On August 15, the World Economic Forum’s Future of Financial Services published a report entitled The New Physics of Financial Services: Understanding how Artificial Intelligence is transforming the financial ecosystem. It studies the strategic, operational, regulatory and societal implications of AI on the financial services industry, exploring six core sectors to bring clarity to this often sensationalised debate and help the industry look forward.
The report finds that Artificial intelligence is changing the physics of financial services, weakening the bonds that have held together the component parts of incumbent financial institutions and opening the door to entirely new operating models.
The report highlights nine key findings that describe the impact, which include:
• From cost centre to profit centre: Institutions will turn AI-enabled back-office operations into external services, both accelerating the rate at which these capabilities improve and necessitating others to become consumers of those capabilities to avoid falling behind;
• A new battlefield for customer loyalty: As past methods of differentiation erode, AI presents an opportunity for institutions to escape a “race to the bottom” in price competition by introducing new ways to distinguish themselves to customers;
• Self-driving finance: Future customer experiences will be centred around AI, which automates much of customers’ financial lives and improves their financial outcomes;
• Collective solutions for shared problems: Collaborative solutions built on shared datasets will radically increase the accuracy, timeliness, and performance of non-competitive functions, creating mutual efficiencies in operations and improving the safety of the financial system;
• Bifurcation of market structure: As AI reduces search and comparison costs for customers, firm structures will be pushed to market extremes, amplifying the returns for large-scale players and creating new opportunities for niche and agile innovators;
• Uneasy data alliances: In an ecosystem where every institution is vying for diversity of data, managing partnerships with competitors and potential competitors will be critical but fraught with strategic and operational risks;
• The power of data regulators: Regulations governing the privacy and portability of data will shape the relative ability of financial and non-financial institutions to deploy AI, thus becoming as important as traditional regulations to the competitive positioning of firms;
• Finding a balanced approach to talent: Talent transformation will be the most challenging speed limit on institutions’ implementations of AI, putting at risk the competitive positioning of firms and geographies that fail to effectively transition talent alongside technology;
• New ethical dilemmas: AI will necessitate a collaborative re-examination of principles and supervisory techniques to address the ethical grey areas and regulatory uncertainties that reduce institutions’ willingness to adopt more transformative AI capabilities.
Read the released parts of the report.
Source: Website World Economic Forum, 15 August 2018.