Horizon scanning in good company

My favourite think tank, the Centre for the Study of Financial Innovation (CSFI) in London, where I am honoured to be the Technology Fellow, was asked by the law firm Dentons to put together a series of “horizon scanning” events, each looking at the major factors that will determine the shape of the financial services sector over the next 10-15 years. As part of this series they held a fintech breakfast to look at the world of tech-based challenger banks, P2P lenders, crowd-funding, new payments methodologies, AI, crypto-currencies, blockchain and so forth. I was flattered to be invited to take part, along with Clara Durodié (founder and managing partner of AI outfit Cognitive Finance Group) and Nick Ogden (the founder of ClearBank and, some years ago, the founder of WorldPay).

(In my opinion, Nick is at the heart of the current fintech revolution, the UK-centric whirlwind around open banking and the “platformisation” of financial services, whereas Clara is at the heart of the current regtech revolution, using AI to change the markets themselves. We may be a long way from Terminators and HAL 9000, but the massive AI investments pouring into financial services around the world mean that the technology is going to change the sector soon.)

For what it’s worth, my three main horizon-scanning observations were that:

  1. Open Banking starts in January and I remain convinced it will be far more disruptive than many people think. It is not far-fetched, as Wired magazine observed, that banks might go under because of this. At the risk of sounding like a broken record, this about identity, trust and reputation not money. Obviously, I left it to Nick to talk turkey on this one. He set up Clear Bank to provide building societies, credit unions, other banks and fintech companies with access to all the major payment and card schemes, including Faster Payments and is obviously pretty convinced that open banking is going to provide space for innovation.

  2. AI is an event horizon. In that 10-15 year timescale it is clearly the most important technological trend of the generation and it is impossible to see what is the other side of it. Obviously, I left it to Clara to run a few things up the flagpole here. What I will note is that analysts at Forrester have predicted that quarter of financial sector jobs will be “impacted” by AI before 2020 and John Cryan, the Deutsche Bank CEO, was quoted in the Financial Times in September saying that the bank is going to shift from employing people to act like robots to employing robots to act like people. The impact on employment is obvious, but we cannot hold back the tide so we must take advantage of the changes and begin to explore for new opportunities that can be built around a more productive financial services sector

  3. I wanted to bring something from left field to the discussion, so in addition to these two obvious key trends I spoke about the token and Initial Coin Offering (ICO) marketplace. I think that a regulated and organised token marketplace will be one of the big financial services business moves in 2018 and I’m pretty sure that it will be successful (for a variety of reasons to do with liquidity and the elimination of clearing and settlement).

Nick, Clara and I put forward our thoughts about the longer term. During the discussion that followed, there were a number of questions and comments about the impact of AI on the financial services sector. I think this is in many ways quite unpredictable not only because of the “event horizon” but because of the impending interaction. People tend to think in terms of robo-advisers and chat interfaces, focusing on the use of AI by financial institutions to either cut costs or deliver new services (some of which, of course, we can’t imagine). But, to paraphrase Fred Schwed’s 1940s financial services classic… where are the customers’ bots?

If you think about it, however, the customers will have access to AI as well. The customers smartphones will connect them, permanently, to an intelligence far greater than their own. Thus, if a bank is trying to sell me a mortgage or a credit card or whatever, it’s wasting its time showing me incomprehensible advertisements involving astronauts riding horses through fields of purple daffodils and people singing.

My AI is going to negotiate with the AI of the regulated financial institutions in order to obtain the best product for me. Since I’m not smart enough to choose the right credit card, pension or car loan then clearly I’m going to want my own giant killer robot to take care of things. But which robot? Should I choose the Saga robots or the Virgin Money robots or the best performing robot over the past 12 months or the Google self-taught super intelligent robot that is also the world Go champion?

How the banks’ robots will interact with the customers’ robots is at the same time fascinating and frightening. I’m not sure I really want to be in the loop when the discussion of a pension plan or insurance project is taking place, but I do want some sort of confidence that there’s a regulator in the loop and that should push come to shove, my robot will be out to explain why it made the decisions it did. All in all, what I can see on the horizon is giving my AI access to my account through open banking and then letting it decide which ICO is to invest in.

The best thing since… oh, that’s not on the list

The Atlantic magazine published one of those articles based on the latest that I really should ignore and not take too seriously but can’t help reading — Fallows, J., “The 50 Greatest Breakthroughs Since The Wheel” in “The Atlantic” p.56(9) (Nov. 2013). This time it was the 50 greatest breakthroughs since the wheel. They asked various scientists, historians and technologists to rank a list of innovations for the article, and then put them together into a nice feature.

I’ll spoil the ending for you by telling you that number one on this list was the printing press! I was surprised that the telegraph only made it as far as position 26 because as an acolyte of the Economist writer Tom Standage (“The Victorian Internet”), I do think that the step change between being unable to communicate faster than physical matter could be propelled and being able to communicate at the speed of light represented some fundamental cusp in human history rather than any kind of marginal improvement, so think I would have pushed it further up the list. Damn. There I am getting caught up in thinking about the list again.

Oh and one more thing. The most amazing fact that I think I saw in the article concerns the sequencing of human DNA. The article notes that in the past 12 years the cost of sequencing human DNA has fallen to a millionth of its previous level. That’s an astonishing six orders of magnitude cost reduction in a decade. Now I can’t decide whether DNA sequencing or 3-D printing will feature in some future list as the most important technological breakthrough of our current era.

In the future, everyone will be famous for fifteen megabytes

None shall password

[Dave Birch] Technology does throw up some damned difficult issues sometimes, particularly when it has an impact on law enforcement. In the old days, when your door was kicked in by size 12s, all of your documents could be read and used in evidence. But it’s not so easy now.

Brazilian police seized five hard drives when they raided the Rio apartment of banker Daniel Dantas as part of Operation Satyagraha in July 2008. But subsequent efforts to decrypt files held on the hardware using a variety of dictionary-based attacks failed even after the South Americans called in the assistance of the FBI. The files were encrypted using Truecrypt and an unnamed algorithm, reportedly based on the 256-bit AES standard. In the UK, Dantas would be compelled to reveal his passphrase under threat of imprisonment, but no such law exists in Brazil.

[From Brazilian banker’s crypto baffles FBI • The Register]

I suppose you could always say that you were mentally ill and couldn’t remember the password, or something similar, but in the UK that wouldn’t keep you out of chokey.

The first person jailed under draconian UK police powers that Ministers said were vital to battle terrorism and serious crime has been identified by The Register as a schizophrenic science hobbyist with no previous criminal record. His crime was a persistent refusal to give counter-terrorism police the keys to decrypt his computer files. The 33-year-old man, originally from London, is currently held at a secure mental health unit after being sectioned while serving his sentence at Winchester Prison.

[From UK jails schizophrenic for refusal to decrypt files • The Register]

This is a really difficult issue. In the UK it’s illegal to not give the police your password to (I think) anything. Certainly, if you have encrypted email, files, disks etc and you won’t hand over the password (or decryption key) to the forces of law and order then you will go to jail. Someone else just has, in fact.

A teenager has been jailed for 16 weeks after he refused to give police the password to his computer. Oliver Drage, 19, of Liverpool, was arrested in May 2009 by police tackling child sexual exploitation. Police seized his computer but could not access material on it as it had a 50-character encryption password. Drage was convicted of failing to disclose an encryption key in September. He was sentenced at Preston Crown Court on Monday.

[From BBC News – Man jailed over computer password refusal]

He got 16 weeks in chokey for this. I can see three possibilities here: he is guilty of some child porn offence and his encrypted files would prove it, he is guilty of something else or he is not guilty but just doesn’t want the police looking through his files. Take the worst case (from society’s point of view, not his) and let’s say he is guilty of a serious child porn offence (I’m not saying he is, or isn’t, and I fully recognise that he wasn’t convicted of any such thing). I’m a parent. If he did such a thing, I want him locked up for a long time and I don’t want him back on the streets without treatment. 16 weeks is a joke. 

In the future, everyone will be famous for fifteen megabytes