it combined its full might with, say, Ebay, together they could crank up their synergous e-commerce, online auction, money transfer and mobile commerce capabilities. If fiction became truth, AliBay might just be the ultimate disruptor.
And so to artificial intelligence. In the past few months, we have seen the threatened rise of the machines move from the stuff of cyberpunk fiction to a source of genuine scientific anxiety. Last October, Elon Musk, chief executive of Space X and Tesla Motors, called AI “our biggest existential threat”. In January, he funded research into stopping it from turning evil. Stephen Hawking is similarly inclined. Last December, he voiced fears that full AI “could spell the end of the human race”.
These concerns are as relevant to fintech as to anything else. AI already has many applications in finance. Neural nets are combined into unique trading systems, and genetic algorithms are used to manage stock portfolios. Financial institutions are using AI to enhance customer engagement or reduce human error in transactions. As Standard Life was recently quoted as saying, man has to deal with fear and greed, intellectual constraint and fatigue, whereas a machine is agnostic, tireless and has no bias in decision making.
I take a view that somewhat challenges Musk and Hawking. Enabling technologies have always posed inherent risks. Steam power, electricity and atomic energy needed to be harnessed before they could be put to safe, constructive use. It is true that AI should be treated as a different case due to its capacity to learn, but we will have to figure out how to deal with that in the same way as we have had to figure out how to harness both the destructive and creative power of atomic energy.
And frankly we need to, as AI has the power to extend human capability in the right direction. We might call this supplementary intelligence rather than AI. It is no different from any other form of innovative human enhancement, from the glasses which let us see better, to the antibiotics that keep us healthy. At the IBM Bluemix Garage in Level39’s High Growth Space: 42, engineers, developers and coders are collaborating with IBM to foster the next generation of cloud companies, including making its Watson cognitive computing technology available to innovators. Elsewhere, IBM is working with the Cleveland Clinic on a cloud-based pilot using Watson to aid research into new cancer treatments. Bring it on!
These are just two examples, but the point is simple. Like fire, we should respect but not fear AI, because not recognising the potential to harness its power for good is not far short of neo-Luddism. Technology is a force for good, provided it is controlled, applied and embraced by its responsible human masters.
Eric Van Der Kleij is head of Level39, Canary Wharf Group’s technology accelerator, which today launched Two Years On, its two year report.