Editor’s Note: Our writer Amir Nosrat (PhD student at Desautels) is a lover of all things FinTech (especially as a tool to overcome environmental challenges), so we sent him to the 2017 Canada FinTech Forum to be able to report back to our readers with some of his learnings. Here’s what he and his co-writer Saif had to say.
This is Amir and Saif. Y’all might remember Amir from the last post he wrote on innovation in the payment sector. Saif is a McGill alumnus, who like Amir, is interested in bringing FinTech solutions to grand challenges like climate change. This time, we’ve teamed up to share with you about what we learned from the 2017 AI and Fintech Conference. The event was organized by Finance Montreal, which is essentially a hodgepodge of government and big financial institutions that want to make Montreal a global financial hub – kind of like what it used to be before Toronto stole that title from Montreal in the 80’s and 90’s.
In any case, what is the financial sector? At its core, we consider the financial sector to comprise of 2 major types of organizations – the banks and the insurance companies. The sector is also full of organizations that cater to this core clientele – including legal firms, accounting firms, IT firms, and anything else you think is relevant to helping the bankers and insurers thrive. In short, the industry is really good at hoarding lots and lots of capital and they have constructed a vast Rube Goldberg machine to conduct financial transactions. This means that there are many processes within the financial sector that have been in place since the Jurassic Age and are just ripe for being AI’d.
So, we went to the event to understand what AI is going to mean for the financial sector. And here is our verdict: nobody really knows how AI is going to shape the financial sector in the coming years. Nobody even knows what ‘artificial intelligence’ really means. As you’ll see in some of our startup highlights below, AI applications can include anything from chatbots acting as virtual agents to fraud detection. Essentially, as one participant put it, artificial intelligence is a sleeping giant that is waiting to be summoned in the financial services. Everybody is just waiting and watching to see what this giant is going to look like and who it’s going to take out. We think this is exciting, because it means there’s lots of space for young and aspiring entrepreneurs to step up to the challenge and shake up an industry that has been around for many decades.
‘AI’ just seems to be the latest spin on an industry-wide trend that has been going on for at least a decade
There are a couple of caveats to this sleeping giant business. First, according to some accounts, financial services have seen multiple waves of automation that keeps heating up and cooling down. ‘AI’ just seems to be the latest spin on an industry-wide trend that has been going on for at least a decade and it could fizzle like the last waves of automation. Despite this, everyone we talked to believed that this next wave of automation is going to be different because of unlocked capabilities enabled by current data infrastructure and processing. Second, very little of the data seems to be standardized, making it challenging to convert it into useful information.
Third, entrepreneurs should not assume that their AI idea is going to be adopted by virtue of being AI. We saw many technologies out there that were being pushed onto the industry, but this doesn’t mean that there are necessarily any business problems they will solve. As one participant put it, it seems that the finance sector is where the internet industry was in the 90’s (which BTW is what Amir also heard a lot at the payments summit). If there is anything we remember from internet in the 90’s is that it was followed by the Dot com crash. By the same token, many AI ideas may seem like a good idea because it’s sexy, but their real underlying value could be totally absent.
In order to get a sense of where things will head, we took notes at a startup pitch contest during which 10 companies varying in areas of focus and founder backgrounds presented their ideas to get some cash prize and free consulting services. Despite a lengthy three-hour process, the contest served as a terrific snapshot of the industry’s current hot topics and areas that are drawing appetite for innovation.
2016 was a record year in data breaches
Two main themes became more and more apparent as the pitch competition came to a close. First, it seemed that FinTechs are using AI to streamline customer experience and back-office work. AI helped on this front by improving process efficiency, accuracy and risk management. Applications of AI included regulatory compliance, personalized financial advising, financial management, and insurance services on-the-go. Second, the advent of AI is creating security challenges, so FinTechs need to help the industry to stay ahead of the game by boosting cybersecurity and data protection. This trend is no surprise as 2016 was a record year in data breaches.
The winner of the cup was Kalepso, a cybersecurity startup that is focused on building an impenetrable middle-ware between financial institutions and the cloud. Their product allows users to securely store files and databases while retaining search, retrieval and sharing functionalities. The technology itself is based on years of cutting-edge research at Harvard University. When we asked Ben Brabyn, one of the judges and the Head of Level39, about the rationale behind the decision, he stressed the importance of cybersecurity solutions that deliver on their promises and the size of the potential market. Level39 is the world’s most connected community for finance, cybersecurity, retail and smart-city technology businesses
Here is a short account of the other startups. Hopefully, you’ll see the same themes as us:
- VigilantCS provides a platform to facilitate staff compliance and risk analytics in the financial services industry.
- Sprout operates as a financial coach in your pocket to help you manage your money.
- JAUNTIN’ enables insurance companies to acquire better data on policyholders through proprietary on demand technologies.
- MindBridge Analytics Inc. bridges the gap between human and artificial intelligence by enhancing professional judgment across multiple industries. MindBridge AI introduced the world’s first commercial AI Auditor platform at the end of 2016.
- FI.SPAN purports to be a service management platform that allows banks to deploy new business banking products rapidly.
- Flinks enables Canadian businesses to access their users’ financial data. Flinks powers the world’s greatest financial data aggregator, for the Canadian market.
- Seedlify is inventing a new way to invest in early growth companies through revenue sharing (a.k.a royalties) and a token backed fund.
- Exagens is a chatbot that helps the sector to humanize their digital channels. Chatbots seem to be the future of conversational virtual agents.
The conference was presented by Business Development Bank of Canada. Given it is a major financial institution in and of itself, we were curious about BDC’s appetite for supporting fintech as a technology adopter and not solely as an investor. Members of the BDC team shared they are revisiting procurement policies and areas of efficiency with customer support through the lens of AI solutions. How soon would AI make a significant shift in BDC’s investing practices? Only time will tell.
In any case, we hope you found this information useful. Before we sign off, we wanted to share some exciting news for people who are interested in entering the fintech space. Desjardins announced during the conference that they’ve partnered up with la Caisse to create a $75 million FinTech fund so if you have a solid FinTech idea that’s going to sell, make sure you keep these guys on your radar.