CRM: Custobot Relationship Management
When BigBank Customers Are Replaced By BigTech Custobots.
Dateline: Woking, 12th December 2023.
I was interested to see that Gartner’s top ten strategic technology trends for 2024 include the arrival of machine customers (what they call ‘custobots’ but what I call “economic avatars”, a term originated by Jaron Lanier). These are the smart, non-human actors that can autonomously negotiate and purchase goods and services in exchange for payment. Gartner think that in five years there will be 15 billion connected products with the potential to behave as customers, with billions more to follow in the coming years. This all sounds a bit hyperbolic, but the fact is I think that Gartner might be right. The arrival of robot customers could be the source of trillions in revenues in that relatively short timescale and turn bot-to-bot commerce into something more important that e-commerce itself.
Send Your Bot to the Bank
I recently published a paper about this with my good friend Kirsty Rutter from Lloyds Banking Group in the Journal of Digital Banking 8(2), p.132-140. In our paper Where are the customers’ bots? The AI paradigm shift in retail banking, we point out that financial institutions are already using artificial intelligence (AI) and that robo-advisors, chatbots and 'copbots' auto-detecting fraudulent transactions are increasingly common. These uses are undoubtedly valuable, but the business model is still the consumers being sold a financial product by a bank, whether by a call centre agent or a robot that impersonates a mortgage vendor.
The big change in financial services will come when customers use AI to assess offers from financial institutions for themselves. They will have access to AI as powerful as the banks have, because Google, Meta, Apple and Microsoft (and companies like them) will be giving it to them. And this will mean individuals will not be the customers: Their bots will be.
Since most retail financial services offer products that just service a need at a point in time (e.g., paying for parking) rather than create an extraordinary user experience or are too complicated for normal people to make informed decisions about (e.g., pensions), we expect most consumers to abdicate in favour of intelligent agents operating under the new duty of care umbrella.
This has been a subject of futurist speculation for some time, but the rapid growth of ChatGPT and its ilk means that banks now have an urgent need to develop strategies to take advantage of this significant change in the nature of the financial services in the mass market. Our paper looks at the imminent confluence of open finance and AI to consider the consequences of giving bots access to consumers' cash (through open banking, for example).
Our paper foresees a a world of smart wallets, capable of making decisions on behalf of consumers. They will be capable of deciding what services to use, who to get them from and how to maximise their financial well-being, leaving their users to spend more time on human activities. Similarly, Gartner suggests that organisations pay strategic attention to the switch from human to machine customers.
with kind permission of Helen Holmes (CC-BY-ND 4.0)
Personally, since I don’t know much about marketing, I am fascinated to see how banks will adjust to acquiring robot customers who do not care about the bank’s logo or TV ads or which sports team it sponsors. So when my smart wallet uses open banking data and decides that I need to open a savings account or get a loan or refinance my mortgage, how will my finance bot decide which provider to use? After all, I don’t really want to be in the loop because I’ve got better things to do.
As I am sure this is true for most people, it means that for most of us, most of the time, in the not-too-distant future, our 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. I don’t think this is a bad thing, as I am sure the even a rudimentary finance bot can do better than I can when it comes to managing money.
APIs not Brands
Given that I intend to hand over responsibility to my finance bot then, how will that bot go about choosing which accounts to open, which services to use and which oracles to listen to? I imagine that it will use a combination of reputation and relevant other data (e.g., economic forecasts) to work out which account is right now and then I’ll just click OK and hey it’s all done. The reputational calculus will of course involve fees and rates but instead of using the Victorian substitute of brand for actual data, my bot will look at API functionality, open finance interface availability, service uptime and so on.
(I say “Victorian" substitute because the first U.S. registered trademark, filed for paints, was issued on 23rd October 1870 and the first U.K. registered trademark was issued on 1st January 1876 for the red triangle of the Bass Brewery.)
This means that banks, financial organisations in general and, of course, fintechs will be selling their products to machines, not to people. Well, their machines will be selling things to customers’ machines. Now, people have tried having AI make financial decisions in the past and truth be told it hasn’t worked out too well. ETF Managers Group’s AIEQ, launched in 2017, uses IBM’s Watson AI platform to analyse millions of data points from news, social media, industry, and analyst reports, plus financial statements on over 6,000 U.S. companies, and technical, macro, and market data, among others so it provides a useful case study. Over the last five years, it returned 4.9%—trailing the 11.78% five-year return of Vanguard’s benchmark S&P 500 index fund and for another comparison, two large actively-managed funds (the American Funds Growth Fund of America, at 9.81%, and Fidelity’s Contrafund, at 11.04%). That doesn’t sound particularly successful to an amateur observer such myself.
Yet many people are bullish precisely because they see that historical robo-advising was essentially jazzed-up machine learning. The custobots that Gartner is talking about will use AI and deep-learning algorithms to deliver something very different and they will require very different services from financial institutions. As an obvious example, companies may have to provide specific APIs to support the needs of bots rather than people since bots can search through more data, access more sources and process more transactions than any person might do. Levels of service acceptable to a customer may be completely unacceptable to a custobot.
Those custobots may not be so far away. Commonwealth Bank of Australia (CBA) is already examining how it can use generative artificial intelligence to create faux consumers who can test new products. Dan Jermyn, their chief decision scientist, said the technology can enable machines to process and interpret patterns to create data that the bank will use to create chatbots that will perform experiments on products to see how popular the products may be. They are drawing on simulated experiences of daily life to emulate behaviours to improve qualitative and quantitative understanding of how customers might respond to changing contexts, everyday financial challenges and new products. It’s a pretty fun way of making a SimBank, but surely it is not much of a step to turn those customer bots into customers’ bots. if you see what I man.
And if CBA can make custobots, so can GAMMA (Google, Apple, Meta, Microsoft, Amazon etc).
Machine Money
Robobanks and custobots may open up some new pathways when it comes to thinking not about the future of banks, but the future of money. What if the future is just about digital Euros or Bitcoins?
Listen to the voice of the leading German banking-sector associations, The German Banking Industry Committee (GBIC). It is made up from the National Association of German Cooperative Banks (BVR), the Association of German Banks (BdB), the Association of German Public Banks (VÖB), the German Savings Banks Association (DSGV), and the Association of German Pfandbrief Banks (vdp).
I had always assumed it to be a very conservative organisation, so I was fascinated to see that they have called for some form of tokenised private-sector money be developed to meet corporate demand arising from Industry 4.0 and the Internet of Things. They envisage that such money would facilitate transactions based on “smart” – i.e., automated – contracts and thus increase process efficiency.
(The idea of giving the machines the cash they need to spend is pretty radical. Commerzbank was already trialling blockchain-based machine-to-machine payments between electric charging points and Daimler Trucks back in 2019.)
Gartner are surely right to point towards bot-on-bot action as a focus for financial services moving forward, but it seems to see that that transition may well lead to amazing changes not only in financial services but in money itself.
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