AI, Open Finance and Airmail
Just because I can’t figure out how to build an AI to disrupt financial services doesn’t mean that no-one will.
Dateline: Woking, 6h July 2023.
You’ve probably never heard of the Aerial Transit Company, but it should be a standard business school case study in my opinion. The company’s directors — John Stringfellow, William Samuel Henson and Frederick Marriott — took a proposal to the British Parliament to launch the country’s first airline. Their proposal was to fly to Egypt, China and India and they had a business plan built around air mail services. But the short-sighted politicians turned them down, because the company did not have any airports or runways, pilots — or for that matter aeroplanes, because it was 1843 and they had not been invented yet.
Praise The Tinkerers
Why were these steampunk heroes trying to get permission to run an airline before there were any planes? Well, Stringfellow has been experimenting with balloons for many years before he began working with Henson to build an aircraft. In 1848 he achieved immortality by flying a steam-powered unmanned proto-drone the length of a local mill, which is why the English town of Chard is celebrated worldwide as the birthplace of powered flight. Astonishingly, there is actually a photograph of their proto-drone in flight and here it is:
(Yes, Kitty Hawk was the birthplace of manned flight, but the Wright brothers didn’t get it together until 1903 and anyway, after Stringfellow’s revolutionary invention, was it so much of a big deal to put a man on board?)
It is fascinating to me that Henson and Stringfellow went to Parliament some five years before they had a working plane. But I understand their thinking. While they were experimenting, they must have been thinking that even if they couldn’t figure out how exactly to get something heavier than air off the ground, they were on the right lines and that eventually someone would do it. In which case, they must have reasoned, where was the money to be made? They alighted on air mail as the best business model and founded the company.
(As it happens, they were completely correct. The first customer for commercial aviation services was in fact the US Postal Service, which ran an inaugural service on 23rd September 1911, although the first regular airmail service between New York and Washington did not begin until 1918.)
Driven from their motherland by short-sighted politicians and venture capitalists, Henson and Marriott went over to America to generate wealth and jobs there instead. Henson moved to New Jersey, where he went on to invent an ice maker, a safety razor and a cannon while Marriott migrated to San Francisco and founded several newspapers. In 1869 he returned to aviation and built America’s first steam-propelled airship. Elon Musk should build a statue to this pioneer of media, monetisation and aviation.
Opening Up
The reason that I was thinking about those forgotten West Country pioneers was because of my old friend Mike Kelly. Mike, who is both an entrepreneur and a fintech nuts and bolts man (and a very nice guy), has been doing some tinkering and built a plug-in to link ChatGPT to his bank account using the U.K.’s open banking APIs. The plug-in, called “BankGPT” can tell you your balance, find transactions, discuss your budgeting and even make payments.
with kind permission of Helen Holmes (CC-BY-ND 4.0)
What fascinated me was the responses Mike got to his announcement on social media, which varied from “have you read OpenAI’s terms and conditions” to “ChatGPT got something wrong when I asked it” to “all software has bugs, you are crazy” and “surely you can look up your balance yourself”.
I think those responses missed the point of Mike’s proof-of-concept. ChatGPT is a window into the future of financial services: AI and open finance will change retail financial services beyond measure. What Mike’s experiment showed it just how easy it is to connect the two.
(In fact, I strongly suspect that banks will come together to develop their own models, much as Bloomberg has done with their BloombergGPT, which outperforms similarly-sized models on financial tasks by significant margins.)
Financial Services Must Change
What will be the equivalent of those airmail services? What can we begin to think about in terms of new business models for the bots we are experimenting with. I think one candidate will be financial health services. In July of this year, the U.K.’s Financial Conduct Authority (FCA) will bring in the delayed “Consumer Duty”, which will fundamentally improve how firms serve consumers. It will set higher and clearer standards of consumer protection across financial services and require firms to “put their customers’ needs first”. I cannot see how the goals can be achieved without using AI, because using bots to make decisions for consumers is a much better solution than trying to educate customers to use data to make better decisions.
The idea of bots taking over from consumers to help them toward financial health under a duty of care is very appealing, JPMorgan Chase is already developing a ChatGPT-like service (called “IndexGPT”) that uses AI to select investments for customers, and it does not take much imagination to see how this could evolve to access data more as a source to help customers make better choices around many different financial services, including (crucially) those not provided by the bank itself.
What does all this mean? It means that for most people, most of the time, in the not-too-distant future, their financial decisions, transactions and analysis will be performed by bots operating under relevant duty of care legislation with the co-ordinated goal of delivering financial health. Just as it took a few years for the airmail services, conceived before there were airplanes, to become real business so it will take a few years for financial health services, conceived before artificial general intelligence, to end the financial services industry as we know it today.
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