Autonomous Finance

With algorithms poised to become our trusted financial advisors, expect your robot to have the final say on money matters!

Joan, a 29-year-old American woman, makes over $200,000 annually but doesn’t want to spend her free time calculating the best combo of savings, investments, and free cash. She starts using an algorithm-driven engine that allocates her money in an ever-shifting mix of current and investment accounts that yield the best available gains while still allowing Joan to spend from whatever checking account has the lowest fees at the moment. The algorithm is “fed” five years’ worth of Joan’s spending data and other financial info. It adjusts based on economic shifts, seasons, events in her life, and other factors, plus it auctions her deposits to multiple banks to have them compete and bid against each other. We have entered the age of Robo-Advisory or Autonomous Finance.

Software robots are better able to track investment values, despite the possibility of sudden, abrupt changes. Bots can also assess an investor’s portfolio and thus minimize the inherent risk of investing. Relatedly, RPA tools can serve as financial advisors without the prohibitive costs of their human counterparts. A concrete example is offered by the Colombian bank Bancolombia, which has launched InvesBot one year ago. InvesBot is a software meant to improve users’ investment decision by offering information updated in real-time about fluctuations on the stock market. Bots can basically facilitate access to the stock market, which translates in opening up the customer span.

Robo-Advisory services which uses AI chatbot and mobile app assistant applications to monitor personal finances are transforming the Fintech industry. Set your target savings or spending rates for your own goals, your artificial intelligence-powered finance assistant will handle the rest and provide you with insights to reach financial targets. Some call it Autonomous Finance which about to transform the fintech industry.

According to analyst firm Forrester autonomous finance is the next generation of financial services, and we define it as: algorithm-driven services that make financial decisions or act on a customer’s behalf. Autonomous finance uses artificial intelligence (AI) and automation to deliver personalized, optimized experiences specific to the financial services industry. It requires a shift in how organizations approach operations and will require them to digitise what was once analog and on paper. Why is this important now?

The pandemic has created financial uncertainty for most of the world. A third of US adults are anxious about their financial situation as they live pay cheque to pay cheque. In India the middle class is worried about declining bank and other savings interest rates. They are looking to create additional revenue streams, but at the same time are wary of the volatility, complexities of the capital markets and trust algorithms more than human financial advisors.

People are starting to trust automated services for everyday activities and financial tasks. A majority of US online adults now trust algorithms more than their fellow human beings when it comes to driving or walking directions. And one in five US online adults agrees with the statement “I trust computer algorithms can make good financial decisions on my behalf.” Younger consumers are showing even more appetite for autonomous finance, with Millennials showing much more trust in robo-advice.

A study of more than 9,000 consumers and business leaders in 14 countries conducted by Oracle found that the coronavirus pandemic has increased financial anxiety, sadness, and fear among people around the world and has changed who and what we trust to manage our finances. This is leading to a rethink of the role and focus of corporate finance teams and personal financial advisors, according to the research.

To help navigate financial complexity, consumers and business leaders increasingly trust technology over people to help, with over two thirds of the polling sample trusting a robot more than a human to manage their finance. Drilling down, 73% of business leaders trust a robot more than themselves to manage finances, while 77% have more faith in robots than in their own finance teams. In the consumer sector, 63% trust robots over personal financial advisors.

This shift is happening in part because current financial services offerings aren’t working effectively for customers, according to Forrester. Firms are creating products that fit their own definitions, not that of their customers. For example, a checking account is distinct from a savings account or a loan, even though customers need a single solution that helps them manage their cash flow in the short and long term in a way that helps them achieve their goals.

There’s too much choice and complexity, increasing risk for customers. Many financial products are complicated and choosing the wrong one carries significant risk. Customers need help understanding their options and choosing what’s best for them. If they choose the wrong product, they could risk getting an insurance claim rejected or even lose lifetime savings. Historically, insurance agents, relationship managers, and financial advisors played this role, but this isn’t economical or scalable, and their revenue models often make customers distrustful.

Customers are juggling financial products from a myriad of providers – something that regulators globally are hoping to make easier with open banking and a single view of holdings. But there’s a bigger opportunity to embed finance into other products and interfaces – connecting it with customers’ everyday lives. For example, Jaguar Land Rover’s “smart wallet” technology pilot lets drivers store and spend cryptocurrency they earn when their car automatically shares road condition data, such as traffic congestion or potholes, with navigation providers or local authorities.

Consumer appetite for autonomous finance is an example of latent demand: Consumers need a better way to manage their financial affairs but aren’t able to articulate the product that would help them do so because autonomous finance services are still in their infancy. But these leading indicators suggest change is coming. Consumers are starting to trust automated services for everyday activities and financial tasks.

Fintech start-ups are using automation to reinvent credit cards, checking accounts, insurance, investing, mortgages, savings, and to offer new services in areas such as debt management, fee negotiations, and subscription management. Incumbents are dabbling with autonomous finance, too. For example, banks such as Bank of America, BBVA, and Westpac have rolled out virtual assistants to help customers manage their money and have seen steady growth in customer adoption.

Machine-learning models trained on proprietary data will be the new secret sauce. Autonomous finance relies on accurate predictions of what will work best for individual customers. Companies will compete on machine-learning models trained on proprietary data – a mix of internal and external sources. Autonomous finance proactively orders, pays for, and arranges delivery of groceries. An algorithm chooses the best deal on needed groceries (based on price, fees, rewards, etc.) and the autonomous payment tool embedded in your refrigerator automatically pays for them. Looks like the days of the financial consultant are over as algorithms become the trusted advisor to our personal finances.