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#433696 3 Big Ways Tech Is Disrupting Global ...
Disruptive business models are often powered by alternative financing. In Part 1 of this series, I discussed how mobile is redefining money and banking and shared some of the dramatic transformations in the global remittance infrastructure.
In this article, we’ll discuss:
Peer-to-peer lending
AI financial advisors and robo traders
Seamless Transactions
Let’s dive right back in…
Decentralized Lending = Democratized Access to Finances
Peer-to-peer (P2P) lending is an age-old practice, traditionally with high risk and extreme locality. Now, the P2P funding model is being digitized and delocalized, bringing lending online and across borders.
Zopa, the first official crowdlending platform, arrived in the United Kingdom in 2004. Since then, the consumer crowdlending platform has facilitated lending of over 3 billion euros ($3.5 billion USD) of loans.
Person-to-business crowdlending took off, again in the U.K., in 2005 with Funding Circle, now with over 5 billion euros (~5.8 billion USD) of capital loaned to small businesses around the world.
Crowdlending next took off in the US in 2006, with platforms like Prosper and Lending Club. The US crowdlending industry has boomed to $21 billion in loans, across 515,000 loans.
Let’s take a step back… to a time before banks, when lending took place between trusted neighbors in small villages across the globe. Lending started as peer-to-peer transactions.
As villages turned into towns, towns turned into cities, and cities turned into sprawling metropolises, neighborly trust and the ability to communicate across urban landscapes broke down. That’s where banks and other financial institutions came into play—to add trust back into the lending equation.
With crowdlending, we are evidently returning to this pre-centralized-banking model of loans, and moving away from cumbersome intermediaries (e.g. high fees, regulations, and extra complexity).
Fueled by the permeation of the internet, P2P lending took on a new form as ‘crowdlending’ in the early 2000s. Now, as blockchain and artificial intelligence arrive on the digital scene, P2P lending platforms are being overhauled with transparency, accountability, reliability, and immutability.
Artificial Intelligence Micro Lending & Credit Scores
We are beginning to augment our quantitative decision-making with neural networks processing borrowers’ financial data to determine their financial ‘fate’ (or, as some call it, your credit score). Companies like Smart Finance Group (backed by Kai Fu Lee and Sinovation Ventures) are using artificial intelligence to minimize default rates for tens of millions of microloans.
Smart Finance is fueled by users’ personal data, particularly smartphone data and usage behavior. Users are required to give Smart Finance access to their smartphone data, so that Smart Finance’s artificial intelligence engine can generate a credit score from the personal information.
The benefits of this AI-powered lending platform do not stop at increased loan payback rates; there’s a massive speed increase as well. Smart Finance loans are frequently approved in under eight seconds. As we’ve seen with other artificial intelligence disruptions, data is the new gold.
Digitizing access to P2P loans paves the way for billions of people currently without access to banking to leapfrog the centralized banking system, just as Africa bypassed landline phones and went straight to mobile. Leapfrogging centralized banking and the credit system is exactly what Smart Finance has done for hundreds of millions of people in China.
Blockchain-Backed Crowdlending
As artificial intelligence accesses even the most mundane mobile browsing data to assign credit scores, blockchain technologies, particularly immutable ledgers and smart contracts, are massive disruptors to the archaic banking system, building additional trust and transparency on top of current P2P lending models.
Immutable ledgers provide the necessary transparency for accurate credit and loan defaulting history. Smart contracts executed on these immutable ledgers bring the critical ability to digitally replace cumbersome, expensive third parties (like banks), allowing individual borrowers or businesses to directly connect with willing lenders.
Two of the leading blockchain platforms for P2P lending are ETHLend and SALT Lending.
ETHLend is an Ethereum-based decentralized application aiming to bring transparency and trust to P2P lending through Ethereum network smart contracts.
Secure Automated Lending Technology (SALT) allows cryptocurrency asset holders to use their digital assets as collateral for cash loans, without the need to liquidate their holdings, giving rise to a digital-asset-backed lending market.
While blockchain poses a threat to many of the large, centralized banking institutions, some are taking advantage of the new technology to optimize their internal lending, credit scoring, and collateral operations.
In March 2018, ING and Credit Suisse successfully exchanged 25 million euros using HQLA-X, a blockchain-based collateral lending platform.
HQLA-X runs on the R3 Corda blockchain, a platform designed specifically to help heritage financial and commerce institutions migrate away from their inefficient legacy financial infrastructure.
Blockchain and tokenization are going through their own fintech and regulation shakeup right now. In a future blog, I’ll discuss the various efforts to more readily assure smart contracts, and the disruptive business model of security tokens and the US Securities and Exchange Commission.
Parallels to the Global Abundance of Capital
The abundance of capital being created by the advent of P2P loans closely relates to the unprecedented global abundance of capital.
Initial coin offerings (ICOs) and crowdfunding are taking a strong stand in disrupting the $164 billion venture capital market. The total amount invested in ICOs has risen from $6.6 billion in 2017 to $7.15 billion USD in the first half of 2018. Crowdfunding helped projects raise more than $34 billion in 2017, with experts projecting that global crowdfunding investments will reach $300 billion by 2025.
In the last year alone, using ICOs, over a dozen projects have raised hundreds of millions of dollars in mere hours. Take Filecoin, for example, which raised $257 million in only 30 days; its first $135 million was raised in the first hour. Similarly, the Dragon Coin project (which itself is revolutionizing remittance in high-stakes casinos around the world) raised $320 million in its 30-day public ICO.
Some Important Takeaways…
Technology-backed fundraising and financial services are disrupting the world’s largest financial institutions. Anyone, anywhere, at anytime will be able to access the capital they need to pursue their idea.
The speed at which we can go from “I’ve got an idea” to “I run a billion-dollar company” is moving faster than ever.
Following Ray Kurzweil’s Law of Accelerating Returns, the rapid decrease in time to access capital is intimately linked (and greatly dependent on) a financial infrastructure (technology, institutions, platforms, and policies) that can adapt and evolve just as rapidly.
This new abundance of capital requires financial decision-making with ever-higher market prediction precision. That’s exactly where artificial intelligence is already playing a massive role.
Artificial Intelligence, Robo Traders, and Financial Advisors
On May 6, 2010, the Dow Jones Industrial Average suddenly collapsed by 998.5 points (equal to 8 percent, or $1 trillion). The crash lasted over 35 minutes and is now known as the ‘Flash Crash’. While no one knows the specific reason for this 2010 stock market anomaly, experts widely agree that the Flash Crash had to do with algorithmic trading.
With the ability to have instant, trillion-dollar market impacts, algorithmic trading and artificial intelligence are undoubtedly ingrained in how financial markets operate.
In 2017, CNBC.com estimated that 90 percent of daily trading volume in stock trading is done by machine algorithms, and only 10 percent is carried out directly by humans.
Artificial intelligence and financial management algorithms are not only available to top Wall Street players.
Robo-advisor financial management apps, like Wealthfront and Betterment, are rapidly permeating the global market. Wealthfront currently has $9.5 billion in assets under management, and Betterment has $10 billion.
Artificial intelligent financial agents are already helping financial institutions protect your money and fight fraud. A prime application for machine learning is in detecting anomalies in your spending and transaction habits, and flagging potentially fraudulent transactions.
As artificial intelligence continues to exponentially increase in power and capabilities, increasingly powerful trading and financial management bots will come online, finding massive new and previously lost streams of wealth.
How else are artificial intelligence and automation transforming finance?
Disruptive Remittance and Seamless Transactions
When was the last time you paid in cash at a toll booth? How about for a taxi ride?
EZ-Pass, the electronic tolling company implemented extensively on the East Coast, has done wonders to reduce traffic congestion and increase traffic flow.
Driving down I-95 on the East Coast of the United States, drivers rarely notice their financial transaction with the state’s tolling agencies. The transactions are seamless.
The Uber app enables me to travel without my wallet. I can forget about payment on my trip, free up my mental bandwidth and time for higher-priority tasks. The entire process is digitized and, by extension, automated and integrated into Uber’s platform (Note: This incredible convenience many times causes me to accidentally walk out of taxi cabs without paying!).
In January 2018, we saw the success of the first cutting-edge, AI-powered Amazon Go store open in Seattle, Washington. The store marked a new era in remittance and transactions. Gone are the days of carrying credit cards and cash, and gone are the cash registers. And now, on the heals of these early ‘beta-tests’, Amazon is considering opening as many as 3,000 of these cashierless stores by 2023.
Amazon Go stores use AI algorithms that watch various video feeds (from advanced cameras) throughout the store to identify who picks up groceries, exactly what products they select, and how much to charge that person when they walk out of the store. It’s a grab and go experience.
Let’s extrapolate the notion of seamless, integrated payment systems from Amazon Go and Uber’s removal of post-ride payment to the rest of our day-to-day experience.
Imagine this near future:
As you near the front door of your home, your AI assistant summons a self-driving Uber that takes you to the Hyperloop station (after all, you work in L.A. but live in San Francisco).
At the station, you board your pod, without noticing that your ticket purchase was settled via a wireless payment checkpoint.
After work, you stop at the Amazon Go and pick up dinner. Your virtual AI assistant passes your Amazon account information to the store’s payment checkpoint, as the store’s cameras and sensors track you, your cart and charge you auto-magically.
At home, unbeknownst to you, your AI has already restocked your fridge and pantry with whatever items you failed to pick up at the Amazon Go.
Once we remove the actively transacting aspect of finance, what else becomes possible?
Top Conclusions
Extraordinary transformations are happening in the finance world. We’ve only scratched the surface of the fintech revolution. All of these transformative financial technologies require high-fidelity assurance, robust insurance, and a mechanism for storing value.
I’ll dive into each of these other facets of financial services in future articles.
For now, thanks to coming global communication networks being deployed on 5G, Alphabet’s LUNE, SpaceX’s Starlink and OneWeb, by 2024, nearly all 8 billion people on Earth will be online.
Once connected, these new minds, entrepreneurs, and customers need access to money and financial services to meaningfully participate in the world economy.
By connecting lenders and borrowers around the globe, decentralized lending drives down global interest rates, increases global financial market participation, and enables economic opportunity to the billions of people who are about to come online.
We’re living in the most abundant time in human history, and fintech is just getting started.
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#432236 Why Hasn’t AI Mastered Language ...
In the myth about the Tower of Babel, people conspired to build a city and tower that would reach heaven. Their creator observed, “And now nothing will be restrained from them, which they have imagined to do.” According to the myth, God thwarted this effort by creating diverse languages so that they could no longer collaborate.
In our modern times, we’re experiencing a state of unprecedented connectivity thanks to technology. However, we’re still living under the shadow of the Tower of Babel. Language remains a barrier in business and marketing. Even though technological devices can quickly and easily connect, humans from different parts of the world often can’t.
Translation agencies step in, making presentations, contracts, outsourcing instructions, and advertisements comprehensible to all intended recipients. Some agencies also offer “localization” expertise. For instance, if a company is marketing in Quebec, the advertisements need to be in Québécois French, not European French. Risk-averse companies may be reluctant to invest in these translations. Consequently, these ventures haven’t achieved full market penetration.
Global markets are waiting, but AI-powered language translation isn’t ready yet, despite recent advancements in natural language processing and sentiment analysis. AI still has difficulties processing requests in one language, without the additional complications of translation. In November 2016, Google added a neural network to its translation tool. However, some of its translations are still socially and grammatically odd. I spoke to technologists and a language professor to find out why.
“To Google’s credit, they made a pretty massive improvement that appeared almost overnight. You know, I don’t use it as much. I will say this. Language is hard,” said Michael Housman, chief data science officer at RapportBoost.AI and faculty member of Singularity University.
He explained that the ideal scenario for machine learning and artificial intelligence is something with fixed rules and a clear-cut measure of success or failure. He named chess as an obvious example, and noted machines were able to beat the best human Go player. This happened faster than anyone anticipated because of the game’s very clear rules and limited set of moves.
Housman elaborated, “Language is almost the opposite of that. There aren’t as clearly-cut and defined rules. The conversation can go in an infinite number of different directions. And then of course, you need labeled data. You need to tell the machine to do it right or wrong.”
Housman noted that it’s inherently difficult to assign these informative labels. “Two translators won’t even agree on whether it was translated properly or not,” he said. “Language is kind of the wild west, in terms of data.”
Google’s technology is now able to consider the entirety of a sentence, as opposed to merely translating individual words. Still, the glitches linger. I asked Dr. Jorge Majfud, Associate Professor of Spanish, Latin American Literature, and International Studies at Jacksonville University, to explain why consistently accurate language translation has thus far eluded AI.
He replied, “The problem is that considering the ‘entire’ sentence is still not enough. The same way the meaning of a word depends on the rest of the sentence (more in English than in Spanish), the meaning of a sentence depends on the rest of the paragraph and the rest of the text, as the meaning of a text depends on a larger context called culture, speaker intentions, etc.”
He noted that sarcasm and irony only make sense within this widened context. Similarly, idioms can be problematic for automated translations.
“Google translation is a good tool if you use it as a tool, that is, not to substitute human learning or understanding,” he said, before offering examples of mistranslations that could occur.
“Months ago, I went to buy a drill at Home Depot and I read a sign under a machine: ‘Saw machine.’ Right below it, the Spanish translation: ‘La máquina vió,’ which means, ‘The machine did see it.’ Saw, not as a noun but as a verb in the preterit form,” he explained.
Dr. Majfud warned, “We should be aware of the fragility of their ‘interpretation.’ Because to translate is basically to interpret, not just an idea but a feeling. Human feelings and ideas that only humans can understand—and sometimes not even we, humans, understand other humans.”
He noted that cultures, gender, and even age can pose barriers to this understanding and also contended that an over-reliance on technology is leading to our cultural and political decline. Dr. Majfud mentioned that Argentinean writer Julio Cortázar used to refer to dictionaries as “cemeteries.” He suggested that automatic translators could be called “zombies.”
Erik Cambria is an academic AI researcher and assistant professor at Nanyang Technological University in Singapore. He mostly focuses on natural language processing, which is at the core of AI-powered language translation. Like Dr. Majfud, he sees the complexity and associated risks. “There are so many things that we unconsciously do when we read a piece of text,” he told me. Reading comprehension requires multiple interrelated tasks, which haven’t been accounted for in past attempts to automate translation.
Cambria continued, “The biggest issue with machine translation today is that we tend to go from the syntactic form of a sentence in the input language to the syntactic form of that sentence in the target language. That’s not what we humans do. We first decode the meaning of the sentence in the input language and then we encode that meaning into the target language.”
Additionally, there are cultural risks involved with these translations. Dr. Ramesh Srinivasan, Director of UCLA’s Digital Cultures Lab, said that new technological tools sometimes reflect underlying biases.
“There tend to be two parameters that shape how we design ‘intelligent systems.’ One is the values and you might say biases of those that create the systems. And the second is the world if you will that they learn from,” he told me. “If you build AI systems that reflect the biases of their creators and of the world more largely, you get some, occasionally, spectacular failures.”
Dr. Srinivasan said translation tools should be transparent about their capabilities and limitations. He said, “You know, the idea that a single system can take languages that I believe are very diverse semantically and syntactically from one another and claim to unite them or universalize them, or essentially make them sort of a singular entity, it’s a misnomer, right?”
Mary Cochran, co-founder of Launching Labs Marketing, sees the commercial upside. She mentioned that listings in online marketplaces such as Amazon could potentially be auto-translated and optimized for buyers in other countries.
She said, “I believe that we’re just at the tip of the iceberg, so to speak, with what AI can do with marketing. And with better translation, and more globalization around the world, AI can’t help but lead to exploding markets.”
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