(Photo by Flickr user J R, used under a Creative Commons license)
Technical.ly's Editorial Calendar explores a different topic each month. The October 2016 topic is fintech. See fintech coverage from all five of our East Coast markets here.
Neither artificial intelligence nor fintech – or even the union of the two – is really anything new, despite the recent buzz regarding all of the above. With that being said, we are indeed approaching that point where the underlying technology begins to make a noticeable difference in people’s lives. From there, it won’t be long before we begin to wonder how we ever lived without artificially intelligent financial advisors implementing our own personal monetary policy.
Don’t believe that? Well, did you know that digital camera technology has been around since the 1970s but simply wasn’t good enough to get mainstream traction until decades later? Don’t worry, Kodak didn’t see it coming, either. Blockbuster and Borders also learned similar lessons, as their industries transformed seemingly overnight in processes that actually were long in the making.
So in the interest of minimizing unpleasant surprises as the fintech industry emerges, here are four predictions about the marriage between machine intelligence and people’s personal finances, based on my experience leading WalletHub, a local company at the intersection of artificial intelligence and money management of the two.
Financial advisors face extinction.
There are nearly 200,000 personal financial advisors in the U.S., including 3,600 in the Washington, D.C. metro area, according to the Bureau of Labor Statistics. You can count on both figures being halved within a decade. There’s simply no reason to pay for something when a higher quality product is available for free. The first advisors to fall will be the industry’s rotten apples. Every field has them, and my wife actually fell victim to one before we met. The seemingly upstanding individual to whom she entrusted a considerable sum apparently had a track record of hopping from state to state swindling customers. It was hard to spot such a blow coming in the days before financial-advisor reviews easily searchable accreditation records. But thanks to general technological advancement, identifying the wolf in sheep’s clothing is now much easier.
Financial literacy will grow.
U.S. financial literacy levels are unacceptably low, and the widespread availability of artificially intelligent money-management tools won’t change that. In fact, it could actually exacerbate the underlying issues by effectively atrophying our money muscles. Plus, it’s easy to imagine us making new kinds of mistakes for the same old reasons, despite or perhaps aided by our intelligent helpers. But the net result still will be positive. By enabling us to make simple, direct decisions while taking care of the rest, artificially intelligent financial advisors will decrease the prevalence of consumer mistakes and prompt improvement in our overall financial health.I’m actually a perfect example of this point.
As someone who has worked in the personal finance industry for more than a decade, I like to think that I’m pretty well-versed in the tenets of responsible money management. But I struggle to efficiently compare financial products without any technical assistance, given the plethora of different fees and rates that apply at varying times. But with a credit card or mortgage comparison tool, I can quickly find the most advantageous option. It’s sort of like giving a calculator to someone who’s taking an algebra test.
Choosing between AI advisors will become paramount.
Instead of struggling to find the best financial products for our needs, we will now be tasked with identifying the right AI tools to manage the task for us. And while this figures to make things physically easier, the process still won’t be simple. For one thing, we’ll have to put forth more mental effort early on, as we get a feel for the new market and what differentiates its players. We’ll also have to consider a whole new set of potential biases, as artificial intelligence makes it easier and more efficient for companies to pursue their objectives – good or bad.
Regulation is coming.
The other shoe will inevitably drop for fintech, and there’s no telling how things will ultimately play out. Any newfangled type of service that deals directly with people’s pocketbooks is bound to garner regulatory attention, after all, especially when it poses an existential threat to groups with deep pockets and a lot of influence.
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