Opinion: your future financial adviser could be a robot – Vasant Dhar & Roger M. Stein

MIT Sloan Researcher Roger Stein

MIT Sloan Researcher Roger Stein

From MarketWatch

President Donald Trump has vowed to bring manufacturing jobs back to the U.S. through new policies and regulatory reform. But this effort faces a strong headwind: In all walks of life, human employment is being challenged.

Many manufacturing jobs have been replaced by robots. Meanwhile, drivers are on their way to being displaced by driverless cars, tax professionals by software, and much more.

Recently Trump turned his attention to the financial services industry, signing two directives aimed at repealing portions

NYU Professor Vasant Dhar

of the Dodd-Frank and Consumer Protection acts, citing onerous restrictions that hamper legitimate investing and financial activity.

But regulatory change isn’t likely to repel the march of the robots that is transforming the financial services business. FinTech — the finance industry equivalent of robots in manufacturing — is too far along for that. If future investors and consumers of financial services begin to trust FinTech platforms as they have done in retail and travel, then fewer humans will be working in finance.

The raw materials of finance are capital and trust. We trust banks to hold our money and give it back to us when we want it; and we trust brokerage firms to buy the securities we want at market prices and to debit and credit our accounts accordingly. How can robots replace humans in a trust intensive business?

The answer lies largely in the emergence of a fundamentally new business model: the “platform” business. In a platform transaction, processes and checks and balances are done securely by machines.

More importantly, customers’ wide acceptance of (and participation in) a platform business itself facilitates trust. Consider: Potential customers witness the acceptance and participation of their peers, eventually becoming comfortable enough to participate themselves. Such comfort with platforms extends broadly across industries and organizations. Indeed, trust in a platform appears to depend much more heavily on the platform and brand than on the type of business the platform provides.

Read the full post at MarketWatch.

Roger M. Stein is a research affiliate at the MIT Sloan School of Management in the Laboratory for Financial Engineering.

Vasant Dhar is professor at the Stern School of Business and the Center for Data Science at NYU and chief editor of the Big Data journal.

 

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