Kathy Gibson is at SingularityU Exponential Finance Summit in Cape Town – In an exponential world, new and exponential business models are coming to the fore and, in this environment, a new term – exonomics – is becoming more relevant.
Amin Toufani, CEO of T Labs and chair of finance at SingularityU (SU), has developed the exonomics framework.
He believes there is a number of business models that will be extremely disruptive to the financial industry.
He cites Ant Financial as an example. An independent spin-off from Alibaba, it has become the world’s largest fintech. On the other side of the coin, Bank of America – a 95-year old incumbent leader.
Comparing functions performed by the two organisations, loans take seconds compared to weeks; investment of inactive capital is instant compared to never; there is a minimum balance of 14 cents required compared to $3-million; and the primary business model is platform versus products. Bank of America has 70-million customers while Ant Financial has 700-million.
In fact, in 2019, Ant Financial was twice the size of Goldman Sachs and last year raised more that all the fintech companies in the US and Europe combined.
Traditional banking still works with paper statement, customers need to carry cash, branch managers still need to get involved, customers still have to go into a branch – and branches are still a thing, Toufani points out.
“We think the next decade will be remembered for four key developments: supremacy quantum, blockchain, solar and artificial intelligence (AI),” he says. “We think these four will happen before 2030, and think there will be a point of convergence around 2025.”
The financial sector is characterised by banking, asset management and insurance – but there is nothing in these sectors that cannot be automated, he adds.
In the near future, we will see accountability via blockchain, automation via AI and optimisation via quantum computing – what Toufani calls the BLAIQ-Net.
“The BLAIQ-Net will speak finance and insurance natively.”
“To survive we need to start by re-imagining what will happen in the future.”
He sees a future where financial organisations are able to get involved in many aspects of customers’ lives – with decisions and transactions taking pace without human intervention.
Toufani believes the finance sector has got too comfortable with being at the centre of its universe. “The customer needs to be at the very centre,” he says.
“You need to understand your customer is juggling many balls – and need 10-times faster, cheaper, easier and predictive services.
“In fact, if you are not moving to this goal, you are not thinking big enough.”
To enable innovation in this direction, he recommends that organisations aim to capture digital twins, focusing on people, property and information.
“And the moment you have this, open it up. Move away from a product and service model towards a platform model. Let other organisations use the platform – because you have the digital twin.”
To do this, he recommends hiring people who are “trilinguals” – people who can speak digital science, coding and AI, and the job they are being hired for.
“Progressively, in working with the financial sector, we are noticing that companies are only hiring trilinguals.”
Once the digital twin tracker for people, property and information is in place, an organisation can become a digital data aggregator, a continuous data modeller, a risk manager and repackager, and network effect enabler.
The big issue for financial organisations, he adds, is that new competitors are becoming apparent – and they are often outside of the industry.
These are organisations that are disrupting the industry.
Typically, though, they are entering an environment where incumbents have lobbied successfully to create an unfriendly environment for innovation.
This means they have to build an exponential business model, Toufani points out.
The key drivers of value in this environment are being virtual digital connected, just in time delivered, and hyper customised.
To price this value, he urges disruptors to adopt dynamic pricing in order to reach the biggest possible market.
Nano-economics allows the measurement of incremental economic value creation, Toufani says.
“At the core of the nano-economic revolution is another revolution: that of nano-transactions.”
Cryptocurrencies are well placed to play in this environment – it’s a currency, a commodity and a public ledger. It is deflationary, volatile, highly secured and with no trusted middlemen.
“the blockchain is what enables cryptocurrency,” Toufani says. The blockchain allows us to bypass the traditional transactional steps of trust and enforcement.
“It allows us to have transaction with individuals and entities we do not know, and the transaction is settled automatically.”
There are a few areas where businesses can play: as content providers, as products or services, as platforms, or as ecosystems.
“To this day, we have only found one example of an ecosystem: WeChat in China,” Toufani says.
The S&P500 has seen many product companies entering the index recently, while platform and ecosystem companies have entered.
To transition from a product to a platform company, Toufani recommends that organisations ask themselves how to make the lives of oompetitors easier. You might forgo short-term profit, but you could end up as the de facto platform for the industry.
Even further up the value chain is the concept of the operating system, where platforms effectively merge into the background and become invisible to users.
The dynamics essential to achieve an exponential system are highly adaptable, highly scalable and highly self-manageable.