Financial IoT is coming...resistance is futile




The Internet of Things #IoT describes a world where all devices and people are networked and automation is its driving principle. Thanks to your smart fridge, you’ll never run out of milk again! In the financial system, some of our "things" are less tangible and visible, but it will be no different. Every thing, every person and every place will be connected via a ubiquitous autonomous network. It will only be a matter of when, what goes first and who the pioneers will be in this new territory.

The Financial Internet of Things or #fIoT will not appear overnight. But as with any #NetworkBasedEconomy, resistance is futile...and risky. Many now realize that even the most fragmented, regulated and people-based industries such as financial services will become massively networked and automated. While financial services has historically been on the leading edge of technology innovation #Mainframes #PCs #Excel #Email #Blackberry #VPN #HFT, the principles underlying a much more autonomous and interconnected industry have not been universally accepted.

We all need to embrace these concepts or risk being left #OffTheGrid and feeling #NakedAndAfraid.

If we think about the rise of the Internet and emergence of the #IoT, we begin to understand how networks evolve and transform industries. In the 1990s, the World Wide Web revolutionized access to information and media companies capitalized #Yahoo #AOL. The next decade was about commerce and a host of new companies reinvented how we engage and transact #Amazon#ebay#Paypal. Cloud-based services and software centralized data, improved security, and facilitated the collaboration required to make it much easier to innovate and deploy new services #AWS#GoogleCloud #Azure#Salesforce. The launch of the iPhone in 2007 marked the rise of mobile technology and also the point when access to the network, applications and data all became fully democratized #GrandmaOnFacetime#Facebook #Netflix#MobileBanking.

With rising demand for bandwidth, networks became faster #3G #4G #LTE and processors became more powerful #Intel#Nvidia. With the costs of sensors dropping dramatically networks became ultra local #FitBit#Nest and today almost anything can be connected, monitored and controlled via the network. It took about 20 years, but the #IoT is on the verge of automating everything from reordering milk to averting bridge collapses and detecting oil spills.

There is little doubt we are on the precipice of the build out of the #fIoT. Much of the network needed is already here today. Compute power is available on demand. Storage is a commodity. Massive data sets are more accessible and secure, with the tools to analyze this data improving by leaps and bounds before our eyes #hadoop#cassandra.

The smell of disruption is in the air. Do you smell it? It's kind of everywhere these days...

The next step is hooking financial things and people into the #fIoT. Rather than hard goods, our things are #stocks, #swaps, #bonds #collateral and many other financial obligations and asset types that make our system tick. Our people are #traders #assetmanagers #custodians and a few dozen other identities. The equivalent of putting a sensor in a fridge in financial services is digitizing these assets and contracts, having a trader or asset manager act on them and then updating the books and records to reflect these events with custodian.

When financial assets become digital, it reduces the need for central repositories and fragmented networks connecting to those hubs. Events affecting the value, ownership and status of a financial asset can be processed in real time on the network without the need for expensive infrastructure and operationally intensive reconciliations. With networked assets, liabilities, contracts and people, firms will become significantly more efficient and all will benefit from a real time view of risk and market activity.

Imagine home mortgages that self-create, communicate, auto-securitize and distribute to investors based on stored and shared investment parameters. Or treasury securities that auto-pay interest to holders, but can also auto-lend itself out for income and then bring interested parties together in an auto-legal framework to share in that income for varying periods of time.

Today, these examples sound far fetched. However, the industry mindset on what is possible has expanded greatly in last several years and the technology required is here or on its way.

The #fIoT will rely upon several key and rapidly-maturing technologies: #AI#Blockchain#SmartContracts#Microservices#Containers. Harnessing these technologies will make very smart autonomous software pervasive and automate any process that does not require human judgment or risk tolerance. Sharing of core technologies will be another key component of the #fIoT. Open source software and collaboration platforms will be a main ingredient for innovation to go viral #Linux #Apache #Symphony#Slack#F2.

The evolution of the #fIoT will take some time, perhaps even longer than the 15 years (1995-2010) it took for the media world to be transformed and disrupted by the Internet. However, financial services firms must not sit idle, especially when the key drivers of information technology – bandwidth, price performance and capacity – are doubling every year, exponentially accelerating the pace of technological change. It took 15 years to sequence the DNA for HIV and 31 days to sequence SARS. In 1997, when Deep Blue defeated Garry Kaspoarov in chess, computer scientists predicted it would take 100 years for a computer to defeat a grand master in the ultra complex game Go. The machine won last April, more than 80 years ahead of schedule!

How can firms cope with all this change and prepare for the #fIoT? The answer is more about people than technology. The people entering the workforce today are the networked generation. They are the #DigitalNatives. They simply don’t know any different and where there is not a network, they will build it. When it is manual, they will automate it. They will build around you, above you, below you. And eventually through you.

With the promise of #AI to expand our human capabilities, it is the new generation who are wired to seek higher levels of human integration with technology and work in partnership with the machines (rather than resist them) to find opportunity and identify risk. In our near future #ManAndMachine will be symbiotic. Will you be?

The financial industry must embrace the #fIoT and the people who will build it #Millenials#GenZ. To resist is not only futile but will guarantee you are a mere user of the #fIoT instead of one of its pioneers. Or maybe you won't exist at all! #Kodak #TowerRecords #Blockbuster #Woolworths

For related further reading and watching...

  • The changes coming to our industry are profound. Many are focused on evolving or disrupting us at this pivotal moment in time...see Wharton on Blockchain or Deloitte and Business Insider more broadly to get started.
  • There have been a few movies and documentaries I have seen that have influenced my thinking on the impacts of a more networked and open world. I suggest WeinerDeep WebEx Machina to keep it interesting!

This story was originally posted on Brad Levy's LinkedIn page on September 19, 2016.

Brad Levy is Managing Director, Global Head of Loans at IHS Markit
Posted 16 December 2016

About The Author

Managing Director, Global Head of Loans

Brad Levy is Managing Director, Global Head of Loans at IHS Markit and Chief Executive Officer of MarkitSERV, the firm’s post trade service for OTC derivatives. IHS Markit’s services for the syndicated loan market include Markit Loan Settlement, the most comprehensive loan trade settlement service, and Markit WSO, portfolio administration software and services catering to the complex lifecycle requirements of loans. Brad is the executive sponsor of the Chain Gang, the team at Markit implementing smart contracts and distributed ledger technologies. He joined Markit in 2012 to manage its distribution businesses including Markit Hub, Research Manager and Desktop. 

In 2016, Brad Levy was sixth on Institutional Investor magazine’s Trading Technology 40. The annual list recognizes innovation and leadership among managers of systems and people in the financial industry.

Prior to Markit, Brad worked at Goldman Sachs for 18 years. From 2000 until 2012, he was a managing director in Goldman’s Principal Strategic Investments Group. Brad began his career at Lehman Brothers.

Brad has served as a member of the Securities Industry and Financial Markets Association Technology Committee in addition to the Board of Directors of APX Inc., BondDesk, BrokerTec Futures Exchange, CDS IndexCo, FXall, LoanX, NYSE Liffe US, SecuritiesHub, SwapsWire, Symphony Foundation, Tradeweb and US Futures Exchange. 

He holds a BS in Business Administration with a concentration in Finance from the State University of New York at Albany.