Finance – A theory of transition to a new world

Working in the finance sector, possibly the only sector that I had worked since graduation, I have encountered a systematic shift in the perception of the jobs. I believe that we are in an era of transition of the financial industry for good or bad. When I joined my initial assignment 15 years back, I was working on trade solutions. We used to have over 20 people who were designing customized reports and running them at a specific time for various businesses across various continents. The requirements were flowing to refine the solutions so frequently that a significant amount of resources were deployed to tackle the future plans. Within a few years such a futuristic team underwent a significant headcount reduction and now I believe that technology itself does not exist. This is when the quote of Bill Gates becomes prominent. ‘We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.’

When I joined my initial assignment 15 years back, I was working on trade solutions. We used to have over 20 people who were designing customized reports and running them at a specific time for various businesses across various continents. The requirements were flowing to refine the solutions so frequently that a significant amount of resources were deployed to tackle the future plans. Within a few years such a futuristic team underwent a significant headcount reduction and now I believe that technology itself does not exist. This is when the quote of Bill Gates becomes prominent. ‘We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.’

This is when the quote of Bill Gates becomes prominent. ‘We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.’

I had been fortunate to work a good portion of my life in understanding the investment perspectives of money. So let us understand money from that context. Being an industrial engineer, I always have been enthusiastic about the time-motion study. It is a business efficiency technique combining the works of Frederick Winslow Taylor and Frank and Lillian Gilbreth. This integrated approach to work system improvement is known as methods engineering and it is applied today to industrial as well as service organizations, including banks. Let us see how the transition could happen through a basic time-motion study of how an investment professional would approach an investment.

The first step for anyone is to get stock of your finances and spending pattern. With the intrusion of privacy through smartphones and data crunching and machine learning capabilities, the firms that we depend on for our everyday needs can predict our requirements to a reasonable extent. If our needs are translated into their sales, this information can be treated as a sales input for a company. In other words, it could serve as a leading indicator for one’s investment. This could create a vicious cycle by which users of a specific product could be made to buy the stocks of those products that they consume. These stocks would be recommended by very same companies that took the data from the same set users. Is it going to be fun? Can we say that this data tech is going to the next investment advisors?

As on today, we have many applications on our fingertips that could tell us the amount that we had spent, are spending and will be spending. If these data companies can build a predictable certainty on this consumption pattern, will there be a concept of a market? Will there be market buy and sell on risk and uncertainty? The result could be that one may not trade, he could just put money for a reasonably predictable future. Will that be an end of speculation in markets, which our modern day banks have invented?

The second step is usually to understand the products that would make sense for the user. As I mentioned today we have applications that can fairly predict the outcomes of investments through game theory and scenario analysis. With the enormous information that is being generated by us on a daily basis, the suitability of the products and judging our risk tolerance will become much easier. The feeder information for this judgment would be our own data provided through various means to the data aggregators of the internet such as Google, Facebook, Apple, Amazon, and Microsoft.

For your information, 95% of global data was created in the last 3 years. It is expected that by 2020 the digital universe – the data we create and copy annually – will reach 44 zettabytes or 44 trillion gigabytes. This is the data that would drive the future of money.  Anyway, this data would be input for the setting one’s goals and determining your risk tolerance. So tomorrow your decision to buy a car or a decision for a holiday could be taken by these technology companies. The days are not far, that even the style of investment and the returns that one can expect from a specific type of investment can be determined with a fairly good accuracy. Once this information is available to the public through, let us say ‘open source investment codes’, who would want to pay for the current products, that our banks and financial institutions sell as exotic products.

It would be something like our Android phones, which almost monopolized the mobile industry. We are currently on the Nokia Symbian environment as far as financial industry is concerned. Once we have a platform that would enable the users to transact, select, deploy, track, review and rebalance money on a universal level, that would be the death knell for the current financial industry as we see it today.

This is a pivot moment for the financial institutions. It could be the block chain, peer to peer services, internet of things, wearables or/and augmented reality, but I am sure that the future of money in the next 15 years will not the same that we see today. It will be a great concoction of these new age thoughts. Such innovations could either be with the current financial institutions or against such institutions. If they are on the other side it would be the end of such institutions as we see today.