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What happens when AI becomes your broker?

Posted By E. Alex Floate, Friday, November 8, 2019

Alex Floate, a member of our Emerging Fellows program examines the use of AI in fintech through his new blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

“Here is a summary of your weekly investment activity. Maynard has made the following changes to your investment portfolio,” my assistant announced. Maynard is the name I gave to my investing AI, who oversees my portfolio and makes decisions about where and how to invest my small nest egg.

 

“There were changes to twenty-three individual stock and seven bond positions. Analysis of long-range weather forecasts, with adjustments for anticipated climate changes, resulted in a modification to the commodity strategy with modified positions in Ethiopian coffee and Phillipino cocoa. The latest climate assessments have also caused modification to real estate investments.”

 

“Currency swaps from national currencies to Amazonians and Alibablers have also occurred. Twenty-seven micro-investments in the Lagos and Kinshasha metroplexes have been created, with twelve micro-investments recouped and closed. Your investment return averages seven-point-three percent, and your social scoring has increased thirty-one points.”

 

Maynard has, once again, pleased me with my return and the socially responsible method by which he achieved it.

 

Of course, it wasn’t always like this. True AI advisors have to assimilate vast amounts of data, analyze it, learn from it, and formulate a strategy that takes advantage of various possibilities. The analysis moves beyond basic linear financial analysis and into the multiple and complicated systems that support the investment and ultimately create value. The more it looks into these systems, the more it will learn about them and how they affect investments and strategies to gain value. Maynard also had to learn my personal ethical preferences to ensure transactions would not endanger my social credit score.

 

When AI advisors first came on-line, there were fears that it could cause trouble in the markets. Most concerning was that those AI agents could all come to the same conclusions and make the same trades at the same time, destroying value in some assets and over-inflating value in others. There were also concerns that AI advisors would learn to game the system and make moves that circumvent legal or ethical standards while covering their tracks. Although that has occurred, it has not been as widespread as discovered in the court case Global Securities Exchange Commission vs. “Alladin” (AI Agent # 234GXE36576). By tying AI agents to their human’s social score, it helped ally the fear of widespread ethical lapses.

 

What has occurred is an increase in the choices for the average investor. Before the internet, the majority of investing was placed through brokers, who often manipulated investors by steering them towards items that were more profitable for the brokers than the client. Average investors were also unable to enter other investment vehicles such as commodities, real estate, and small business start-ups. Although the brokerage model was partly to blame, it was usually due to a lack of knowledge; AI solved this last issue.

 

AI promised to even the odds that average investors could compete with the largest funds and firms, and for those who could afford a good AI agent, it did. Initially, it required champions and interventions by authorities to ensure widespread access to the various exchanges at reasonable fees. However, once set in motion, the financialization of the economy became everybody’s business, and business was good.

 

© E Alex Floate 2019

Tags:  AI  artificial intelligence  fintech 

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Is Africa the Future of Finance?

Posted By E. Alex Floate, Friday, October 11, 2019

Alex Floate, a member of our Emerging Fellows program envisions the financial system of Africa by next three decades. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

2019 – There is a small isolated village in Africa. In this village is a small one-room schoolhouse built by a foreign aid society in the early 1970s and still used for its intended purpose. This school, like the rest of the village, is not electrified, but it does have large windows that allow light to shine on the large slate blackboard at the front of the room. Sticks of chalk fill the tray, and the board is clean except for a small note in the upper right corner; “Please silence your cell phones.”

 

2049 – A prefabricated multi-purpose building has replaced the one-room schoolhouse. An array of solar panels and small satellite dishes powers the air conditioning and connects the village with the outside world. In one part of the building, students engage in small groups or interact with holographic images. In another, villagers take advantage of the cool air to lounge and discuss village politics, or conduct business over their various networks. A message flashes across the glasses of one of the villagers; FedEx drone inbound, ETA 5 mins.

 

Even though the ancestors of all of us originated in Africa, the continent was the last place to achieve the post-colonial dream of self-rule and determination. In many places, local strongmen took advantage of colonial structures and culture to exert control over the people and the economy. The promises of freedom and economic prosperity fell mainly to those involved in the corrupt governments or local representatives of foreign resource extraction firms.

 

There was an advantage for Africa as the 21st Century began. Without large scale legacy infrastructure or deeply entrenched economic systems, Africans were free to begin creating new ones. For electricity generation that meant there were fewer coal plants or outdated nuclear reactors creating environmental and safety issues. For finance, that meant fewer established institutions to dominate the commercial and political landscape.

 

The first step came with the build-out of cell phone capability. In many places, mobile phone penetration exceeded access to electricity, with users dependent on gas generators or solar panels for recharge. As networks increased in broadband capability, the population became adept users of phone apps. They used local networks focused on creating and marketing businesses, sharing information on resources, banking, education, and news.

 

New financial products to meet the needs of the population began appearing. With over 50% of the population sub-Saharan Africa previously excluded from the financial system, these new products began offering new opportunities. The ability to save and invest allowed for an accumulation of wealth. Mobile payments allowed for participation in markets outside their local ones. Micro-lending and new insurance products provided farmers and entrepreneurs with increased opportunities. The companies providing these products prospered as well, extending their reach throughout the continent.

 

African entrepreneurs understood they did not need to industrialize, but to innovate in today's finance and technology markets. The impetus to build finance hubs throughout Africa, and in the process marshal both homegrown and foreign funding, increased both the quantity and quality of financial companies. Initially done at a city level, as the results began to show promise and profits, national governments began to examine how to duplicate the results through investment and policy.

 

By the 2040s, Africa had built a modern consumer and entrepreneur focused financial system, while creating and tapping new local and global markets. An expanding financial system built for purpose served as an example for the world on how a finance system can serve the needs of people while, in the process, unite a continent.

 

© E Alex Floate 2019

Tags:  Africa  finance  fintech 

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