The second part of the 'Influencer interview' with Chris Gledhill looks at the specificities of how Neural Network AIs will change the financial landscape, whilst Chris also takes a shot at mapping how PSD2 will pan out.
Will the neural network AIs replace the human doing the credit scoring then?
Neural network AIs will have the most impact in the back office for roles that are performing menial tasks which more often than not are outsourced to offices in India. It is those roles that will be replaced by automation. The Deutsche Bank CEO said half his staff would disappear in the next five years and he’s not talking German employees but their offshore operators. These operators may be reading loan application forms and beginning a computer process - you can teach machines to read; those are the sort of roles that will be automated.
We’ve heard lots of announcements very recently about companies looking to retrain their employees to a higher level so that their jobs are future proofed. I think we’ll see the same in Britain but many menial jobs will be automated and probably blamed on Brexit.
Of course, that will streamline operations and improve profit margins. The standard ‘salary’ for a bot is about $1000 a year. But task automation is more than mere replacement. Whereas you can ask a bot to improve the efficiency on completing a task of say, getting from A to B, the bot will design a more aerodynamic car. The hope is to set a bot sophisticated enough to tackle the problem not the task, which might just as readily think outside the box and design a plane. So, the purpose of AI is not only to improve existing functions but to take a step back at the problem, and design it differently. That's true innovation.
So, to use a horrible cliche, we'll build bots to think outside the box?
Exactly, so you have to start by addressing what’s in the financial services’ box and you’ll find that 99% of fintech startups operate within this box by incrementally innovating existing processes. If we treat the box as being three dimensional, the three axes would be that banks define money, create money and store money. Most startups operate within those axes by making them quicker, cheaper and better. So to operate outside of that box, you need to start not only by redefining money, but also wealth and value. At the moment, the only value that banks store is currency, but there are so many more equally important values such as knowledge or time.
The pioneers who can rethink those questions will be the gamechangers of the future.
That’s what Secco tries to do by addressing the current underlying problem with banking. You walk into a bank, they look you up and down and ask you how much money you have and put a figure of worth into a spreadsheet. Of course, in the real world there are far more metrics of worth that extend beyond your bank account; your knowledge, your experience, your education and your connections, for instance. We believe that a bank of the future will be able to define, create and store this holistic value of people. Essentially, this becomes monetising reputation to society which you can exchange for services and products. My status in the London fintech community would serve me very poorly trying to trade a speech on blockchain for water in the Sahara desert.
Take your email address, for example. Nowadays, you can sign up to one thing and be spammed to death thereafter because you’ve given away a piece of value; in this case a direct marketing line. In Secco’s world you could effectively sell access to your email address; essentially you’ve created a finite resource built upon your reputational value. So, effectively they’d be paying for ten seconds of your attention and time to read their email. Suddenly you’ve created a reverse marketplace where consumers sell their needs and problems and companies browse and offer solutions. Of course, this is a long way off, a bit far out and a bit crazy, but these are the kind of conversations to have.
You mentioned inside out and outside in. Do legacy banks genuinely want to make a change?
As the incumbents they’re doing well out of the current system, so by changing that system too much, they’d stand to lose ground. Any change, like with PSD2, is often perceived as a threat. I’ve sat with many banks who’ve been wargaming around PSD2 and open APIs and rarely do they come up with any credible opportunities. The only viable opportunity for legacy banks is to buy companies with better opportunities (usually fintechs) and integrate them.
I think the first thing we’ll see after PSD2 will be a war of the dashboard, where one company will try to design one dashboard to rule them all and support every major bank account. This will be accompanied with a degree of style, as companies design bells, widgets and add-ons around those dashboards for a more stylish user experience. The banks themselves won’t need to compete creating digital wealth management tools because they’ll sit back, let the fintechs do it and then acquire them. The legacy bank recipe for success shouldn’t be to become more innovative, but to become better at integrating third parties.
I think the greatest impact of PSD2 which we’ll feel after a few years, will be the disintermediation of banks, where you no longer have direct contact with your bank. We see that with insurance already. Chances are your car insurance is underwritten by Lloyd’s or one of the big insurers, but you bought it off a meerkat or a Welsh opera singer; the front end becomes the key marketing force to consumers. The same will be true of banks who have cultivated this walled garden approach. Their adverts and outward image put out the idea that they’ve been by the consumer’s side for centuries. The changing role of technology and the attitude towards it, from millennials in particular, will move banking closer to the insurance model. A conversation will have to happen in the big banks’ boardrooms about whether they’ll continue to pursue a front of house service or turn their attentions to a better back office with market leading APIs.
What’s exciting is that banks won’t only be trying to attract human users. AI algorithms will be employed to build composite mortgage deals which move in real-time to make use of the best interest rates so the banks will have to attract them too.
So you foresee incumbent banks maintaining a monopoly on the banking market?
Not so much, there’s still a very real threat for incumbent banks and I think they’ll move to a utility business model over a customer centric one. Five years from now I’ll care as much about which bank holds my money as I do about which power station generates my electricity.
There’s a lot of marketing saturation out there at the moment, how do you advise fintech companies to get their digital message across clearly?
I can empathise with that from my own journey through social influencing. Ploughing money into Adwords other other advertisement doesn’t always give you traceable results. Part of it is using the industry influencers and leveraging their position to advise and endorse.
Having said that, the reason that influencers rise to a position where people follow them and, ultimately, trust what they say, is because they are honest, open and transparent. That’s to do with me being independent. When I was working for banks, there was always a press officer on the call with their finger hovering over the mute button ready to stop anything too controversial.
Brexit is another example where the honesty has an adverse effect. I voiced an opinion that many people didn’t like out of principle (not reason) and I lost followers. Part of my ethos as an influencer is that I can give a platform to causes I genuinely care about.
Chris, thanks for talking to bobsguide.
You're very welcome.
Read the first part of the interview here.