For better or worse, the COVID-19 pandemic has accelerated the momentum of many previous trends. One of them is digital automation of intellectual services. Being more quantifiable than most, financial services have entered an inflection juncture where banks can be made to be nothing more than an app on your phone.
Robo-Advisors Paving the Road
Digital technology tends to have a cascading effect. With online stock trading apps came the removal of trading fees and focus on indirect income venues. Parallel with this mass access to finance, many popular robo-advisors were introduced, with the launch of Mint in 2006. From humble beginnings to sophisticated AI algorithms, robo-advisors have evolved significantly since then.
However, robo-advisors really took off from 2014 onward, led by Betterment and Wealthfront, as the industry now collectively manages $1.3 trillion worth of assets. Representing machine learning applied to finance, robo-advisors made it possible to manage your financial affairs in a set-and-forget mode. For most people, this represents a superior solution to spending hundreds of hours on the theory and practice of investing in various assets— or spending the money for someone else to do it for you.
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Some may say that robo-advisors haven’t yet been properly tested in a bear market. After all, they haven’t been designed to beat the market but largely to track it without underperforming. Nonetheless, it is difficult to see how AI algorithms tethered to Big Data would fail to outperform an average human investor.
Self-Driving Banks as the Next Step
Just as robo-advisors set your investment portfolio based on your financial goals and questionnaire, so too would autonomous banks serve you via an app on your phone. Like most services these days, they would depend on cloud-computing. Drawing from the accumulated FinTech/blockchain expertise, all major barriers to self-driving banks have already been broken:
- Robo-advisors accustomed people to have their finances handled by software.
- Internet banking already made people access their finances via smartphone.
- The post-pandemic world normalized the avoidance of unnecessary social gatherings.
- Blockchain technology already in use for core banking products – lending and borrowing – on DeFi platforms.
- The likely implementation of CBDCs, which would have the effect of completing the transformation to a cashless society.
As you can see, on the technical side of things, all is ready for self-driving banks to emerge. Now, it all rests on the regulatory agencies to make it happen. As is the case with self-driving vehicles, self-driving banks would also require a new regulatory framework not previously envisioned. However, based on the tech-friendly and groundbreaking rule by the OCC, the regulatory front too seems to be ready to embrace self-driving banks.
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Crypto exchanges already present a model on how it could be done. To ensure fair customer treatment and detection of abuse, self-driving banks would have to unveil their open-source algorithms to watchdog agencies. Ultimately, streamlined efficiency in banking would allow greater allocation of resources into local communities.
In ten years, do you think kids will grow to know of money only as digital numbers on a screen? Let us know in the comments below.
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