Demystifying Investing: The Power of Digital and Generative AI

With an audience of fintech enthusiasts, I am probably preaching to the choir, but investing your excess savings remains critical to preserving and hopefully increasing the buying power of your hard-earned money. Unfortunately in practice, this is easier said than done.

After years of great enthusiasm, investments in robo-advisors seem to be returning, despite the hype of AI and its clear link with this technology. At the same time specialized digital trading platforms like Robinhood, Webull, E-Trade or eToro offer an excellent user experience, but often remain a bridge too far for the average investor, who occasionally invests relatively small amounts via their regular bank. And good advisory services still target mainly the happy few, as the costs are too high to offer to the masses.
As a result, the occasional, amateur investor, who doesn’t want to spend too much time on his investments, often ends up buying the "Fund of the Month" offered by their bank or invests a large amount in a single stock they believe will perform well.

This is clearly not an ideal situation for a substantial group of customers, probably even the majority of investors. The solution, in my opinion, lies in self-directed investing supported by digital advice. Contrary to robo-advice, where there is a strong push towards specific investments, the initiative here lies with the customer, but they are digitally guided and supported with their investments in a very intuitive way. This can be achieved in three ways:

Intuitive and Graphical Representation of current portfolio: Providing a clear visualization of the customer’s current portfolio and the issues associated with it, such as incompatibilities with the customer’s risk profile and investment objectives, issues with knowledge and appropriateness of certain investments, or specific market risk issues like overexposure to a particular country, sector, currency, or issuer.
Support in Security Selection: Summarizing and graphically representing the characteristics of securities and the financial results of the underlying companies. This includes easy comparison between different securities, highlighting key aspects, and summarizing the underlying company in a personalized way, focusing on elements that matter most to each specific customer.
Impact Visualization of Investment Decisions: Showing the impact of specific investment decisions on the portfolio, such as the effect on diversification, the impact on Value at Risk (VaR) by graphically showing the correlation of the investment with existing positions, or a graphical representation of the possible variation in future value (maximum loss and gain) based on historical data.

Many of these representations can be based on precise algorithms (e.g. calculating correlations or VaR), but a significant part requires interpretation of unstructured data and needs to consider the personal preferences of the investors, ideally derived from the user’s past behavior. Additionally, to visualize these insights intuitively and engagingly, it’s important to make use of multimedia, such as pictures, animations, videos, and audio. These media are easier for end customers to consume, but in the past, their generation was very time-consuming and expensive. This limited their use, often resulting only in generic, one-size-fits-all content, which was not very relevant to the specific investment situation of each customer.

The rise of generative AI can significantly help here. Generative AI is becoming increasingly multi-modal, and the results improve daily. Today, it is already possible to generate high-quality pictures (e.g. DALL-E, Midjourney…) or videos (e.g. Sora AI, Synthesia, InVideo…) with a simple prompt. As the media generated for different customers can follow predefined templates, even better results can be obtained by limiting the degree of free generation with templates and constraints. A very interesting example of such AI-generated investment advice content is Zeed (https://zeed.ai), which offers a B2C investing platform, but recently saw a surge in interest to license their AI software solution to banks and Fintechs. In a world where AI seems to be used for everything, even when the added value is limited, this story is refreshing as the use of AI can truly elevate investment advice to the next level.

Comments

Transforming the insurance sector to an Open API Ecosystem

1. Introduction "Open" has recently become a new buzzword in the financial services industry, i.e. open data, open APIs, Open Banking, Open Insurance …, but what does this new buzzword really mean? "Open" refers to the capability of companies to expose their services to the outside world, so that external partners or even competitors can use these services to bring added value to their customers. This trend is made possible by the technological evolution of open APIs (Application Programming Interfaces), which are the digital ports making this communication possible. Together companies, interconnected through open APIs, form a true API ecosystem , offering best-of-breed customer experience, by combining the digital services offered by multiple companies. In the technology sector this evolution has been ongoing for multiple years (think about the travelling sector, allowing you to book any hotel online). An excellent example of this

Are product silos in a bank inevitable?

Silo thinking is often frowned upon in the industry. It is often a synonym for bureaucratic processes and politics and in almost every article describing the threats of new innovative Fintech players on the banking industry, the strong bank product silos are put forward as one of the main blockages why incumbent banks are not able to (quickly) react to the changing customer expectations. Customers want solutions to their problems and do not want to be bothered about the internal organisation of their bank. Most banks are however organized by product domain (daily banking, investments and lending) and by customer segmentation (retail banking, private banking, SMEs and corporates). This division is reflected both at business and IT side and almost automatically leads to the creation of silos. It is however difficult to reorganize a bank without creating new silos or introducing other types of issues and inefficiencies. An organization is never ideal and needs to take a number of cons

RPA - The miracle solution for incumbent banks to bridge the automation gap with neo-banks?

Hypes and marketing buzz words are strongly present in the IT landscape. Often these are existing concepts, which have evolved technologically and are then renamed to a new term, as if it were a brand new technology or concept. If you want to understand and assess these new trends, it is important to reduce the concepts to their essence and compare them with existing technologies , e.g. Integration (middleware) software ensures that 2 separate applications or components can be integrated in an easy way. Of course, there is a huge evolution in the protocols, volumes of exchanged data, scalability, performance…, but in essence the problem remains the same. Nonetheless, there have been multiple terms for integration software such as ETL, ESB, EAI, SOA, Service Mesh… Data storage software ensures that data is stored in such a way that data is not lost and that there is some kind guaranteed consistency, maximum availability and scalability, easy retrieval and searching

IoT - Revolution or Evolution in the Financial Services Industry

1. The IoT hype We have all heard about the "Internet of Things" (IoT) as this revolutionary new technology, which will radically change our lives. But is it really such a revolution and will it really have an impact on the Financial Services Industry? To refresh our memory, the Internet of Things (IoT) refers to any object , which is able to collect data and communicate and share this information (like condition, geolocation…) over the internet . This communication will often occur between 2 objects (i.e. not involving any human), which is often referred to as Machine-to-Machine (M2M) communication. Well known examples are home thermostats, home security systems, fitness and health monitors, wearables… This all seems futuristic, but smartphones, tablets and smartwatches can also be considered as IoT devices. More importantly, beside these futuristic visions of IoT, the smartphone will most likely continue to be the center of the connected devi

PSD3: The Next Phase in Europe’s Payment Services Regulation

With the successful rollout of PSD2, the European Union (EU) continues to advance innovation in the payments domain through the anticipated introduction of the Payment Services Directive 3 (PSD3) . On June 28, 2023, the European Commission published a draft proposal for PSD3 and the Payment Services Regulation (PSR) . The finalized versions of this directive and associated regulation are expected to be available by late 2024, although some predictions suggest a more likely timeline of Q2 or Q3 2025. Given that member states are typically granted an 18-month transition period, PSD3 is expected to come into effect sometime in 2026. Notably, the Commission has introduced a regulation (PSR) alongside the PSD3 directive, ensuring more harmonization across member states as regulations are immediately effective and do not require national implementation, unlike directives. PSD3 shares the same objectives as PSD2, i.e. increasing competition in the payments landscape and enhancing consum

Trade-offs Are Inevitable in Software Delivery - Remember the CAP Theorem

In the world of financial services, the integrity of data systems is fundamentally reliant on non-functional requirements (NFRs) such as reliability and security. Despite their importance, NFRs often receive secondary consideration during project scoping, typically being reduced to a generic checklist aimed more at compliance than at genuine functionality. Regrettably, these initial NFRs are seldom met after delivery, which does not usually prevent deployment to production due to the vague and unrealistic nature of the original specifications. This common scenario results in significant end-user frustration as the system does not perform as expected, often being less stable or slower than anticipated. This situation underscores the need for better education on how to articulate and define NFRs , i.e. demanding only what is truly necessary and feasible within the given budget. Early and transparent discussions can lead to system architecture being tailored more closely to realisti

An overview of 1-year blogging

Last week I published my 60th post on my blog called Bankloch (a reference to "Banking" and my family name). The past year, I have published a blog on a weekly basis, providing my humble personal vision on the topics of Fintech, IT software delivery and mobility. This blogging has mainly been a personal enrichment , as it forced me to dive deep into a number of different topics, not only in researching for content, but also in trying to identify trends, innovations and patterns into these topics. Furthermore it allowed me to have several very interesting conversations and discussions with passionate colleagues in the financial industry and to get more insights into the wonderful world of blogging and more general of digital marketing, exploring subjects and tools like: Search Engine Optimization (SEO) LinkedIn post optimization Google Search Console Google AdWorks Google Blogger Thinker360 Finextra … Clearly it is not easy to get the necessary attention . With th

Low- and No-code platforms - Will IT developers soon be out of a job?

“ The future of coding is no coding at all ” - Chris Wanstrath (CEO at GitHub). Mid May I posted a blog on RPA (Robotic Process Automation - https://bankloch.blogspot.com/2020/05/rpa-miracle-solution-for-incumbent.html ) on how this technology, promises the world to companies. A very similar story is found with low- and no-code platforms, which also promise that business people, with limited to no knowledge of IT, can create complex business applications. These platforms originate , just as RPA tools, from the growing demand for IT developments , while IT cannot keep up with the available capacity. As a result, an enormous gap between IT teams and business demands is created, which is often filled by shadow-IT departments, which extend the IT workforce and create business tools in Excel, Access, WordPress… Unfortunately these tools built in shadow-IT departments arrive very soon at their limits, as they don’t support the required non-functional requirements (like high availabili

Beyond Imagination: The Rise and Evolution of Generative AI Tools

Generative AI has revolutionized the way we create and interact with digital content. Since the launch of Dall-E in July 2022 and ChatGPT in November 2022, the field has seen unprecedented growth. This technology, initially popularized by OpenAI’s ChatGPT, has now been embraced by major tech players like Microsoft and Google, as well as a plethora of innovative startups. These advancements offer solutions for generating a diverse range of outputs including text, images, video, audio, and other media from simple prompts. The consumer now has a vast array of options based on their specific output needs and use cases . From generic, large-scale, multi-modal models like OpenAI’s ChatGPT and Google’s Bard to specialized solutions tailored for specific use cases and sectors like finance and legal advice, the choices are vast and varied. For instance, in the financial sector, tools like BloombergGPT ( https://www.bloomberg.com/ ), FinGPT ( https://fin-gpt.org/ ), StockGPT ( https://www.as

PFM, BFM, Financial Butler, Financial Cockpit, Account Aggregator… - Will the cumbersome administrative tasks on your financials finally be taken over by your financial institution?

1. Introduction Personal Financial Management (PFM) refers to the software that helps users manage their money (budget, save and spend money). Therefore, it is often also called Digital Money Management . In other words, PFM tools help customers make sense of their money , i.e. they help customers follow, classify, remain informed and manage their Personal Finances. Personal Finance used to be (or still is) a time-consuming effort , where people would manually input all their income and expenses in a self-developed spreadsheet, which would gradually be extended with additional calculations. Already for more than 20 years, several software vendors aim to give a solution to this , by providing applications, websites and/or apps. These tools were never massively adopted, since they still required a lot of manual interventions (manual input of income and expense transaction, manual mapping transactions to categories…) and lacked an integration in the day-to-da

Bankloch

Search This Blog