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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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#433646 Was This Man a Bronze-Age Cyborg? His ...
Treasure hunters in Switzerland have unearthed a hand-some artifact: a 3,500-year-old bronze hand outfitted with a gold cuff, Swiss archaeologists announced last week. Continue reading
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#431873 Why the World Is Still Getting ...
If you read or watch the news, you’ll likely think the world is falling to pieces. Trends like terrorism, climate change, and a growing population straining the planet’s finite resources can easily lead you to think our world is in crisis.
But there’s another story, a story the news doesn’t often report. This story is backed by data, and it says we’re actually living in the most peaceful, abundant time in history, and things are likely to continue getting better.
The News vs. the Data
The reality that’s often clouded by a constant stream of bad news is we’re actually seeing a massive drop in poverty, fewer deaths from violent crime and preventable diseases. On top of that, we’re the most educated populace to ever walk the planet.
“Violence has been in decline for thousands of years, and today we may be living in the most peaceful era in the existence of our species.” –Steven Pinker
In the last hundred years, we’ve seen the average human life expectancy nearly double, the global GDP per capita rise exponentially, and childhood mortality drop 10-fold.
That’s pretty good progress! Maybe the world isn’t all gloom and doom.If you’re still not convinced the world is getting better, check out the charts in this article from Vox and on Peter Diamandis’ website for a lot more data.
Abundance for All Is Possible
So now that you know the world isn’t so bad after all, here’s another thing to think about: it can get much better, very soon.
In their book Abundance: The Future Is Better Than You Think, Steven Kotler and Peter Diamandis suggest it may be possible for us to meet and even exceed the basic needs of all the people living on the planet today.
“In the hands of smart and driven innovators, science and technology take things which were once scarce and make them abundant and accessible to all.”
This means making sure every single person in the world has adequate food, water and shelter, as well as a good education, access to healthcare, and personal freedom.
This might seem unimaginable, especially if you tend to think the world is only getting worse. But given how much progress we’ve already made in the last few hundred years, coupled with the recent explosion of information sharing and new, powerful technologies, abundance for all is not as out of reach as you might believe.
Throughout history, we’ve seen that in the hands of smart and driven innovators, science and technology take things which were once scarce and make them abundant and accessible to all.
Napoleon III
In Abundance, Diamandis and Kotler tell the story of how aluminum went from being one of the rarest metals on the planet to being one of the most abundant…
In the 1800s, aluminum was more valuable than silver and gold because it was rarer. So when Napoleon III entertained the King of Siam, the king and his guests were honored by being given aluminum utensils, while the rest of the dinner party ate with gold.
But aluminum is not really rare.
In fact, aluminum is the third most abundant element in the Earth’s crust, making up 8.3% of the weight of our planet. But it wasn’t until chemists Charles Martin Hall and Paul Héroult discovered how to use electrolysis to cheaply separate aluminum from surrounding materials that the element became suddenly abundant.
The problems keeping us from achieving a world where everyone’s basic needs are met may seem like resource problems — when in reality, many are accessibility problems.
The Engine Driving Us Toward Abundance: Exponential Technology
History is full of examples like the aluminum story. The most powerful one of the last few decades is information technology. Think about all the things that computers and the internet made abundant that were previously far less accessible because of cost or availability … Here are just a few examples:
Easy access to the world’s information
Ability to share information freely with anyone and everyone
Free/cheap long-distance communication
Buying and selling goods/services regardless of location
Less than two decades ago, when someone reached a certain level of economic stability, they could spend somewhere around $10K on stereos, cameras, entertainment systems, etc — today, we have all that equipment in the palm of our hand.
Now, there is a new generation of technologies heavily dependant on information technology and, therefore, similarly riding the wave of exponential growth. When put to the right use, emerging technologies like artificial intelligence, robotics, digital manufacturing, nano-materials and digital biology make it possible for us to drastically raise the standard of living for every person on the planet.
These are just some of the innovations which are unlocking currently scarce resources:
IBM’s Watson Health is being trained and used in medical facilities like the Cleveland Clinic to help doctors diagnose disease. In the future, it’s likely we’ll trust AI just as much, if not more than humans to diagnose disease, allowing people all over the world to have access to great diagnostic tools regardless of whether there is a well-trained doctor near them.
Solar power is now cheaper than fossil fuels in some parts of the world, and with advances in new materials and storage, the cost may decrease further. This could eventually lead to nearly-free, clean energy for people across the world.
Google’s GMNT network can now translate languages as well as a human, unlocking the ability for people to communicate globally as we never have before.
Self-driving cars are already on the roads of several American cities and will be coming to a road near you in the next couple years. Considering the average American spends nearly two hours driving every day, not having to drive would free up an increasingly scarce resource: time.
The Change-Makers
Today’s innovators can create enormous change because they have these incredible tools—which would have once been available only to big organizations—at their fingertips. And, as a result of our hyper-connected world, there is an unprecedented ability for people across the planet to work together to create solutions to some of our most pressing problems today.
“In today’s hyperlinked world, solving problems anywhere, solves problems everywhere.” –Peter Diamandis and Steven Kotler, Abundance
According to Diamandis and Kotler, there are three groups of people accelerating positive change.
DIY InnovatorsIn the 1970s and 1980s, the Homebrew Computer Club was a meeting place of “do-it-yourself” computer enthusiasts who shared ideas and spare parts. By the 1990s and 2000s, that little club became known as an inception point for the personal computer industry — dozens of companies, including Apple Computer, can directly trace their origins back to Homebrew. Since then, we’ve seen the rise of the social entrepreneur, the Maker Movement and the DIY Bio movement, which have similar ambitions to democratize social reform, manufacturing, and biology, the way Homebrew democratized computers. These are the people who look for new opportunities and aren’t afraid to take risks to create something new that will change the status-quo.
Techno-PhilanthropistsUnlike the robber barons of the 19th and early 20th centuries, today’s “techno-philanthropists” are not just giving away some of their wealth for a new museum, they are using their wealth to solve global problems and investing in social entrepreneurs aiming to do the same. The Bill and Melinda Gates Foundation has given away at least $28 billion, with a strong focus on ending diseases like polio, malaria, and measles for good. Jeff Skoll, after cashing out of eBay with $2 billion in 1998, went on to create the Skoll Foundation, which funds social entrepreneurs across the world. And last year, Mark Zuckerberg and Priscilla Chan pledged to give away 99% of their $46 billion in Facebook stock during their lifetimes.
The Rising BillionCisco estimates that by 2020, there will be 4.1 billion people connected to the internet, up from 3 billion in 2015. This number might even be higher, given the efforts of companies like Facebook, Google, Virgin Group, and SpaceX to bring internet access to the world. That’s a billion new people in the next several years who will be connected to the global conversation, looking to learn, create and better their own lives and communities.In his book, Fortune at the Bottom of the Pyramid, C.K. Pahalad writes that finding co-creative ways to serve this rising market can help lift people out of poverty while creating viable businesses for inventive companies.
The Path to Abundance
Eager to create change, innovators armed with powerful technologies can accomplish incredible feats. Kotler and Diamandis imagine that the path to abundance occurs in three tiers:
Basic Needs (food, water, shelter)
Tools of Growth (energy, education, access to information)
Ideal Health and Freedom
Of course, progress doesn’t always happen in a straight, logical way, but having a framework to visualize the needs is helpful.
Many people don’t believe it’s possible to end the persistent global problems we’re facing. However, looking at history, we can see many examples where technological tools have unlocked resources that previously seemed scarce.
Technological solutions are not always the answer, and we need social change and policy solutions as much as we need technology solutions. But we have seen time and time again, that powerful tools in the hands of innovative, driven change-makers can make the seemingly impossible happen.
You can download the full “Path to Abundance” infographic here. It was created under a CC BY-NC-ND license. If you share, please attribute to Singularity University.
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