I’ve been thinking for a while now about building a new financial system from the ground up using AI, blockchain, the Internet of Everything and other technologies. What would it look like? What would we build?
I guess the piece that inspired a lot of my thinking came from two sources: Alipay (as usual) and Trōv, an InsurTech firm.
In the Alipay case study in Digital Human, there is this one paragraph:
A good example of such a service is a Taobao shop owner who sells beef jerky. Each time they receive an order, they can immediately turn that order into cash through a short-term MYbank microloan. This particular store owner has had 3,795 such loans in the last five years, an average of two loans a day, with the amounts varying from 3 yuan (50 cents) to 56,000 yuan ($8,000).
With Trōv, you can see what they’re getting up to here:
If you cannot be bothered spending 100 seconds to watch the video, their idea is really simple: pay-as-you-use insurance. Rather than taking out an annual insurance policy, just pay for items you’re using as you use them. Leaving the house for the day with an iPhone, laptop, bicycle and leather bag? Total value $3,000? Out of the house for 8 hours? OK, that’s $1.25 to insurance the lot for the day.
These two ideas combine in my mind to on-demand lifestyle finance. In the future, instead of having the old products: a 25-year life policy; a 40-year pension policy; a 30-year term mortgage; a 5-year loan; an annualised auto insurance; and so on; finance will become embedded in far more short-term real-time things.
For loans, I could get a $50 loan at 08:00 in the morning and repay it at 14:00 for a fee of $0.05; for auto insurance, if I even own a car in the future that is, I could insure it journey by journey (in fact, I already near enough can); for a home, I no longer can buy one as it’s unaffordable, but I could just move around rooms on a pay-as-you-go basis using Airbnb; for a pension, I could vary the amount I contribute daily, rather than a flat monthly payment of a term policy; and so on.
In fact, everything becomes dynamically priced in real-time and the idea of ‘term’ products disappear.
So, I see several start-up firms that are good at this, but what does it mean to the large traditional insurers and banks? Well, some see the opportunity. In fact, in the World Economic Forum report I cited on Monday, there are loads of examples (see pages 86-138), but my favourite moves have been with Trōv.
For example, AXA recognised they didn’t or couldn’t build the insurance service, whilst Trōv is a small, start-up in Silicon Valley. Therefore, it made for a perfect set-up to see the companies partner together for a UK roll-out. Trōv has done the same with Munich Re in America. What this shows is a new way of thinking, where the deep capital base and experience of a traditional partner can provide the depth of offering that an innovator needs to bring their service to market. Meantime, the innovator can develop the idea of short-term, real-time, on-demand thinking about finance that the traditional firm – encumbered by legacy thinking and structures that cannot deliver such services – needs.
This is what I’ve talked about for a long time: the unbundling of finance that can then be rebundled by tech. The traditional firms who historically have focused upon building all products, distributing them and processing them, through their physical offices with buildings and humans, had to build products that were for the longest haul possible to make them viable.
Now, the digital firms are focusing upon software and algorithms that change the whole product to market structure and cycle. It demands immediate on-demand structures that traditional players are just not fit to offer.
So, the traditional players must now curate, co-create and partner to see continued success in the future. They may become smart pipes, back office players, infrastructure providers or similar, but they cannot continue to be all things to all people. The old days of building and distributing all have gone; instead, the traditional players have to consider their core competencies and play to their strengths, whilst withdrawing from markets where they have no strength. That might even demand that players with recognisable brands become invisible. There’s nothing wrong with being invisible if you’re making a heck of a lot money. After all, look at Visa and MasterCard. Whose brand am I paying with: the issuer or the acquirer … or am I paying with Visa and MasterCard? Do I even think about whether I’m using my RBS, Lloyds or HSBC card when I pay? Or do I think about paying with Visa and MasterCard?
What I’m getting at here is that in this whole new ecosystem of marketplaces and platforms, everyone will by vying for a space, but no-one will control the space. No one …
… well, maybe Jack Ma or Jeff Bezos, but no one else.