MARGARIS ADVISORY

Machine Learning in Financial Services

Changing the Rules of the Game
August 2017

Sponsored by SAP

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Content

Introduction 3

Machine Learning 4

Deep Learning 6

Opportunities 7

Financial Services Use Cases 9

Insurance Use Cases 11

Challenges 13

Outlook 15

Conclusion 18

About 19

References 20

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Introduction

The exponential growth of technology advancement leaves most of us in a state of awe or fear
of what is yet to come. Nevertheless, knowing that we cannot stop technological advancement,
or slow it down, we should embrace the opportunities it offers us and adapt accordingly.
We must constantly remind ourselves that adapting to new situations is what helped
humankind to survive and progress to where we are now and where we will evolve to
as humans. What seems to work for humankind and nature should be a guiding light for
corporations and startups.

The technology buzzwords that we increasingly come across in the media and everywhere
else are artificial intelligence (AI) and machine learning and how they will change our lives and
businesses in a way that we cannot yet imagine. If you look at the latest study by Accenture
The impact of AI on profits Research, “How AI Boosts Industry Profits and Innovation,”1 it shows the significant impact
by industry AI will have on industries, economic growth, and productivity. For instance, the report states
Share-of-profit increase per that industries that embrace AI could improve their profitability by an average of 38%
industry between baseline in 2035 (31% in the financial services sector) by 2035 and could lead to an economic boost of
and AI steady state in 2035 (%) US$14 trillion in additional gross value added across 16 industries in 12 countries.

84% 74% 71% 59% 55% 53% 46% 44%

Education Accommodation Construction Wholesale Healthcare Agriculture, Social Transportation
& Food Services & Retail Forestry & Fishing Services & Storage

39% 36% 31% 27% 26% 24% 17% 9%

Manufacturing Other Financial Public Arts, Entertainment Professional Information & Utilities
Services Services Services & Recreation Services Communication

Source: Accenture and Frontier Economics -
How AI Boosts Industry Profits and Innovation. (2017) 2
With the explosion of big data, it becomes a must for companies to take advantage of
information by using sophisticated machine learning algorithms to find ways to gain a
competitive advantage. Businesses that do not embrace AI and machine learning to learn
from the data “experience” will lose out to competitors large and small that do take
advantage of the many advantages that the technologies offer.

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Machine Learning

Most of us are already exposed to AI and machine learning technology in our daily lives,
even if we do not notice it. Machine learning is used everywhere, from tech companies like
Google, Facebook, SAP, and Amazon to the financial sector, and the autonomous vehicle
industry to personal assistants like Apple’s Siri and Amazon’s Alexa.

Companies try to make sense of the enormous amount of data they collect to improve their
work processes, stay competitive, and provide a better business proposition for their clients.
AI was first introduced in the 1950s and has experienced several hype cycles. The new
possibilities provided by powerful supercomputers, big data, and machine learning algorithms
allow for new business opportunities and a justification for the current AI and machine
learning hype.

1950s
In order to understand what helped propel AI to be the top focus for so many companies,
media channels and investors, our attention must be directed at machine learning.
Many people seem to believe that AI and machine learning are the same. However, this is
not the case.
AI was first introduced in the
1950s and has experienced
Think of AI as computer intelligence, or in other words, machines that try to simulate (or one
several hype cycles
day to exceed) human intelligence and perform tasks cheaper, faster, and better than humans.
AI has been around for a long time, but it is the explosion of data, computing, and analytics
power that has brought the new opportunities - previously envisioned only by scientists and
science fiction writers - that are now increasingly becoming realities.

Machine learning is a subfield of AI that allows computers to automatically learn from data
without being explicitly programed and then act accordingly. Through machine learning
algorithms, computers can analyze enormous amount of data, find hidden insights from
past experiences, and then use the information to continuously adapt to or prepare for new
situations and predict outcomes. It is the machine learning algorithms that make AI-enabled
machines more “intelligent” over time by learning from data.

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Machine Learning

It was Arthur Samuel who first coined the phrase “machine learning” in 1959, and he
defined it as a “Field of study that gives computers the ability to learn without being explicitly
programmed.”3

The AI and machine learning possibilities of today have increased along with the development
of powerful analytics that can deal with the explosion of data gathered, for instance, through
smartphones, social networks and Internet of Things (IoT) devices, and the computing power
that propels the analytics to new heights.

1959
Types of Machine Learning Algorithms
When we look at machine learning, we find there are four types of algorithms, namely
supervised, unsupervised, reinforcement, and semi-supervised learning, of which supervised
It was Arthur Samuel who first learning is the most widely used, followed by the unsupervised method.
coined the phrase “machine
In Supervised Learning, the agent observes some example input-output pairs and learns
learning” in 1959
a function that maps from input to output.4 Items in the training dataset are given meaningful
labels that are informative or desirable to know. Examples include classification and regression.

In Unsupervised Learning, the agent learns patterns in the input even though no explicit
feedback is supplied. The most common unsupervised learning task is clustering: detecting
potentially useful clusters of input examples.5

In Reinforcement Learning, the agent learns from a series of reinforcements — rewards or

punishments.6 The reward enables the agent to assess how good a given state is and attempt
to attain the optimal state.

Furthermore, a class of supervised learning – termed Semi-Supervised Learning –

exists that uses a combination of unlabeled and labeled data for training purposes.

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Deep Learning

A subfield of machine learning – known as deep learning – has become a fundamental part
of the “AI” revolution in recent years. Deep learning is inspired by the human brain and is
based upon artificial neural networks. It does not exactly replicate the human brain, but rather
focuses on learning data representations with supervised, semi-supervised, or unsupervised
learning.

Deep learning has been behind many of the recent exciting AI developments in computer
vision (for example with object detection), text, and voice recognition. The breakthroughs
have included enhanced early stage detection of cancer and usage in autonomous cars.
When Google’s AlphaGo beat the top GO grandmaster, it used deep learning algorithms
(combined with reinforcement learning) that trained by being fed enormous amounts of data
and playing the game against itself.

Deep learning is inspired by the Deep learning techniques can provide higher levels of performance relative to other algorithms
human brain and is based upon but require large amounts of data to be effective. The figure below by Andrew Ng illustrates7
artificial neural networks how deep learning is useful for big data.

Why Deep Learning?

Deep Learning
Performance

Older Learning
Algorithms

Amount of Data
How do data science techniques scale with amount of data?

Source: Andrew Ng (November 2015).
What data scientists should know about deep learning.8
All tech companies, from Amazon, Google, SAP, and Apple to many other small to large
companies, are committed to deep learning. Image and speech recognition are playing an
increasingly important role in serving clients that are growing increasingly accustomed to,
and demanding, improved speech recognition – witness the increasing popularity of
personal assistants like Amazon’s Alexa.

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Opportunities

The possibilities of AI and machine learning are too numerous to try to predict at this point.
However, businesses have already started to implement and identify use cases.
A recent report by the McKinsey Global Institute shows the potential of machine learning
across industries and opportunities.

Agriculture Automotive Consumer Energy

Finance Healthcare Manufacturing Media

Pharmaceuticals Public/social Telecom Travel, transport,

Volume and logistics
Breadth and frequency of data

Lower priority Higher potential

10
Identify Personalize
Personalize
9 fraudulent financial
advertising
transactions products
8 Identify and
Personalize crops to Discover new navigate roads
7 individual conditions consumer trends
Predict personalized
6 health outcomes

5 Optimize merchandising strategy Optimize pricing

and scheduling
in real time
4 Predictive
maintenance Predictive
3 (manufacturing) maintenance
(energy)
2
Diagnose diseases
1
Case by case
Optimize clinical trials

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9

Impact score

Source: McKinsey Global Institute – What’s Now and Next
in Analytics, AI, And Automation. (May 2017)9
The McKinsey Global Institute report, “A Future That Works: Automation, Employment,
And Productivity”10, also details which sectors will likely see the fastest adoption of AI.
The financial services sector has been one of the earliest adaptors of AI and machine learning.
For instance, banks increasingly use machine learning to predict fraud and run credit risk
assessments that make better investment decisions.

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Opportunities

AI Index Relatively low Relatively high

Assets Usage Labor

MGI Digitization Index 1

Product development

Customer experience

Financial and general

Supporting digital

Supply chain and

Exposure to AI in

AI resources per
Overall AI Index

management

management
technologies

distribution
Depth of AI

Operations

Workforce

workforce
AI spend

worker
assets

High tech and

telecommunications
Automotive and
assembly

Financial services

Resources and
utilities
Media and
entertainment
Consumer
packaged goods
Transportation
and logistics

Retail

Education

Professional
services

Healthcare

Building materials
and construction

Travel and tourism

Source: McKinsey Global Institute (June 2017). A Future That
Works: Automation, Employment, And Productivity.11
There is no industry that will not benefit from taking advantage of data and machine learning
algorithms. The use-cases are too numerous to list - from speech recognition to chatbots,
and from customer relationship management software to search engine results and business
decisions. We will highlight certain banking and insurance use cases in the following section.

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Financial Services Use Cases

Asset Management
Asset management firms benefit from machine learning capabilities by uncovering insights
from the many, varied data sources they possess. Machine learning allows them to arrive at
better investment decisions or provide enhanced client recommendations. Consequently, the
asset management industry must harness the potential of machine learning to stay competitive
and reduce operating costs. In an increasingly competitive investment environment caused,
for instance, by less expensive ETF offerings and robo-advisors, AI and machine learning are
welcome technology partners. Hedge funds also use AI and machine learning algorithms to
find favorable trading patterns.

Investment Banking
An interesting development is happening at the investment bank, Goldman Sachs, which plans
to use AI and machine learning to automate, or at least streamline, the initial public offering
process. The initiative will free up talent within the organization to engage in more significant
work and, of course, increase the bank’s profit potential.

Chatbots
Robots such as Pepper, or chatbots, act as virtual assistants and are increasingly being deployed
by financial institutions for marketing and sales purposes. It is the increasing capabilities of AI,
machine learning, deep learning, and speech recognition that allow robots and chatbots to
communicate and interact in an almost human-like manner with bank customers.

Chatbots, with the amount of customer data they collect over time, will eventually become
better at understanding customer habits and needs than most humans. The cost savings
associated with virtual assistants through decreasing expensive manpower are huge. We must
say here, though, that the hybrid model of chatbots and human interaction with consumers
seems at this point to be the most successful proposition.

Learning from E-commerce and Retail

In a highly competitive market, like e-commerce and retail, where the price of goods is often
one of the deciding factors when consumers make a purchase, it pays for sellers to be able to
calculate the most competitive price for merchandise and the right time to offer it.

E-commerce and retail players know that using AI and machine learning algorithms to predict
pricing is a must to stay ahead of the competition and maximize gains. The algorithms they use
take into consideration large data sets about pricing trends, supply and demand, consumer
behaviors, and product ratings and reviews.

What works for e-commerce and retail can be applied to bank offerings that are becoming
highly commoditized through competition. For example, banks could more accurately price a
mortgage loan or a personal line of credit.

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Financial Services Use Cases

Recommendations
In order for Amazon, Netflix, Spotify, and Google to recommend personalized offerings to their
customers, they use machine learning algorithms and predictive analytics. They assist these
companies through comparing customer preference information, such as music choices,
with millions of other consumers to increase profits and sales. Recommendation engines are
getting smarter with time, and new data is constantly being used to fine-tune and adjust them,
taking into account customers’ changing preferences and needs. Investment banks,
like JPMorgan, also use recommendation engines to provide even more customized stock buy
or sell recommendations.

Risk Management and Fraud

 Machine learning lends itself perfectly to analyzing the enormous amount of data that financial
institutions amass. It is utilized, for instance, to better evaluate credit risks, detect fraud and
money laundering, and improve compliance. Machine learning algorithms can enhance the
evaluation of unusual activities and patterns and flag a potential fraud case to be reviewed.

Of course, AI and machine learning are not perfect yet. When it comes to flagging issues they
identify a large number of false positives or, in other words, they identify risks that are in reality,
not risks. However, as time passes, AI and machine learning will reduce false positives to an
acceptable level. The fact that AI and machine learning can help avoid or more quickly discern
certain business risks aids financial institutions in avoiding or diminishing potentially significant
losses or penalties. As criminals become more sophisticated, companies need to keep up with
technological advancement in order to combat them effectively.

Investment banks, like JPMorgan, also use recommendation engines to

provide even more customized stock buy or sell recommendations.

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Insurance Use Cases

Autonomous Cars
Autonomous (self-driving) cars need cameras, sensors, and computing power to gather and
transmit a huge amount of data in order to provide a safe ride. As such they are a great example
of a machine learning use-case.

Although we are not there yet when it comes to having a fully autonomous car driving experience
for the masses, industry leaders such as Google, Tesla, Uber, and other big automakers have
progressed further towards fully autonomous cars than most of us envisioned just a few years ago.

As we collect more data from autonomous car experiments, machine learning will undoubtedly
assist the industry to reach the point where a driver’s attention is no longer required, which
translates into going from level 4 (high automation) to level 5 (full automation under all conditions)
autonomy.

The effect of the autonomous car industry on the insurance sector will be painful and very
disruptive as there will be, for example, fewer accidents, less car ownership, and a loss of the need
for certain insurance cover. Nevertheless, this threat can help force the industry to look for new
opportunities and, therefore, stimulate innovation initiatives.

Claims and Fraud

Two of the most expensive business factors in the insurance sector are claims and fraud. Machine
learning can improve claims handling and better detect potential instances of fraud (see also Risk
Management and Fraud in the Financial Services Use Cases section). Not only will claim processes
be enhanced through the use of AI and machine learning, insurers will also realize enormous
savings by eliminating false claims or fraud. With time and more data being gathered by insurers,
client claims will be addressed faster and more efficiently, thereby elevating customer satisfaction.

Cyber Security
With the massive amount of data being generated and transmitted by Internet of Things (IoT)
devices, smartphones, and social media networks, we are becoming more and more vulnerable
to cyber attacks. Machine learning algorithms can most definitely help protect companies from
cyber attacks by alerting them to potential breaches. It would be impossible for humans to analyze
and monitor such a huge volume of data to determine malicious activity without such tools.
Nevertheless, machine learning still needs the human element in order to better protect against
cyber attacks, because of the large amount of false positive alerts.

Cyber security efforts will never end as both sides – companies and hackers – are leveraging
AI and machine learning technology. Cyber security ultimately aims to make it more difficult for
hackers to break into systems so that, in the end, they might seek an easier target. The issuing
of cyber insurance is rising rapidly and the market potential, although still relatively small at
an estimated value of $3-4 billion per annum, is enormous and likely a very profitable area for
insurers if premiums and risks are correctly managed.

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Insurance Use Cases

Life Insurance
The great popularity of smart devices, such as the Apple Watch or Fitbit, produces enormous
amounts of customer data that can only be analyzed via machine learning algorithms. The data
amassed from these smart devices can be employed by insurers, for instance, to reward wearers
of the devices with lower insurance premiums and entice others to live a better life style so they
can also take advantage.

Telematics/Insurance


To analyze all the data that the telematics black boxes in cars produce, insurers must leverage AI
and machine learning algorithms. The benefit of being able to better price car insurance policies
through telematics is obvious for all insurers. Nevertheless, the insurance industry must find a
way to entice people to give up some of their privacy in order to reduce coverage rates.

Italy seems ahead of other nations when it comes to pre-installed telematics black boxes, though
other countries will follow as the savings on insurance premiums in return for providing personal
driving data is growing into a more attractive proposition for many clients.

Underwriting/Insurance


Underwriting is well-suited to take advantage of what AI and machine learning has to offer.
Machine learning algorithms can digest the huge amount of data that is involved in pricing
a policy, setting prices more objectively and rapidly than humans ever could.

Furthermore, more than ever insurers need to be able to customize insurance coverage premiums
based on individual customer requirements at the appropriate time. Pay-as-you-go policies will
permit companies to insure customers when, for example, they want to become engaged in
a sports activity, like parachute jumping, for which they are not yet insured. The insurance gap
for people that are not insured but would like to be for a specific moment or period is a huge
opportunity for insurers.

FINTECH AND INSURTECH

Machine learning is a key technology for many fintech (financial technology) and insurtech
(insurance technology) startups that compete against the established financial players
with more resources – such as money, data, and clients. The startups use machine learning
algorithms to build better credit risk models, predict bad loans, detect fraud, anticipate financial
market behavior, improve customer relationship management, and provide more customized
services to their clients.

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Challenges
It does not help the AI industry
in the public’s eyes that some of
the brightest and most influential
minds, namely Elon Musk,
Bill Gates, and Stephen Hawking,
have voiced some serious
concerns about AI
Machine Learning in Financial Services: Changing the Rules of the Game
MARGARIS ADVISORY
The biggest challenges for AI are not the costs, computing power, or technology. The biggest
concerns that the AI industry needs to address will be lack of trust, privacy concerns, and the
fear that AI will cause job losses.
Trust
People fear what they do not know. The great possibilities of AI and machine learning, on the one
hand, fascinate many of us. However, they also scare us because many questions arise, such as
“Can we control AI?”, “Will AI act ethically?”, and “Can we trust our data to AI?” These are issues
that cannot be answered easily, because the development of AI and machine learning possibilities
are still at an early stage and the expert predictions of how fast AI will advance vary widely.
It does not help the industry’s standing in the public’s eyes that some of the brightest and most
influential minds, namely Elon Musk, Bill Gates, and Stephen Hawking, have voiced some serious
concerns about AI. All three emphasize the need to control the development of AI to protect
humankind.
Nevertheless, the potential of AI and machine learning to have a positive effect on our lives will
likely outweigh the valid and critical concerns we hear. So, with time and positive AI experiences,
the public will subconsciously and consciously embrace AI as something worthy and useful to
improve their lives.
The reality is that a concept known as artificial general intelligence, whereby machines can match
humans on tasks that entail common sense, knowledge, learning, and reason remains distant for
now. The current wave of AI is more focused on narrow tasks, with machine learning techniques
crunching away at data.
Privacy
What companies can do with the data they collect depends on laws set by regulators and by the
rights that individuals permit. For instance, the European Parliament has put in place tough rules
and regulations to protect its citizens’ digital and privacy rights with the General Data Protection
Regulation (GDPR) that will come into effect in May 2018. Companies that breach GDPR can be
penalized with fines of up to 4% of their annual turnover, which should be incentive enough for
most to comply with the regulation. GDPR will likely also have an impact on a global scale because
other nations will consider implementing similar laws to adapt to a new technology world with
new privacy needs for their citizens.
For many people sharing their personal data is not an issue – as long as they benefit in some way
from the company that collects the data. Companies must make sure the collected data is safely
stored because consumers are very sensitive about any cyber security breaches that expose their
data to third parties, especially criminals.
Most of us do not mind, for instance, that Google or Spotify collect data as long as we get
information or a song playlist in return. However, in the end, if a company breaches privacy rights,
the regulators and the consumer will act accordingly, one with a penalty and the other by leaving.
Both actions are painful for companies and, therefore, they will try to avoid the consequences of
a privacy breach.
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Challenges

Jobs
The vote is still out about whether AI will create or destroy more jobs, but regardless of the future
outcome, it will change our lives and businesses forever. The fact that people will likely live longer,
maybe even to 100 years old, scares many people, as they think, due to AI, there will be no jobs
for them to save up enough money for their retirement.

According to the McKinsey Global Institute report “A Future That Works: Automation,
Companies and society must Employment, And Productivity,” it will be likely that half of today’s work activities could be
prepare to adjust to the new automated by 2055. A subnote to this prediction is that McKinsey says that this job automation
automation environment by prediction could happen 20 years earlier or later. The report also shows that no profession is
learning new skill sets and safe from automation – it will affect blue-collar as well as white-collar workers – but, of course,
investing in education some professions will be affected more, as can be seen in the chart below.12

While few occupations are fully automatable, 60% of all occupations

have at least 30% technically automatable activities
Technical automation potential
%
<5% of occupations consist Activities with highest
100 of activities that are automation potential:
90 100% automatable Predictable physical activities 81%
80 Processing data 69%
70 Collecting data 64%
60
50 About 60% of occupations have
at least 30% of their activities
40 that are automatable
30
20
10
0
0 10 20 30 40 50 60 70 80 90 100
Share of roles – 100% = 820 roles

Source: McKinsey Global Institute – A Future That Works:
Automation, Employment, And Productivity. (January 2017) 13
Companies and society must prepare to adjust to the new automation environment by learning
new skill sets and investing in education. Automation will not only destroy jobs, it will also create
new opportunities and new high demand jobs with new skill requirements. Governments must
find a way to ensure that people who cannot adapt to an increasingly automated world are
looked after in some form to avoid potential social unrest. Governments could help, for instance,
by paying people a minimum wage regardless of whether they work or not, but an even better
solution would be to help them learn new skill sets that are needed in this increasingly fast
changing world. If trust, privacy, and job fear are addressed with credible solutions and benefits,
people will increasingly be open to what AI and machine learning have to offer, and they will
decreasingly resist the change that will come regardless.

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Outlook

Most companies now use AI and machine learning primarily to save money. However, AI and
machine learning will increasingly be used to produce superior and more affordable customer
offerings by providing customized solutions for individual needs.

Imagine if one day we use AI and machine learning to look at business models as a game.
If this were the case, the logical conclusion would be that AI would be better at developing
new business models than we are or reimagine new ways of doing business.

AI already beats us at chess, Go, and poker, the last of which requires bluffing. The big win of
the AI poker bot, called Libratus, over some of the best poker players was such a big deal,
Will Knight expressed its importance in an MIT Technology Review article:14

“Is my organization preparing, or “Poker requires reasoning and intelligence that has proven difficult for machines to imitate.
is it prepared, to take advantage It is fundamentally different from checkers, chess, or Go, because an opponent’s hand remains
of what AI and machine learning hidden from view during play. In games of ‘imperfect information,’ it is enormously complicated
have to offer? to figure out the ideal strategy given every possible approach your opponent may be taking.”15

Poker requires reasoning and intelligence that has proven difficult

for machines to imitate.

It is only a question of time before new businesses, for instance banking or insurance firms,
with superior business models, pop up and are utilized by large incumbents as well as small
fintech or insurtech startups to compete in the banking or insurance sectors. Obviously,
this “AI game,” so to speak, can apply to any business imaginable.

Another interesting note was the report16 by the Facebook Artificial Intelligence Research lab
that it used machine learning to train its bots to negotiate deals. At one point, the researchers
were forced to adjust the machine learning models because the bot-to-bot conversation “led to
divergence from human language as the agents developed their own language for negotiating.”
The bots actually created a language of their own!

Therefore, it is important to always ask yourself: “Is my organization preparing, or is it prepared,

to take advantage of what AI and machine learning have to offer?” AI and machine learning
will give those organizations that master them a competitive edge. Today the industry can still
benefit from customer loyalty but, as these technologies take hold, it will get harder and harder
to stand out.

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Outlook

Investments
It helps to look at some numbers to see that more and more companies and investors are
committing to AI and machine learning technology. The latest report by Venture Scanner shows
that the tech giants and the venture capitalist industry have recognized the AI trend and have
backed it with some serious startup funding.

35%
Many companies are dedicating increasingly large amounts of money to AI investments, so as not
to miss out on the opportunity to gain a competitive advantage. Startups must realize, though,
that the window of opportunity to attract venture capitalist money for AI will not last forever.
Machine Learning Applications
category accounts for 35% of
venture funding

Source: Venture Scanner – Artificial Intelligence Startup

Market Trends and Insights. (April 2017) 17

The Venture Scanner research also shows that machine learning applications attract the biggest
portion of AI investments by venture firms. As shown below, the Machine Learning Applications
category accounts for 35% of venture funding and 25% of the total companies in the artificial
intelligence sector.

7 600
VC Funding Count
6 500
5
Total Funding ($B)

Company Count

400
4
300
3
200
2
1 100

0
ts
s

l
g

ro
ot

sin

an

nt
ob

ist
es

Co
tR

oc

ss

e
ar

lA
Pr

ur
Sm

ua

st
ge

Ge
rt
a
gu

Vi
an
lL
ra
tu
Na

Source: Venture Scanner – Artificial Intelligence Startup

Market Trends and Insights. (April 2017) 18

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Outlook

Predictions
We are still in the very early stage of AI potential. The exponential growth of technological
progress makes it very hard for us to grasp the possibilities of AI, machine learning, or any other
technological advancement and, therefore, makes it difficult to make any accurate technology
predictions.

50%
Jack Ma, founder and executive chairman of the Chinese e-commerce Alibaba Group, describes
a likely AI future scenario in the statement he gave to CNBC (the business news television
channel) at the Gateway 17 conference for entrepreneurs in Detroit (June 2017):
The results showed that
researchers think that there is a “People [will] only work four hours a day and maybe four days a week. My grandfather worked
50% chance of AI outperforming 16 hours a day in the farmland and [thought he was] very busy. We work eight hours, five days
a week and think we are very busy.”19
humans in all tasks in 45 years
and that it will eventually
We will have to wait and see if Jack Ma’s prediction on the effect of AI and jobs comes true.
automate all human jobs in
Even AI experts vary widely on how fast they believe AI will progress to the point where it
120 years
outperforms humans in most activities. In a recent survey, 352 machine learning experts
were asked to predict when AI will progress to the point that it outperforms humans or,
in other words, when High-Level Machine Intelligence (HLMI) (AI that is better and cheaper
than humans), will be achieved. The results showed that researchers think that there is
a 50% chance of AI outperforming humans in all tasks in 45 years and that it will eventually
automate all human jobs in 120 years. It was notable that the Asian respondents anticipate
these dates much sooner than North Americans.20

1.00

0.75
Probability of HMNI

Aggregate
0.50 Forecast (with 95%
Confidence Interval)
Random subset of
0.25 individual forecasts

LOESS

0.00
0 25 50 75 100
Years from 2016

Source: When Will AI Exceed Human Performance?

Evidence from AI Experts. 21

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Conclusion

We have only scratched the surface of how AI and machine learning will impact our lives and
business. And it is difficult to predict what developments there will be in the future.

However, it is clear that companies must take a deep dive into the world of AI and machine
learning – not just to study it but to use it as well – so as not to be left behind by their
competitors and, most importantly, by their clients. If you do not adapt fast, your competitors
will, because they know that it is an opportunity to surpass you and, most importantly,
to succeed.

Companies and people must invest in education and learn new skill sets to take advantage of
the opportunities AI and machine learning will bring. We can be optimistic about a bright future
Companies and people must for humans and AI where they both create a win-win situation.

invest in education and learn

In closing here is an anecdote about the paradox of automation, which relates very much to
new skill sets to take advantage
the AI/machine learning development we see emerging and should make us optimistic about
of the opportunities AI and
embracing technology such as AI, machine learning, and its impact on our lives and future.
machine learning will bring
When the leader of the US automobile workers union, Walter Reuther, visited a newly built
Ford Motor Company factory in November 1953, a company official proudly pointed to some
new automatically controlled machines and asked Reuther, “How are you going to collect
union dues from these guys?”

Reuther replied, “How are you going to get them to buy Fords?”

AI, together with machine learning, has the potential to unleash the implied
and envisioned promise of AI helping humankind as far as our imagination
will take us.

Machine Learning in Financial Services: Changing the Rules of the Game 18

 MARGARIS ADVISORY

About

Venture capitalist and advisor, Spiros Margaris, is the founder of MARGARIS ADVISORY. He is
one of the foremost global thought leaders and experts in the fields of fintech and insurtech.
Margaris is globally ranked the No. 1 fintech and No. 2 insurtech influencer by Onalytica and
regularly appears in the top three positions in several industry rankings. He is also ranked
worldwide the No. 11 AI influencer by Jay Palter Social Advisory.

Having launched two startups in New York, including a pioneer in what would now be termed
fintech, Margaris believes that his banking, money management, and entrepreneurial
experience help him better understand the challenges that the financial industry faces and
devise and support innovative solutions.

Margaris is a frequent speaker at international fintech and insurtech conferences, and he

publishes articles on his innovation proposals, inspirations, and thought leadership. Among
Margaris is globally these articles are “We Were Kings”, “The Fintech Agent”, “Efficient Banking” and “The Future
ranked the No. 1 fintech of Fintech. A Combination of Barbarella & 2001: A Space Odyssey”. He contributed one of his
and No. 2 insurtech innovation proposals, “The Fintech Supermarket,” to The FINTECH Book published in April 2016
influencer by Onalytica by Wiley.

Margaris is a frequent speaker at international fintech and insurtech

conferences, and he publishes articles on his innovation proposals,
inspirations, and thought leadership.

MARGARIS ADVISORY
Lochstrasse 25 B
9404 Rorschacherberg (SG)
Switzerland

Telephone + 41 71 244 30 65
www.MargarisAdvisory.com
contact@MargarisAdvisory.com

Author: Spiros Margaris

Linkedin: https://www.linkedin.com/in/spirosmargaris/
Twitter: @SpirosMargaris

Machine Learning in Financial Services: Changing the Rules of the Game 19

 MARGARIS ADVISORY

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http://www.cnbc.com/2017/06/21/alibabas-jack-ma-says-in-30-years-people-will-only-work-4-hours-a-day.html

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