FINANCE, FORECASTS, Interviews

Alexey Minin: Megaplatfroms to take over financial markets

Not a single conference on economy matters avoids discussing artificial intelligence and big data. Not long ago though, in the early 2000-s, these subjects were treated as pseudosciences. Nevertheless, the lectures of Professor Yuri Kuperin at St Petersburg State University were attended by dozens of enthusiasts, including Dr. Alexey Minin, current director of Deloitte’s Data Analytics Institute, author of six patents in predictive analytics, doctor of Technische Universität München in intelligence systems. Invest Foresight addressed him with questions on how big data can impact businesses, and banking industry first of all. Alexey Minin believes that in some foreseeable future there will only be one bank, or central bank, left in the market, while officials, instead of exercising control, will be offering vision.

– Is the banking industry going to witness competition of algorithms?

– It is. And the most efficient algorithm will take over all the others. That will be accompanied by collapse of the entire banking system. Along with that, we will observe another equally significant phenomenon of a digital economy, a widely discussed platformization or establishing a marketplace for financial services.

In the very near future there will probably emerge a convenient platform for selecting financial services. A person would be able to tell a robot, “I have RUR 5 mio available and intend to open deposits with institutions approved and in amounts insured by the Deposit Insurance Agency, at best interest rates”. A platform would suggest objectively best options and a client would deposit the respective finds by pressing a button. That means, we witness something previously unimaginable, a technology eliminating time and distance limitations whereas a client no longer needs to visit any office, or spend time comparing various products, or make any choice. The location of a bank and the efforts of its marketing specialists will become irrelevant. Banks and their clients may be located anywhere.

Any bank would be able to offer its products at such a platform, for me as a client to chose from the available variety. Imagine now, there is a bank with a superior algorithm so that while you log in, that bank has already analyzed all the data available and has the best possible offer for you. Such an offer would be the best of the best. In the digitalization and platformization environment, banking industry consolidation will become inevitable. Hypothetically, all banks will eventually be consolidated in a single bank, the one with the most efficacious algorithm. In such circumstances, the megaregulator-megabank configuration will become overabundant and the logic will push the two agents towards merging and forming a single liquidity management platform.

– What would be the foundation for that liquidity management platform, the bank or the regulator agency?

– Leaving politics and social matters aside, Central Bank has the upper hand. It has its business sensors in all institutions and can observe their experiments. So it can even now start testing certain technologies using the data at its disposal, especially since the volume of the data is greater than anybody else’s. Ultimately, the regulator can become the single platform to manage liquidity. The regulation will become much simpler. In fact, the regulator will 24/7, all by itself instantaneously meet the needs of businesses and individuals in liquidity.

– If the said scenario starts to materialize, how soon may that happen?

– It is already happening at an astonishing pace. Traditional banks will cease to exist within 20 to 30 years from now. While some market players strive to improve their mobile applications, startups at the other end of the world attempt to give a totally new meaning to the current business model of everything, including mobile applications. So a startup, an absolute newcomer to the financial market, can knock out well established companies and become a market leader. If you operate in a digital economy and believe your customers and revenues are there, you must focus at exponential technologies such as AI algorithms, blockchain, and everything permitting to break through time and space. It should be noted I refer to technologies, whereas there are other issues to be taken into account such as social problems, governance, national security and many other aspects.

– Algorithms can leave the companies investing, for instance, in nanotechnologies, with no funding.

– In theory, that is possible if investments in nanotechnologies bear higher risks and lower revenues. But that is the point where the government must take on a new function. Investments in such technologies are evidently necessary. A new mechanism should be put in operation. If the society wants to develop nanotechnologies because of their great potential for the future, whereas the liquidity management platform does not wish to finance the projects due to high risks which indeed are very high, then the government, as the representative of the society, must authorize the entities involved with nanotechnologies take certain risks. Hence the platform will be obligated to provide, within some pre-set amounts, funding to the respective entities and monitor the results obtained. If within some time there is no positive result, funding is terminated and the situation is seen as a case study. That is an exaggerated illustration of the new roles of the government. Officials must learn to see the future in order to shape a subjective picture of the world where and when it is hypothetically possible. At the same time, the budget management matters, financing of running projects which are part of some financial or economic model, must be automated. That will mean a substantial relief for the officials since they will no longer need to negotiate or allocate funds. Besides, the authorities will no longer need to control everything, while nowadays it appears that most of the government staff is in charge of namely that task. In a digital economy, the functions of control and monitoring will to some extent be denounced and dematerialized, as an objective resources redistribution will be automatically accomplished by an objective control. An official will become a visionary with a broad background who can shape some vision and some exceptions from the rules, and through a dialogue between a machine and a human being, set goals for and within the national mathematical model.

By Anna Oreshkina

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