Make Way for Exponential Finance: How Exponential Technologies Will Drive Innovation in the Financial Services Industry
Posted by Val Srinivas, Banking & Securities research leader, Deloitte Services LP, on July 16, 2014
I had the good fortune to attend the Exponential Finance conference hosted by Singularity University in New York City last month. Singularity University (SU), a technology-focused educational institute and business accelerator, was founded five years ago in Silicon Valley with an unusual mission: "to educate, inspire and empower leaders to apply exponential technologies to address humanity's grand challenges."
As part of SU's Deloitte-sponsored Exponential Conference Series, the New York event focused on the intersection between financial services and a range of emerging technologies. CNBC, as a co-host, extensively covered the event's proceedings.
I have to say this conference was unlike any other I had attended in the past. First, it was held at Lincoln Center, a grand venue by any measure. Second, it featured topics, such as artificial intelligence (AI), robotics, data science, 3D printing, etc., that I know almost nothing about, let alone understand their relevance to financial services. Furthermore, the program offered a line-up of brilliant speakers from disparate fields — nearly 40 of them over the course of two days. Frankly, it was a bit overwhelming at times, but I had not felt this intellectually stimulated for quite a while.
What are "exponential technologies"?
Exponential technologies exhibit non-linear growth patterns, and have "far-reaching, transformative impact and represent the elemental advances that have formed technology trends" in the recent past.1 The basic premise is that rapid improvements in the performance of these technologies have the potential to disrupt a number of industries, including finance and provide remarkable opportunities for innovation.2 These innovations are particularly likely when two or more technologies "interact and combine" in new ways and "coalesce into open platforms and ecosystems."3 Think of the possibilities that the intersection of artificial intelligence and quantum computing create, or when advances in synthetic biology are amplified through 3D printing.
Why should the financial industry care about exponential technologies?
Now you might say this is all very interesting, but what do exponential technologies have to do with financial markets? The conference highlighted a number of trends that may have an impact on financial services. Take, for instance, the field of artificial intelligence. Computers in the near future will be able to use "deep learning" and natural language processing (NLP) to reason, generate hypotheses and solve complex problems. This is a significant advancement from AI applications in the past, and from the algorithms the industry already employs in trading. A good example of this is ‘Warren,' a virtual market- research assistant from a company called Kensho, that can respond to complex investment questions posed in natural language.4 Think of this as a ‘Siri' for investment research.
Another application of such technologies is in the area of wealth management. Lately, there has been quite a bit of talk about "robo advisors" — algorithms that can manage money for a fraction of the cost that traditional advisors charge.5 Although the jury is out on how effective these automated programs are at present, it is reasonable to expect they will only get better over time.
According to Ray Kurzweil, the well-known inventor and futurist who also spoke at the conference, computers will be capable of emotional intelligence by 2029.6 As we advance toward this reality, there is really no limit to how these intelligent machines can be deployed.
Embrace the exponential
The Exponential Finance conference made it clear that the financial services industry could be doing so much more to embrace exponential technologies. In making this transition to an exponentially-empowered organization that can anticipate, respond and leverage these technologies, a number of questions come to mind: How are you evolving your organization to exploit exponential technologies? How to rethink the role of information management in an exponential organization? How to reward exponential innovation and transform risk management? Which sectors of the financial services industry are more ripe for disruption from exponential technologies, and why?
Certainly, these questions have no easy answers. Institutionalizing such capabilities and making the transformation into an exponential organization might be a long road for most large, incumbent firms, but the sooner the journey begins the better, in my opinion. There are countless examples (such as the camera film business) where incumbents misjudged the disruptive potential of exponential technologies. The aim should be to learn from such experiences and to manage the changes wrought by exponential technologies to one's advantage.
1Bill Briggs, "Exponentials: Tech Trends 2014," Deloitte University Press, February 20, 2014, http://dupress.com/articles/2014-tech-trends-exponentials/.
3John Hagel III, John Seely Brown, Tamara Samoylova, and Michael Lui, "From exponential technologies to exponential innovation," Deloitte University Press, October 4, 2013, http://dupress.com/articles/from-exponential-technologies-to-exponential-innovation/.
4Kensho, "Kensho Secures $10 Million in Seed Financing for ‘Warren,’ an Intelligent Market Research Assistant That Can Answer Complex Financial Questions Posed in Natural Language," Press Release, January 22, 2014, https://kensho.com/press/.
5Eric Clarke, "Don't be afraid of the robo-adviser — it might actually help you grow," Investment News, June 9, 2014, http://www.investmentnews.com/article/20140609/BLOG09/140609921.
6Cadie Thompson, "Computers will be like humans by 2029: Google's Ray Kurzweil," CNBC.com, June 11, 2014, http://www.cnbc.com/id/101751468.
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