Imagine a big organization with sound processes, a history of excellent R&D and a committed workforce. Invincible. Right? Wrong. Any business like Services, FMCG, Pharmaceuticals, High Technology or even Consulting face a real threat from Fintech companies. They have the potential to undermine big businesses. Let us look at examples of how disruptions are happening.
Lets begin with Pharmaceutical business. Livongo and mySugr are two technology start ups with about 50 employees each. They developed a connected meter that automatically uploads blood glucose readings online. You can carry the meter around like a smart phone and if something is not right, it provides you instant guidance and alerts your doctor and your dear ones. It also keep track of your medicines, diagnostic strips and doctor appointments. It brings patients out of the diabetes shell and helps them fight diabetes as a community. There is a neat network of support for patients. Even Insurance companies are happy to sponsor it because it reduces claims. Everyone wins. Imagine how much relief it brings to someone like my Mom, who is freed from the anxiety of running out of medicines or being unable to reach a doctor when needed. On the other hand, Livongo and mySugr, with marginal cost but a lot of connected patients, garnered more information about patient behavior, drug intake and drug response than the largest diabetes companies or insulin producers have done so far. Logically, they are better prepared to determine the direction of the next new drug and consequently the business. What will big Pharma do?
Example 2. Kaggle is a forum where quant geeks compete to solve challenges hosted by anyone with a quant challenge. In one of the challenges hosted by an insurance company, the solution provided by the community turned out to be 279 times more accurate in predicting claims than the industry has produced in their entire existence. A Fintech company with 50 employees powered by AI and precise actuaries data derived from such crowd solutions can target less risky insurance seekers with cheaper premiums and exclude high risk customers. Incumbent insurance companies who cross subsidize high risk customers with less risky ones will be left with only high risky ones and low premiums.
Example 3. ravn AI systems has AI technology that can organize, analyze and interpret legal contracts and conduct due diligence on a case faster and accurately than the best of the law firms. So anyone with this technology can out-work existing rival law firms with a huge margin without even attending law school. This AI tool can be used for any legal contracts like ISDA, GMRA, GSLA or other financial contracts as well. Are law firms ready for this?
Finally, it would be incomplete without an example from the world of finance and investment. Last year, Hedge fund managers took home $3.8 Billion in fund management fees and the best paid CEO banker of our times Jamie Dimon, took home $28 Million as pay. As expected, the best performing funds use AI advisers who performed better than professional investment managers. To take an extreme example, a Hong Kong based investment firm Deep knowledge investment, has a AI bot as one of the board member. So does Softbank.
Finally, it would be incomplete without an example from the world of finance and investment. Last year, Hedge fund managers took home $3.8 Billion in fund management fees and the best paid CEO banker of our times Jamie Dimon, took home $28 Million as pay. As expected, the best performing funds use AI advisers who performed better than professional investment managers. To take an extreme example, a Hong Kong based investment firm Deep knowledge investment, has a AI bot as one of the board member. So does Softbank.
There are similar and more examples like we discussed above that are disrupting existing businesses. In the next article, I want to explore how to respond to the threat.
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