Future of Financial Services Workforce

UntitledFinTech disruptors have been finding a way in by focusing on a particular innovative technology or process in everything from mobile payments to insurance. A forte of technologies “AI-ML-DL-NLP-CV” is fueling the FinTech innovations. The large financial services companies can’t be complacent as FinTechs have been attacking some of the most profitable elements of the value chain and as well as areas which were historically subsidized.

Let us refresh our memory on these AI technologies and their relevance to the financial services industry.

  • AI makes machines to learn from experience and perform human-like tasks – AI offers robotic & intelligent process automation (RPA/IPA) of financial processes
  • ML is a specific subset of AI that trains a machine on how to learn – ML is enabling algorithmic trading lead to better predictability and decisions around credit and consumer lending, thereby lowering risk to the bank or financial institution
  • DL is s a type of ML that trains a computer to perform human-like tasks, such as identifying images – leverage big data (customer demographics, consumption records, etc.) to parameterize a DL model that can simulate the likely response to new product/service configurations (e.g. new credit card with cash rewards, moderate interest, zero interest on balance transfers, etc.)
  • NLP is a branch of AI that helps computers understand, interpret and manipulate human language – NLP is shaping the future of banking with voice assistants and ubiquitous computing.
  • CV s a field of AI that trains computers to interpret and better understand the visual world –  CV is transforming financial services by using appealing visuals and new solutions for a new world where seeing is believing

These new-age FinTech developments are leading to a continuous transformation of the financial services workforce. The changing landscape and evolving financial services resource pyramid is presented in the diagram above. I would like to highlight a few trends reshaping the talent of financial services on this blog post.

  • AI automating business-as-usual activities of financial services: Robots and AI already started addressing key pressure points, reduce costs and mitigate risks. Building capabilities to target a specific combination of capabilities such as social and emotional intelligence, natural language processing, logical reasoning, identification of patterns and self-supervised learning, physical sensors, mobility, navigation and more are in swing. The goal is to look far beyond replacing the bank teller. There are whole categories of work that had not been seen as cost effective to automate. However, with lightweight software ‘bots’, workers are freed up to focus on higher value activities.
  • Changing patterns with Human vs Machines foray: Are financial services firms moving to re-shoring of work with talented machines? The answer seems to be, Yes. In the last two decades, many financial firms have ‘offshored’ repetitive tasks to lower-cost locations such as India, China, and Poland. However, relative costs for labor in those regions have started to rise. Combine this with improvements in robotics and AI capabilities and machines are becoming credible substitutes for many human workers. As the capabilities continue to improve and technology continues to drive down the cost of machines, these forces will combine to spur re-shoring, as more tasks can now be performed at a competitive cost on-shore. Even functions that seem dependent on human input, such as product design, fraud prevention, and underwriting, will be affected. At the same time, the need for software engineering talent will continue to expand
  • It is not just automation, Technology is picking high-end work: ML is enabling next-generation algorithmic trading systems are moving from descriptive and predictive to prescriptive analysis, improving their ability to anticipate and respond to emerging trends. And while algorithm trading programs were once limited to hedge funds and institutional investors, private investors can now get access to them too. AI soon automate a considerable amount of underwriting, especially in mature markets where data is readily available. Even in situations where AI does not completely replace an underwriter, greater automation would allow humans to concentrate on assessing and pricing risks in the less data-rich emerging markets. It would also free up underwriters to provide more risk management, product development advice and other higher value support for clients.
  • While building machines, the real focus is on accessing the necessary talent and skills to execute strategies and win markets: Financial services firms lack the internal knowledge and expertise need to implement a customer-centric approach. For example, a mainframe programmer who maintains a core banking platform may not have the skills or interests to learn to code AI applications. Many senior IT executives, non-IT staff-members, and even technical personnel do not have the skills needed to build and operate an effective digital channel offering. Financial institutions are starting to realize they will need talent with very different skills. This might mean finding more industrial engineers for robotics work, or retraining underwriters to do higher value work once AI is used to automate certain existing functions. But the issue runs deeper than developing a different competency model. First, firms to understand what is already working and what needs to be done differently. This might involve changes across the human capital strategy through revitalized recruitment, learning and development, partnering and cultural initiatives.
  • The contingent workforce is creating the talent-exchange mindset: financial firms need to address is the growing preference for flexibility and entrepreneurship among many in the labor force. In the United States, the US Chamber of Commerce has found that 27% of the labor force is currently self-employed, and some believe that this ‘contingent workforce’ could rise to 40% or more within several years. Practically, for this reason alone, financial institutions will need to adopt a ‘talent exchange’ mindset, leveraging part-time and/or self-employed individuals in a creative manner. This may range from bidding out specific tasks or work to expanding the use of seasonal or temporary workers. Of course, this will introduce challenges around culture and quality, and this will introduce new opportunities as well. For example, we might see employers using online platforms to manage confidentiality and legal risks in creative ways.

Artificial Intelligence capabilities impacting the financial industry and thereby attitudes toward work continue to change, some of the attributes that have benefitted institutions in the past such as big firm and stable employment are slowly losing their appeal. Refreshing financial firm’s approach to recruiting, learning and development, and culture may offer an effective way to address issues that FinTech has brought into the open market.

Welcome your ideas in further spotting future trends in financial services workforce.

 

Facebook Coin – A closer look

fbThis is the second initiative from Facebook after they tried to introduce Facebook Credits* (see below for the details) during 2011 and was not successful. This time it may translate into a success due to the following reasons. I am keeping the arguments on the centralization, stable coin and comparison with Bitcoin to a later post.

  1. Feasibility of massive adoption: Facebook, WhatsApp, and Telegram combined user base of over 2.7 billion. WhatsApp alone has more than 1 billion daily active users and crypto transfer can be a click of a button and trust is pre-established. Telegram biggest messaging applications in South Korea and Japan, Kakao & Line.
  2. Similar successful products in the market: Venmo has taken off in the United States by making it easier to send payments by phone. And in China, many consumers use the payment system that operates inside the hugely popular WeChat messaging system.
  3. Ease of opening a Facebook account compared to a bank account. Regulation and compliance is the next big puzzle to solve for Facebook.
  4. Coin backing with fiats making it more versatile: Unlike JPM Coin backed by USD alone, Facebook could guarantee the value of the coin by backing every coin with a set number of dollars, euros, and other national currencies held in Facebook bank accounts.
  5. Coin launch followed by Blockchain adoption making it a robust approach: As Facebook recently revealed their plans to integrate blockchain technology into Facebook Login and betting on blockchain technology by bringing data security aspects, it seems like the next level details on FC will be very interesting.

The big question facing Facebook is how much control it would retain over the digital coin. If Facebook is responsible for approving every transaction and keeping track of every user, it is not clear why it would need a blockchain system, rather than a traditional, centralized system like PayPal. Let us follow another interesting development.


* Facebook Credits was a virtual currency that enabled people to purchase items in games and non-gaming applications on the Facebook Platform. One USD was the equivalent of 10 Facebook Credits. Facebook Credits were available in 15 currencies including U.S. dollars, Pound, Euros, and Danish Kroner.  It was expected that Facebook would eventually expand Credits into a micropayments system open to any Facebook application, whether a game or a media company application. While the Facebook Credits website is still active, Facebook has announced that it is doing away with Facebook Credits in favor of local currency

#RegulationOf Cryptocurrencies

Crypto Regulations

Cryptocurrencies are undoubtedly the point of investment contention and hence a lot of attention on regulating them. Top 5 USA regulating bodies – SEC, CFTC, IRS, FinCEN, and OFAC and other bodies around the globe are on the job to define a robust regulatory framework.

Recent Facebook stock dip by ~20% in a day losing $120 billion in a day (close to Bitcoin market cap) making rounds on the subject of volatility. If internet 2.0 stock is that volatile, internet 3.0 cryptos are in infancy and only can grow stable is the argument. Ok, let us say we have to deal with crypto volatility over a period of stability. But.  what about regulating Cryptocurrencies? Defining Crypto regulations is a next big thing to boost confidence.

As a holistic solution, proposing a three-pronged approach to evolve a Cryptocurrencies Regulatory Framework,

I. Key Players / Stakeholders of Crypto Marketplace:

  1. Exchanges: As crypto buy & sell transactions happen here, mandatory KYC/AML is the ideal first step in regulating crypto. Crypto to fiat and vice-versa conversions can be audited. Taxes reconciliation can also start here.
  2. Wallets: All crypto transactions won’t occur on exchanges. Wallets (hardware, web, mobile) plays a role and tracking wallet addresses is a nightmare. Regulators should find a way to get a grip on crypto to crypto transactions and technology should aid them.
  3. Mining: Miners are another key player to touch upon in evolving regulations and the considering following aspects of mining could be a starting point.
    • Resource Usage Regulations: A single country cannot regulate mining and nodes can be shifted across borders (borderless) in a way. While the power consumption rates can be tracked by local regulators, carbon emission controls and ROI targets of natural resources may be logical checks to start implementing. But how is crypto mining different from gold mining if compliant to resource usage guidelines?
    • Mined Coins & Transaction Fees: The other aspect of crypto mining in finding blocks and approving transactions thereby either earn income from trading mined coins or collecting fees for transactions clearance. This would be an area of regulators could focus.
    • Way Forward: As cryptocurrencies mining progress beyond proof-of-work to proof-of-stack and other formats, the legality takes a different path overcoming the current concerns.

Refer to article for a viewpoint on future of mining regulations.

4. ICOs: While SAFT and Howey Test are initial frameworks available, the holistic framework to regulate ICOs is still in work across the globe. While the clarity on utility vs security of a token being issued via ICO is getting clarity, the complete fold of ICOs into the regulatory framework is yet to shape up with broader acceptance. One question the regulatory bodies is, is the regulatory uncertainty is putting brakes on a promising technology innovation?

II. Modes of Use: Fundamentally like fiat, cryptocurrency could be sued for payment & transactions, a store of value, or a trading vehicle. All three have to encompass in finding a solution. Beyond the usage patterns, a holistic solution may need to touch all “modes of usage” of crypto.

III. Blockchain Layers: Lastly, which layers of Blockchain should be targeted to define regulations? Viewing from the foundation layers of Blockchain namely infrastructure, protocol and application/services, regulations apply to the topmost application layer which interfaces with the users/adaptors of the cryptocurrencies for trading products and services.

Crypto communities are eagerly waiting for regulatory framework the tighten the fraudulent activities and scams and at the same time promote the future promise of 21st-century currencies. Establishing legislation that stimulates growth for businesses and protects consumers is no mean feat, but it is certainly a task that regulatory bodies around the globe can’t ignore.

Boosting Customer Loyalty Programmes (Blockchain for Gift Cards – Part I)

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Getting little bit into history, reward programs spans over a century (~120 years) with S&H Green Stamps in late 1800’s, the launch of modern programs by the airlines ~35 years ago, and to the recent coalition programs like Plenti’s initial marketing partners that include Macy’s, AT&T, Exxon Mobil and Rite Aid.

According to the 2017 Colloquy Loyalty Census, there are 3.8 billion individual loyalty memberships in the United States increasing from 2.6 billion in 2012. Every day we come across some sort of customer loyalty and reward programs in our daily lives while consuming products and services across industries that represent the spread of memberships in retail – 42%, travel & hospitality – 29%, financial – 17%, media & content, the cross-section of these industries and as well as others representing remaining 12%.

With that being said, loyalty and reward programs are facing the underpinning threats as well as bundled with few opportunities as described below. In view of this, Providers of loyalty programs should focus on their long-term sustenance and growth strategies. The following metrics are compiled from Kobie and Colloquy reports.

Threats:

  • Only 46% of loyalty memberships in the USA are active leaving behind more than half of all memberships inactive
  • Over 70% of consumers in the age group of 20 to 34 years old said they would change where they shopped to get more loyalty rewards

Opportunities:

  • 34% of USA consumer say they are loyal to a brand because of its loyalty program
  • Loyalty/reward programs with integrated sustainability, contribution to the environment and quality of life are scoring more than the rest

In the above context, Blockchain technology can play a significant role allowing the providers to integrate store locators, payment vehicles, loyalty programs, even games, in a platform that enables information always to be at the consumer’s fingertips. The blockchain based platform can offer convenience, rewards, ease of use and customer experience combine to build consumer loyalty, engagement, and advocacy.

Traditionally most rewards programs use a proprietary “points system”. Customers can accumulate points for purchases at a rate that was set by the issuer and finally uses the points to purchase merchandise at a redemption ratio set by the issuer which is somewhat regulated. 3rd party fulfillment usually handles the redemption hosting the user redemption via an online web framework, maintain and keep the catalog of rewards, administer point balances, manage promotions, ship rewards, and deduct the points in a systematic manner. As you can realize by now the multi-party loyalty systems are somewhat circumvented and that leads an opportunity for disintermediation. The recent developments with blockchain technology seemingly offers an effective alternative to run loyalty programs.

As depicted in the diagram above, the entire ecosystems of loyalty & rewards programs including providers, channel distributors, customers, incentives & payments firms can be seamlessly integrated onto a blockchain core to enhance the overall value proposition. Blockchain can enable a ledger of transactions to be shared across a network of participants. When a loyalty point is issued, redeemed, or exchanged, the blockchain’s AI algorithm-generated unique token could be created and assigned to that transaction and distributed across the loyalty network, updating every ledger simultaneously. Loyalty participants can validate the new transaction and link them to older transactions, creating a strong, secure, and verifiable record of all transactions, without the need for intermediaries or centralized databases. However, for security and privacy of loyalty programs, it may be logical to design a closed-loop rewards program, where only those parties involved in the loyalty program, issuers and merchants, would be allowed, which resembles a private or a permissioned blockchain.

If you can visualize, in loyalty platform backed by blockchain, the points associated with the rewards systems can be deposited by the issuer in a customer crypto wallet that would be available to immediately spend at any of the merchants that accept that cryptocurrency and participate in that closed blockchain. The issuer would no longer need to carry the liability for all unused points on its books, which is estimated at ~10% leakage of rewards that expire and can be written off with no redemption costs. To compensate this blockchain based systems can deliver cost savings in redemption by eliminating the third-party fulfillment function, along with the associated fees for those services. The cardholder would no longer need to log in to the fulfillment website to redeem points for merchandise or travel. Instead, the rewards currency could be used to purchase from any merchant, e-tailer, travel site or brick and mortar that accepts that rewards currency. Presumably, this would be a closed loop of possibilities, to avoid the problems that merchant consortiums such as Plenti had to deal with. Each merchant would then need to balance their prices, in the rewards cryptocurrency, in order to increase the potential for the cardholder to spend with them, but still maximize profitability. The inefficiencies arising from the issuer paying fees to a third party could be put back towards the issuer’s reward program, the payback for giving up the “breakage”. This, in turn, would allow the issuer to increase its rewards.

One would think now about how to handle a sporadic crypto price fluctuations? One way to address this is by keeping the rewards currency, not as a tradeable token on exchanges making the blockchain a permissioned network allowing only issuers who participate in the program, and merchants who are willing to redeem could be nodes keeping the expense and time delay of each transaction to reasonable costs and near-real-time. The participating nodes can be designed to perform a proof-of-cooperation calculation to maintain the integrity of the transaction.

To sum it up, leveraging customer loyalty blockchain platform,  the issuer no longer sets redemption ratios in the future-generation model of card rewards & redemption, removing any ambiguity as to what each reward point is worth. This allows merchants to price their goods at market rate to encourage purchase, removing hidden markups and resulting in loyalty truly becoming a currency.

Refer to Part II @

Enhancing Gift Cards Value Proposition (Blockchain for Gift Cards – Part II)