Home Blog Posts Davos, Fintech and “The Permeability of the Contagion”


Davos, Fintech and “The Permeability of the Contagion”

Over the past few years we’ve helped senior decision-makers navigate the process of getting to and enhancing their profile at The World Economic Forum in Davos, Switzerland. It is a credential increasingly more challenging to obtain and an experience (at least as recounted back to us by grateful and gratified execs) that is both intoxicating and inspirational.

This year was, perhaps, the most dynamic and volatile in recent memory, with the attendance and address by the once Davos-decrying Donald Trump together with deeply conflicted discourses on the role and influence of technology in every aspect of public and private life, as represented by four global giants whose aggregate market capitalization tops $4 trillion, Amazon, Facebook, Google and Microsoft.

What were media talking about — and reporting on

That last point is particularly resonant. The presence of Google, Facebook and Microsoft, amidst swirling debates on consumer privacy, GDPR, nefarious uses of social platforms during the 2016 elections and these companies’ exploding policy and cultural influences ensured that technology, and by extension fintech, was a flashpoint subject.

Compelling takeaways:

  1. And then there were four: The big four (as well as Apple, who was not represented), pose more of a competitive challenge to banks than fintechs (this, by the way, was also laid out in a report issued by the WEF last Fall.)
  1. Banks continue to wear the laggard mantle: Traditional financial institutions are lagging behind all tech giants in the development of cloud computing, AI and big data — this is definitely not a surprise; what is surprising is that it has been a refrain for several years and banks simply seem unable to close the gap.Lenders have instead been turning to tech corporations to provide these functions. AmazonGoogle and Facebook are dominating the market in these areas of innovation.One example: Amazon Web Services, which has lured several financial institutions including Aon, Capital One and Nasdaq to Amazon’s cloud computing business.”The ability to be a fast follower has proven more important than being first for large financial institutions,” Deloitte’s Galaski added. “Agile incumbents have used the fintech ecosystem as a supermarket for capabilities, making the ability to nurture and rapidly form partnerships a critical ingredient to banks’ competitive success.”
  1. Disruptor, know thy self: No technology has been more hyped over the last year than crypto and blockchain. But the chorus is growing around the belief that some start-ups lacked a full understanding of the industry they were trying to disrupt.”Some of the start-ups that are coming in don’t necessarily understand the scope of the transactions that are running all the time, and when you think about banking as an $8-9 trillion industry — that’s a lot of transactions,” Brigid McDermott, IBM’s vice president for blockchain business development, told CNBC. “When you come at it as a start-up and you’re trying to look at a small part, do you really have a sense of what the transformation is that needs to happen?”

What everyone was reading.

Here’s Fortune’s Adam Lashinsky:

Monday I noted that the backlash against the tech giants would be a preoccupation…in Davos. In that vein, I highly recommend an engaging, erudite, cleverly written, and amusing cover story in The Economist, “Silicon Valley, we have a problem.”

Best on-the-ground media interviews

We kept an eye out from afar for which media outlets were interviewing the most provocative fintech minds present. Here are two of the best we tracked:

  1. Jesse McWaters, Financial Innovation lead for the World Economic Forum did a webcast stand up (outside, chilly, against the backdrop of the Alps) with assetTV’s Gillian Kemmerer. Jesse has one of the sharpest fintech minds out there — if you’re not following him, you need to: @rjmcwatersJesse echoed the popular thought that AI captured the zeitgeist at Davos — he focused on financial services, and started by framing the challenge for companies struggling to decipher and define the taxonomies in the space: AI, machine learning, deep learning, and data science among them.Here’s what he’s concentrating on:
  • The dramatically changing experience: AI is helping the customer, both the individual and the institution, make dramatically better decisions for their financial selves.
  • Decision-making is moving below the “perception threshold: as an example, he referenced Uber: there is no real “moment” with payment you get in the car, ride, and rate; payment is totally in the background and this will permeate, including into new areas such as self-managing asset products.
  • The proliferation of offerings: Traditional banks have a limited product shelf. with on average 7-8 lending products; AI is will enable the building of hyper-customized products, such as lending products that incorporate asset management, or that grow and change with the needs of an SME as it expands from local international exposure.
  • “Treasury management” made affordable for the consumer: Personal digital assistants will look through our bills, collate recurring from non-recurring and make payment for us, at a price point we can afford.Jesse also spun a fascinating example of AI posing to disrupt the sometimes glacially-paced insurance industry, where the vast proliferation of legacy systems makes transitioning to AI challenging yet so enticing:

    Be still my beating heart: the beating heart of most insurance companies is underwriting, unearthing risk associated with individuals and institutions. But the nature of this core aspect of the business is changing, as analytics is becoming commoditized by the open source and big data movement. But the analytics frameworks are becoming less important than the data that flow into them that is coming from more and more connected devices that insurers don’t necessarily have the ability to tap into.

    But according to Jesse there is a huge opportunity here to manage the economics of a data ecosystem where manufacturers of all these devices now connecting to the Internet of Things will be working to bundle insurance into their products in order to leverage and exploit the levels of granular data they will have access to, such as risk data about what and who to accidents might occur.

    Finally, Jesse had a take on the pervasive subject of crypto and blockchain:

    “The permeability of the contagion” Last year, everyone was talking about “blockchain as infrastructure”: how could legacy infrastructure be rebuilt by exploiting the principles of distributed ledger technology?The talk at Davos this year was overshadowing that with dialogue around crypto assets — their explosion in value and the proliferation in variety of ICOs with “as many tokens as there are stars in the sky.” According to Jesse, we’ve gone from “blockchain, not bitcoin” to “how do we get bitcoin without the blockchain.”

    But this brought more talk about the need to safely custodian assets, together with the rise in crypto-focused hedge funds, bitcoin futures, and new asset classes, and the concern stoking discussions of a volatile — extremely volatile market. This, Jesse says, is where people start talking about the “permeability of the contagion” between traditional and new markets and the probabilities of systemic risk in these new markets bleeding into the traditional economy.

  1. @DavidShrier a lecturer and futurist at MIT’s renowned Media Lab as well as Associate Fellow at Oxford Unviersity’s Fintech program, sat down with Forbes contributor Lawrence Wintermeyer. Like Jesse, David has a remarkable grasp of fintech innovation:

    Before he even got to fintech, David talked cybersecurity (which of course has massive implications for fintech innovation): “We are in the midst of a cybersecurity crisis. From India’s entire database of 1.2 billion personal profiles being accessed, to the weaponized artificial intelligence that change the course of the Brexit and US presidential elections, our existing data and technology systems are not proving sufficient to the task of modern society.” Not content with just stating the obvious, David went on to explain that he and a colleague had already been working on designing a computer chip that is intrinsically hostile to being hacked

    AI redefining how credit models are developed: “We are commercializing research from leading academic institutions including MIT, Oxford, and Imperial College, providing fundamental insight into what people are going to do with their money and even who they are. This advanced behavioral analytics allows us to offer credit solutions that are superior to the existing SME and consumer lending models, digital identity solutions that can improve a bank’s ability to comply with AML/KYC by three orders of magnitude (yes, 1000% better), and other applications.”

The best line at Davos

Rachel Botsman, author of Who Can You Trust?: “Convenience is trumping trust” — an instructive, and cautionary, statement indeed. This on a Davos panel with Google Chief Financial Officer Ruth Porat (whose company gives away a ton of information in return for its users’ data) and Dara Khosrowshahi (whose company’s trustworthiness has plummeted).


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