[This is an extract from our paid newsletter Adventures of a Futurist].
Last week I had the pleasure of attending the Future Finance Forum in Seoul. Well-known fintech speaker Brett King (right) and Emerging Future Institute advisor (and Founder of Deep Knowledge Ventures) Dmitry Kaminsky (left) both made talks amongst others. Brett King said that the biggest financial institution in the world will not be a bank by 2025. If you look, technology is becoming more and more important than branches. In 2016 Bank of America saw its weekly mobile interactions 12X more than its weekly branch interactions. The top 5 publicly traded companies in 2001 were GE, Microsoft, Exxon, Citi and Walmart. By 2016 they are Apple, Alphabet (Google), Microsoft, Amazon and Facebook. All tech companies. The biggest financial institution will be a technology company and Brett thinks it will be in an emerging market. One problem with the banks is that they don’t realise the degree to which customers value ease of use and good service. JP Nicols – a consultant and speaker on fintech who was also at the forum – said that large banks are going to have to experiment and iterate very quickly. Helmets Von Molte once said “no battle plan survives contact with the enemy.” Customers say that they trust banks 96.4% (a bizarrely high number) but when asked data suggests that they are more likely to refer fintechs to friends 63.7% vs. 50.5%. Banks are increasingly partnering with fintechs (Diamond has said this clearly as well) but their goal is cost cutting (87%) and branding and not so much enhanced revenue (54%). They are thinking to small.
Emerging Future Institute Advisor Dmitry Kaminsky’s talk was on “Smart Machines vs. Smart People.” He is such a fan on AI he appointed one to his board of directors, garnering headlines around the world. He showed photos of the stock exchange in the US in 1950 and 1995. They weren’t so different. But by 2012 its an image of AI displacing humans with high frequency trading. The battle of the quants already has long started. Black Rock, the 4.5 tn, behemoth, had hoped to use Deep Minds’ data and AI but that appears off the table as Google wants to keep it for itself. Big data appears to be the oil of the 21st century. And AI is really how you harness that data.
Now Renaissance, Two Sigma, Bridewater, and Sentient Technologies are all embracing AI. The performance of regular hedge funds is dropping and so are their numbers.
Numerai is an interesting case, its a crowd sourced hedge fund. According to Tech Crunch :
“Richard Craib believes that some of the best stock pickers aren’t on Wall Street. The former hedge funder came to the realization that tech’s machine learning experts may be able to build better predictive models than those with finance backgrounds.
Craib carried this thesis forward when he launched Numerai last year, a crowdsourced hedge fund. The startup hopes to attract the best and brightest minds at companies like Google and pay them for their AI skills.
And the first year saw significant traction, with 7,500 “data scientists” creating algorithms on Numerai’s platform. Now the startup is announcing $6 million in funding from First Round Capital and Union Square Ventures to continue their team’s expansion and buy more historical data sets (Craib refused to say where they get their data).
“We invested because Numerai is an open access hedge fund,” said Andy Weissman, a partner at Union Square Ventures. Anyone is allowed to participate, so it’s a “model built upon a set of principles that have open participation and anonymity at their core.”
Numerai works by building its own financial model that incorporates the algorithms submitted by others. The team democratizes participation by making the data readily accessible, but ensures that it is encrypted and not shareable.
Users are invited to download the data and build their own algorithm, targeting regions or sectors of the stock market. Most of the participants reside in the U.S., Russia or China.
These people do not invest in or generate any income from the hedge fund directly, but the most accurate submission gets awarded about $60,000 in income per year, with the top 100 users all paid some money.”
And Wired gave an update in February:
The phenomenon of Initial Coin Offerings is very interesting. NASDAQ might soon become obsolete if its not careful. Because technology is changing at such a pace now and the listing requirements for financial bourses are so burdensome in terms of both administration, time and money, it has been more effective to raise capital by other means in recent years and hence the birth of the unicorn. Its really quite remarkably that the worlds quicker room provider Airbnb did not list. And now its as big as the Marriot group!
Financial Services continues to embrace the ICO. In recent weeks we have seen a VC do an ICO, Block Chain Capital.
And Dmitry Kaminsky’s Deep Knowledge Ventures portfolio company, Humaniq Bank, embarked on an ICO last week when we were together. In the first 24 hours, the pace of capital raise was quicker than that of ethereum! Humaniq Bank focuses on the unbanked:
“Decentralizing the concept of banking is quite a bold move. Up until this point, banks have always relied on centralization, which has not benefited financial inclusion by any means. With over 2 billion people still cut off from the financial ecosystem, it is evident something needs to change sooner rather than later. Humaniq aims to be a part of this change by creating the next-generation bank on top of the Ethereum platform.
Among the services to be offered through the Humaniq platform are loans, credit services, remittance payments, and insurance. What is really interesting is how this project will introduce biometric authentication, rather than relying on ID scans and signatures. Ensuring all users are unique requires new authentication measures. Documents are too easy to forge, yet biometrics are unique to every individual on this planet. ”
The Emerging Future Institute will continue to follow this space closely. And we hope to make an announcement soon on enhancing our prediction services with AI.
The great news for the consumers of financial services is that fees are poised to fall , services should become more efficient and choices grow for some time to come.
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