An enlightened view of AI, the economy and the financial sector

Blog | 18 Apr 2017

In recent weeks and months the debate on AI has shifted away from Skynet and towards the assessment of what autonomous technologies mean for the enterprise and the economy. It is a charged subject with passionate voices on both sides and the truth is that no one really knows how it will play out. Things do appear to be different this time – with broader implications for the knowledge working economy, but it is not clear if that means wholesale economic dislocation or an adjustment. History argues for the latter.

We have our perspective on AI and have built our products around that perspective. We believe that AI will enable enterprises to become exceptional at things humans are not inherently good at. In doing so our products will amplify human intelligence through machine intelligence.

There are other paths of AI that seek to mimic or surpass human capabilities in vision or speech and those paths have great utility in their own right (self-driving cars, AI assistants etc) – some of which will alter the economic contract (eliminating truck drivers) and some that won’t (Alexa or Siri).

Of particular interest to us is financial services. Finserv is a significant part of our business and we work with large, complex, geographically diverse financial institutions on anti-money laundering, anomaly detection, credit risk and regulatory risk.

The team at Optimas has done some superb research on this subject which you should read here. There is an expectation that there will be job losses, particularly in asset management, partially offset by job gains. The ultimate impact will be an 28% improvement of the cost/income ratio for financial institutions. For the GSIB banks, the improvement will be even more significant as they can balance technology with the new regulations they have shouldered (with humans primarily) over the past decade.

While the asset management field is projected to bear the brunt of the changes, other areas in financial services will also suffer dislocation as noted in Penny Crosman’s American Banker piece last month. Still, our sense is that the offsets (new jobs) are not fully appreciated. Consider for a moment the alternative data industry. It didn’t exist a decade ago but will continue to grow for several years as they feed the insatiable algorithms that are the source of the new competitive advantage.

This sentiment is well captured in a paper by Carolyn Wilkins, the Senior Deputy Governor at the Bank of Canada and a representative on the Financial Stability Board. We presented to this august group of regulators a few weeks back on what to expect with AI in the financial sector. It includes the top regulators from around the world including a stellar team from Singapore that promises to increase the profile of the city-state as a financial services hub.

Wilkins paper can be found here and is worth the time to read. She notes in the summary:

“If we seek out and embrace new technologies while successfully managing their harmful side effects, we will create inclusive prosperity. That means proactively managing the transition period and the longer-term implications for the distribution of incomes.”

Further, Governor Wilkins argues for a proactive approach to policy making (note that we didn’t say regulation).

This is a topic worthy of additional discussion and we will continue to engage on it as it is central to our business. Still, we want to reward thoughtful discourse on the subject and Governor Wilkins paper was certainly worthy of that recognition.