The fintech focus on disruption has led to an “almost self-defeating” business environment, according Australian consultant, Kingsley Jones, where a plethora of disparate entities are scrapping over limited revenues.
Jones, in New Zealand earlier this month on a Harbour Asset Management speaking gig, said the huge global investment in fintech ‘disruptors’ in recent years has spawned numerous start-ups competing for every chink of the financial industry value chain.
“But the problem is now revenue growth has become adversarial,” he said, with few clear winners in a multi-fracturing market.
For example, Jones said the flood of money pouring into start-ups has funded an ecosystem of fintech organisms that “collectively add up to a bank”.
“It’s the kind of unbundling that we’ve already seen in the funds management industry,” he said. “And while that might sound appealing, it also creates a co-ordination problem. There needs to be some structure around it or people won’t know how to put the pieces together.”
Consumers overwhelmed by choice may find it simpler to stick with a traditional full-service bank offering than spend the time constructing a best-of-breed fintech banking solution.
Jones said the conundrum would likely be solved by “service networks”, which compile the best pieces of underlying technology into a client-friendly offering.
He said a handful of service networks were already popping up in his home country’s A$650 billion self-managed superannuation fund (SMSF) market, bringing together back-office necessities like audit, tax filing and accounting.
“I suspect businesses such as [SMSF admin provider] Mclowd will be powerful networks,” Jones said. “There’s others, too, like Xero and Sharesight – both started in New Zealand – that are also doing a good job of collaborating with complementary services.”
However, he said building networks large enough to have “other businesses hang off them” typically took many years – citing online Aussie financial services firm, Tyro, (which in 2015 became the first Australian institution in eight years to earn a new banking licence).
“It took 11 years for Tyro to build in its niche before expanding,” Jones said. “Finance remains a trust industry and it takes a long time to build that trust and brand.”
He said humans were likely to remain at the core of the financial trust-building enterprise despite innovations such as blockchain and advances in artificial intelligence (AI) technology.
While some advocates of blockchain claim the ‘distributed ledger’ deletes trust from the equation, Jones said the system was more like a “shell game”.
“Blockchain can’t automate trust,” he said. “We’re just being asked to trust something else.”
Likewise, Jones said AI-enhanced robo-advisers would not completely replace humans at the advice coalface anytime soon.
“What has caught hold is the idea that advice is just filling out a questionnaire, spitting out a risk profile and putting you into a portfolio of ETFs,” he said. “If you dig a bit deeper, robo-advice can also offer differentiated services such as using AI for error-correcting in filling out the forms.”
However, he said those trends were more “robo-admin” than automated advice, with non-advisory services – including the recently-launched NZ fund platform InvestNow – also able to play that game.
Complex advice, Jones said, was more difficult to encode in AI systems.
“AI is suited to where there are large numbers of examples of a solution and where it’s clear what the right answer is,” he said. “There are large areas of finance that don’t have that character” the rules are not clear, or they’re always changing.
“Human intelligence is more general and can function better in this adversarial environment.”
But with an academic background in high-level maths and physics and practical experience in robotics, Jones won’t completely rule out an AI autocracy.
“There’s no fundamental scientific reason why AI can’t [duplicate human intelligence],” he said. “It just means we have to have a complete scientific understanding of ourselves.”
Jones is founder and CIO of bespoke investment and research firm, Jevons Global. Prior to launching Jevons in 2012 he ran the Macquarie Global Thematic Fund from 2008-2011 following a five-year career in quant at AllianceBernstein. Harbour Asset Management emerged out of the NZ arm of AllianceBernstein in 2010.