Reinventing Financial, Insurance and Legal Services
Section 10 of “Reinventing Societal Infrastructure with Technology” which will be released end of January. I will be posting a new section daily. Please share your feedback as this is a work in progress.
Key drivers: AI technology to replace people functions and judgement, blockchain, mobility, data, software automation.
The pundit economists’ and banks’ (Goldman Sachs/JP Morgan/Citibank) view of financial systems and economics we are used to is being significantly challenged. Even basics like GDP as the right measure is being questioned. Entrepreneurs keep getting outraged that financial services, which should just be a service to real products and services being produced (which may be reinvented too), are taking up such a large share of profits of all industry.
Though companies like Square, Stripe and Affirm are changing things for consumers and small businesses by disrupting incumbents, much more can be done and will likely happen. Others are creating radical new business models, like Even, hourly employee payment insurance and the bank app that plans so customers do not have to, as an example. Financial institutions impose massive taxes on fundraising organized by different industries. Those should diminish by order of magnitude based just on cost of providing this service. The tax reduction should also apply to consumer banking and financial services costs. It could be that blockchain-based services and software contracts that eliminate the nonsense of fine print jargon gotchas in finance and insurance, which could dislodge centralized control or “financial tax”. It could have identity verification, as well as traditional fraud and illegal activity controls like AML, KYC added on.
It could be simpler disintermediation of everything from foreign exchange to lending and insurance services. Insurance could be based on real costs, better actuarial tables, regulation around what is or is not legal to differentiate on, and low overhead. It is likely that legal services are automated by AI; there are only about seven million cases in US legal history. They are more structured and seem easier to computerize based on federal and state laws that these cases interpret than a technology like Google Home or Amazon Alexa which cover a far less structured and much broader range of conversational topics. Computerizing law and lawyers with or without software contracts will enable every citizen to have a personal lawyer(s)at a low cost or no cost at all? A few hundred thousand dollars a year of legal and medical services will cost almost nothing. It is possible that AI will replace many of the supposed value added functions, as it has already been proven in stock trading and financial planning. Judgement and estimation tasks in this data rich segment should be algorithmically driven and AI will likely replace human judgement where there is enough transaction volume (read volume, margins,profits). One firm has already appointed an AI as a board member. What is clear is the ten percent of all financial transactions (a wild guestimate) actually add value to society. Industry can be done at a fraction of the cost with less overhead or transaction taxes, and it can be done more fairly by more objective algorithms. The rest is speculation and circular trading worth trillions of dollars daily! This will add a lot more transparency, although it may introduce other problems.
Financial, insurance, and legal services will be freed of capitalistic lockin and open to much more competition from relatively more transparent players; this could translate into far more affordable and accessible services.
**This is a section from “Reinventing Societal Infrastructure with Technology”. To read the previous section, click here.
