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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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Posted in Human Robots
#432487 Can We Make a Musical Turing Test?
As artificial intelligence advances, we’re encountering the same old questions. How much of what we consider to be fundamentally human can be reduced to an algorithm? Can we create something sufficiently advanced that people can no longer distinguish between the two? This, after all, is the idea behind the Turing Test, which has yet to be passed.
At first glance, you might think music is beyond the realm of algorithms. Birds can sing, and people can compose symphonies. Music is evocative; it makes us feel. Very often, our intense personal and emotional attachments to music are because it reminds us of our shared humanity. We are told that creative jobs are the least likely to be automated. Creativity seems fundamentally human.
But I think above all, we view it as reductionist sacrilege: to dissect beautiful things. “If you try to strangle a skylark / to cut it up, see how it works / you will stop its heart from beating / you will stop its mouth from singing.” A human musician wrote that; a machine might be able to string words together that are happy or sad; it might even be able to conjure up a decent metaphor from the depths of some neural network—but could it understand humanity enough to produce art that speaks to humans?
Then, of course, there’s the other side of the debate. Music, after all, has a deeply mathematical structure; you can train a machine to produce harmonics. “In the teachings of Pythagoras and his followers, music was inseparable from numbers, which were thought to be the key to the whole spiritual and physical universe,” according to Grout in A History of Western Music. You might argue that the process of musical composition cannot be reduced to a simple algorithm, yet musicians have often done so. Mozart, with his “Dice Music,” used the roll of a dice to decide how to order musical fragments; creativity through an 18th-century random number generator. Algorithmic music goes back a very long way, with the first papers on the subject from the 1960s.
Then there’s the techno-enthusiast side of the argument. iTunes has 26 million songs, easily more than a century of music. A human could never listen to and learn from them all, but a machine could. It could also memorize every note of Beethoven. Music can be converted into MIDI files, a nice chewable data format that allows even a character-by-character neural net you can run on your computer to generate music. (Seriously, even I could get this thing working.)
Indeed, generating music in the style of Bach has long been a test for AI, and you can see neural networks gradually learn to imitate classical composers while trying to avoid overfitting. When an algorithm overfits, it essentially starts copying the existing music, rather than being inspired by it but creating something similar: a tightrope the best human artists learn to walk. Creativity doesn’t spring from nowhere; even maverick musical geniuses have their influences.
Does a machine have to be truly ‘creative’ to produce something that someone would find valuable? To what extent would listeners’ attitudes change if they thought they were hearing a human vs. an AI composition? This all suggests a musical Turing Test. Of course, it already exists. In fact, it’s run out of Dartmouth, the school that hosted that first, seminal AI summer conference. This year, the contest is bigger than ever: alongside the PoetiX, LimeriX and LyriX competitions for poetry and lyrics, there’s a DigiKidLit competition for children’s literature (although you may have reservations about exposing your children to neural-net generated content… it can get a bit surreal).
There’s also a pair of musical competitions, including one for original compositions in different genres. Key genres and styles are represented by Charlie Parker for Jazz and the Bach chorales for classical music. There’s also a free composition, and a contest where a human and an AI try to improvise together—the AI must respond to a human spontaneously, in real time, and in a musically pleasing way. Quite a challenge! In all cases, if any of the generated work is indistinguishable from human performers, the neural net has passed the Turing Test.
Did they? Here’s part of 2017’s winning sonnet from Charese Smiley and Hiroko Bretz:
The large cabin was in total darkness.
Come marching up the eastern hill afar.
When is the clock on the stairs dangerous?
Everything seemed so near and yet so far.
Behind the wall silence alone replied.
Was, then, even the staircase occupied?
Generating the rhymes is easy enough, the sentence structure a little trickier, but what’s impressive about this sonnet is that it sticks to a single topic and appears to be a more coherent whole. I’d guess they used associated “lexical fields” of similar words to help generate something coherent. In a similar way, most of the more famous examples of AI-generated music still involve some amount of human control, even if it’s editorial; a human will build a song around an AI-generated riff, or select the most convincing Bach chorale from amidst many different samples.
We are seeing strides forward in the ability of AI to generate human voices and human likenesses. As the latter example shows, in the fake news era people have focused on the dangers of this tech– but might it also be possible to create a virtual performer, trained on a dataset of their original music? Did you ever want to hear another Beatles album, or jam with Miles Davis? Of course, these things are impossible—but could we create a similar experience that people would genuinely value? Even, to the untrained eye, something indistinguishable from the real thing?
And if it did measure up to the real thing, what would this mean? Jaron Lanier is a fascinating technology writer, a critic of strong AI, and a believer in the power of virtual reality to change the world and provide truly meaningful experiences. He’s also a composer and a musical aficionado. He pointed out in a recent interview that translation algorithms, by reducing the amount of work translators are commissioned to do, have, in some sense, profited from stolen expertise. They were trained on huge datasets purloined from human linguists and translators. If you can train an AI on someone’s creative output and it produces new music, who “owns” it?
Although companies that offer AI music tools are starting to proliferate, and some groups will argue that the musical Turing test has been passed already, AI-generated music is hardly racing to the top of the pop charts just yet. Even as the line between human-composed and AI-generated music starts to blur, there’s still a gulf between the average human and musical genius. In the next few years, we’ll see how far the current techniques can take us. It may be the case that there’s something in the skylark’s song that can’t be generated by machines. But maybe not, and then this song might need an extra verse.
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Posted in Human Robots