Fintech bots will level the playing field for consumers and transform the industry
Bots and artificial intelligence (AI) are transforming every industry vertical. But the heaviest impact may well be on the financial services industry.The financial services industry is naturally ripe for disruption — because it is too important and too inefficient for the status quo to survive. The modern financial industry is built around human limitations that cause a massive information asymmetry between financial organizations and consumer. Financial organizations are armed with substantial computing capabilities while human users have limited memory, compute and time. Humans are busy or distracted — they miss payment deadlines, pay extra fees, don’t optimize their investments, etc. Humans are sometimes lazy — they don’t open new accounts just to save or earn a percentage point of extra interest. Financial organizations benefit from sub-optimal human choices and are often geared up to take advantage of human limitations.
Bots will level the playing field. Bots, powered by unlimited compute, memory and time, will deploy the same kind of computing firepower on behalf of the consumer. In the financial arms race between banks and consumers, the consumer is about to get a massive upgrade. Bots will arm the consumer with superpower capabilities and each consumer will be a power-user making optimal financial decisions that earn them more money and save them on fees and taxes.
Bots will be proactive, never reactive. This is crucial because today’s financial world revolves around a dizzying array of choices and due dates. Banks and brokers penalize customers that forget to pay bills on time or renew a policy. Bots won’t forget things — they will never miss a deadline. If the user can’t make a payment on time, bots will proactively make alternative arrangements. Either way, bots will take away a huge burden off the consumer’s shoulders. As an example, Trim is a bot that saves you money by automating the day-to-day aspects of your financial life.
Still, bots will make it easier to keep track of finances and financial products. The more financial instruments get created, the harder it is for consumers to keep track. Bots will make it easy for consumers to find the right product that is best for them. Starbutter offers bots that help consumers find the best credit card, bank, mortgage or insurance policy for them. Bots can also help consumers stay on top of their financial history and status. Bots can provide daily or weekly summaries and respond to on-demand queries. Bots will automatically create summaries at tax time.
Bots will also optimize earnings and savings. Are you moving funds around to maximize the interest rate? Are you minimizing fees and costs? Does your bank or broker inform you — or are they conflicted by the fact that they benefit from those fees? Your trusty bot will analyze every aspect of your finances to maximize earnings and minimize costs. Your bots will optimize your choices. See For Digit, a service that observes your financial patterns and automatically moves money from checking to savings account earning you “free” money. Bots can indeed earn and spend money for you. Continuously maximizing financial outcomes requires keeping tracking of millions of constantly-changing financial data points to, say, re balance your portfolio, increase or decrease credit exposure. It’s like drinking from a firehose. However, your bots have the ability to keep track of all that knowledge. At some point, you may be comfortable enough to delegate enough authority to them so they can autonomously make certain financial decisions for you! Wouldn’t it be nice if your bot could automatically earn money for you? There are numerous robo-advisors, from companies such as Wealthfront, Betterment and others that automate wealth management services. Bots will in fact change the face of financial firms. The financial industry’s consumer touch-point is a retail outlet, call center, paper bill and email alert. Tomorrow, the touch-point will be a bot that can text or talk with you like a human — with extensive personalization. New bot intermediaries will emerge between a consumer and his bank. Over time, that consumer will care more about the “software” layer than the “hardware”; they will care more about the personalized bot than about where the money actually lies. So if your bot decides to move money from one broker to the other, the customer may well be indifferent to it. Plum is a bot that automatically moves money between accounts. Thus bots are poised to empower consumers with a more substantial financial IQ to make better financial decisions. This will have massive ramifications for financial services. Banks and brokers will no longer be able to rely on good margins derived from overwhelmed or distracted human customers making less than- informed decisions. Consumers are about to become more rational and smart; and the market is about to become much more efficient. Financial service firms will need to provide more innovation, better pricing, better services and more information. Banks, brokers and insurance providers will need to understand the new dynamics of bots and AI and start reinventing their roles. It’s obvious that a bot-powered meteor will shortly strike the financial services industry. Some firms will adapt, others will simply perish. It will be survival of the fittest. It’s time for financial firms to start adapting quickly