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Could ‘Autonomous Money’ Shape the Future of Finance?

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Artificial intelligence is on the cusp of breaking out of science fiction and into everyday life; self-driving cars will hit British roads as early as 2021. Cash could be the next thing poised for a robot revolution, as “autonomous money” may shape the future of finance, evangelists believe.

The Future of Finance

Technology is already reshaping facets of finance, with the recent news that US-based investment bank Citigroup could shed up to half of its 20,000 technology and operations staff in the next five years, as machines replace humans at a brisker clip. But some financial innovations have focused on the consumer: today you can pay bills directly through your email inbox or check your bank balance using a robot and Facebook. Technology is poised to take the mundane out of daily tasks, but machines are even establishing portfolios and making investments on our behalf.

In future, could all of our important financial decisions be automated? What ethical and regulatory concerns are there around autonomous money?

Already, machines are helping consumers and bushiness make more informed choices. AI could, for example, tell us when the best time is to refinance our mortgage or student loan, or invest our cash in the markets when conditions are most favourable. For the average retail investor, such advice would be welcome, if based on thorough research and sound judgement.

Americans Warm to Robo-Advice

While it may seem risky to entrust your home on retirement income to a computer, Americans are in fact more comfortable being given robo-advice than they are whizzing around town in an autonomous vehicle. According to a survey from Credit Karma, the Californian personal finance company, 43% of consumers are comfortable using an autonomous financial app that transfers money into savings, invests or refinances it. And 45% are happy to receive personalized financial advice — more than the 35% of people who would take a spin in a completely self-driven car. They have come under public pressure following the death of a pedestrian involving an Uber self-driving car.

Artificial Intelligence Could Manage $16 trillion by 2020

Robo-advisors will manage as much as $16 trillion in assets under management by 2020, according to the opinions of well-known investors collated by the consultancy firm Deloitte. That mooted figure is roughly three times assets managed by BlackRock, the world’s biggest wealth manager.

Between 2016 and 2017, London-based digital wealth manager Nutmeg nearly doubled its AUM from £521 million to £1 billion. The company enables consumers to manage low-cost portfolios from their smartphones as easily as they could order a takeaway meal. Investors fill out online surveys that gauge their risk appetite and guide their choices, a process which is cheaper than paying a human advisor. The average investor last year placed more than £20,000 in the hands of Nutmeg’s robots.

Less well-endowed investors are also benefiting from autonomous money. Tochka Bank in Russia, which is part of Otkritie, the country’s largest private banking group, is one pioneer. Tochka’s customers can pay their utility or credit card bills, and talk to an advisor about purchasing a mortgage via a chatbot. Chatbots, the face of AI in banking, have become big business for companies across industries in recent years, with Facebook using them to help users manage plane boarding passes and send flowers to loved ones via its Messenger app.

Tochka also uses Facebook’s Messenger to enable robo-advice, with more than 12,000 customers using it on its first day; 50% of them made a payment. The idea of using messaging apps to enable consumer payments is not new, of course; the method is more prevalent in China, where the one billion users of WeChat, the app developed by internet giant Tencent, regularly make payments via the app.

Big Tech Muscles into the Market

Indeed, the biggest technology giants are muscling into the market, as well as the fledging startup firms. Microsoft is developing an app that uses Microsoft Pay, the company’s mobile payments system, to handle bill and invoice payments directly inside its Outlook email service. Microsoft envisages people paying bills while checking their emails with just a few clicks of a mouse.

The motive for Big Tech is more than consumer convenience: with autonomous money, the companies could monetize customer attention and purchases. In other words, they’ll get a cut of bank transactions and give people a reason to keep using their services. Third parties may also be tempted to offer their financial services via the tech companies, giving them an additional revenue stream. Microsoft’s potential tie-ups include Braintree, FreshBooks and Intuit, which owns the QuickBooks accounting software.

There are Cyber Risks for Financial Services firms

But the concept of autonomous money could make consumers uneasy, despite what surveys suggest. Like other industries that are being automated, there are cyber risks for financial services firms. How do investors know that their precious data are safe? What investor protections are there and what can consumers do to maximise safety and reduce risk?

UK regulator the Financial Conduct Authority recently found that robo-advisers gave “little consideration” to governance processes, with a “mixed” awareness of the need for stress-testing and cybersecurity.

The best defence against a security breach or erroneous investment is to pick a reputable provider with adequate firewalls but also to be proactive; a robot may be managing your wealth, but you should be ready to step in should things go amiss, much like autonomous vehicles have human drivers around to gab the wheel should the need arise.

Consumer confidence is likely to rise as the biggest and most trust-worthy companies pile into autonomous money, in addition to little-known startups. Royal Bank of Scotland, for example, the British group that is majority-owned by its government, has launched a robo-advice service for five million customers, including automated advice and investment plans. If companies can overcome security concerns, then autonomous money will indeed move out of science fiction and into reality.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.