What is the self-driving craze in mobility really about? Improving road safety (something not yet proven or quantified) or creating a framework where control can finally and fully be ceded from users and transferred for all perpetuity to an increasingly concentrated and faceless capital and intellectual property-owning elite?
It has been a difficult Monday morning for India’s bankers, economists and analysts. Not only has the Rajan-era come to an unexpected close but the monsoon has thumped into the country. Now, where once certainty and clean pants existed, a world of confusion and splashed trouser legs sits soddenly. The usual notes are coming through into our inbox too, most expressing said confusion and near-term worry, even though markets are shrugging a bit so far. Here’s a one month view of the INR and the Sensex:
Dealing with disruption? Puff out your chest, pin back your shoulders, flex your muscles. Here’s the CFO of Wells Fargo doing just that on Tuesday, via the FT: Consumers who want to transfer funds but avoid cash or cheques have turned to small and niche payment operators as the traditional banking industry has been relatively slow to embrace the latest technologies. However, John Shrewsberry, chief financial officer of Wells Fargo, argued the banks’ own system — which allows consumers to send money to each other by entering a mobile phone number or email address — would be more attractive. “I don’t know why anybody would use any other way to do it, frankly,” he said at the Morgan Stanley Financials Conference in New York on Tuesday. “The network that we have between our customers, and the other larger banks participating, is really big. Each one of us, frankly, is bigger than anybody else who is participating in this space as a pure play today.” Just to translate that, Shrewsberry is saying ‘fintech, schmimtech’, which admittedly isn’t an unpopular perspective around these parts.
A little snippet from Citi’s equity telecom analysts earlier this week via a note entitled “Will telecoms ultimately disrupt their own industry model?”. It pertains to the upcoming release of the IDATE Digiworld Yearbook on June 14: The two leading, but also opposing, economic forces, which drive digital industries are: (a) benefits of size and network effects; and (b) disruptive innovation. This, according to the authors, leads to two paradoxically convergent potential outcomes: (1) dominance by the leading platforms, which enables their owners to generate significant value and cash flows or (2) economy based on sharing and collaboration. The authors see both outcomes as potentially fundamental threats to capitalism.
Morgan Stanley is a backer of the bank-led chat project, Symphony, crafted to woo trader talk back to a channel the banks can control. And here’s a Morgan Stanley built theory of the terminal business: We view the evolution of the industry in three stages: Phase 1 (now to 2018): High-Cost, Bundled Products Prevalent: Historically, the network effect has been a gating factor that led participants in the market data terminals industry to keep their existing high-cost terminals. Legacy terminals have comprehensive functionality, so customers only need to purchase one main product. Counterparties purchase the same product, so that business can transact through the terminals (i.e. through chat). Learning of specific shortcuts enhances stickiness. Changes to workflow is typically disruptive, which leads to high retention rates. Examples include Bloomberg and TRI’s Eikon product. Some current products in the market contain full-functionality, but do not have the network effect (FDS, CapIQ). Customers requiring less frequent interaction with outside parties (i.e. trading) may choose to use these products. The cost of the products is often lower than the premium legacy products with network effects, but remains high given switching costs and bundling of the underlying products. Phase 2 (2017 – 2019): Facilitating Escape:
This is the first in an occasional series lamenting the hypothetical eventuality of a world without a free internet* and the extraordinary implications this could have for markets and companies. A tragedy of the web commons if you will. It is inspired both by India’s ruling to bar Facebook from subsidising internet availability with Free Basics packages (see Kadhim’s series of posts for more on that) but also Balaji Srinivasan (he of 21 Inc toaster fame), and his attempts — including a Stanford Bitcoin course — to convince the world the web should in fact be a paid-for luxury product of scarcity.
A competition: describe in 20 words or less Hexagon AB, the Swedish listed technology group run by Ola Rollén, which has a market capitalisation of €11bn. To help, here’s what the start of the 2014 annual report has to say (or click on the image for the whole thing). MISSION: Hexagon is dedicated to delivering actionable information through information technologies that enable customers to shape smart change across diverse business and industry landscapes.
This guest post is from Lutfey Siddiqi, managing director at UBS Investment Bank, and Simon Smiles, chief investment officer for ultra high net worth at UBS Wealth Management. It’s on the back of a UBS white paper for Davos, which you can read here. __________
What makes Uber such a disruptive force in the taxi market? Is it its app technology? Or is it the fact that its business model transfers the ball and chain costs of capital, vehicle rental and maintenance, risk, tax and insurance costs over to taxi drivers, who often don’t appreciate the all-in operating costs until they’re far too invested in the scheme? Perhaps, alternatively, it’s because the notoriously “asset light” taxi company pays scant attention to local licensing rules or regulations and sometimes even likes to spy on where its customers are going. Or maybe it’s because Uber disregards the laws of supply and demand by having an entirely open-ended policy with regards to the size of its driver network. Or perhaps still… it’s because the app removes awkward cash transactions from the process and in the same instant removes the potential for a tip or a “keep the change” additional earnings opportunity for the driver.
The Pentagon wants to spend billions prepping for the next stage in warfare that it believes will be defined by advances in artificial intelligence and autonomy. US deputy secretary of defense Robert Work said on Monday that the 2017 fiscal budget request will likely ask for $12-$15bn for wargaming, experimentation and demonstrations to test out the military’s theories on AI and robotics “in human-machine collaboration combat teaming”, as detailed below. The vision of the military future that Work put forth? Motherships of drones releasing little baby drones from the air and the sea, infantrymen and women sporting exoskeletons and wearable electronics loaded up with combat apps, and lone mission commanders directing swarms of unmanned vessels to carry out operations.
Can’t satisfy humanity’s desire for nice houses, good quality jobs, leisure, pastures green, holidays and generally all the stuff that makes life worth living? Well, why bother trying? Thanks to virtual reality and augmented reality (VR/AR respectively) the economic problem can be solved the Matrix way: a.k.a. rendering the search for a better life redundant by ensuring those who can’t afford the good life here in the physical plane can be born directly into a simulacrum. A prison of their mind if you will. All the more effective if you don’t tell them they’re in it in the first place.
FT Alphaville started its “beyond scarcity” series in June 2012, having explored the core tenets of technological abundance theory and utopianism from about February 2012 onwards — influenced at the time by the thinking of Kurzweil, Diamandis, Brynjolfsson and a whole bunch of technological utopians who had come before. Fundamentally, it was our way of going against the grain at a time when markets were still overly obsessing about the causes and side-effects of the global financial crisis, the Eurozone crisis, the subprime banking crisis and in general maintaining a “glass half-full” outlook on growth and the global economy.
GalaCoral has cleared the way for its £2.3bn merger with Ladbrokes by lining up the numbers for its bingo halls sale. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can Asian marketsNikkei 225 up +121.82 (+0.65%) at 18,947Topix up +11.15 (+0.72%) at 1,559Hang Seng down -35.69 (-0.15%) at 23,116
Previously of the NY Fed markets team and now at Credit Suisse, nobody knows repos and shadow banking like Zoltan Pozsar. In his latest co-authored piece with James Sweeney he takes a closer look at how an eventual Fed rate liftoff may play out technically on the ground. As has been widely reported, the Fed is expected to utilise Reverse Repo (RRPs) facilities with non-bank money market funds as part of its unwind procedure. This is unprecedented to a degree, for it represents the effective expansion of the Fed’s balance sheet beyond the official bank sector. By offering deposit services to non-banks at positive rates, the Fed will be pulling liquidity from the system by way of transforming excess reserves currently sitting on the books of the formal banking sector into non-bank reserve assets. While the overall amount of liquidity in the system will technically remain the same, what will change is who owns the liabilities.
About a month ago, Citi’s Disruptive Innovations report revived the debate over the cause of slowing productivity in Western economies. One insight related to how modern technology encourages smarter distribution rather than outright production growth. You don’t need to produce as many spoons because, well, in the digital age less is more and everyone drinks Soylent. You probably don’t need a big house either, because, hey virtual reality. But if true, why does it not feel like quality of life is improving in many corners of the developed world? Perhaps there is something more to it.
We’ve rushed straight from Camp Alphaville’s big data, AI and debt sustainability conversations to Paris to take part in a United Nations Environment Program-hosted symposium entitled New Rules for New Horizons: Reshaping Finance Sustainability. [As an aside - we were delivered to the venue by a particularly overjoyed Parisien taxi driver celebrating news that local protests against Uber's UberPop service, which allows non-professionals to offer rides, had successfully persuaded the Silicon Valley Taxi-Unicorn-App-Monopoly-Disruptor to suspend the service as of this weekend.] This is a very brief summary of the session we moderated on financial technology and sustainability — yes there is a connection — before a more thoughtful take on everything we’ve just downloaded sometime next week.
Standard Chartered released a big note this week on the evolution of global supply chains, looking at the effects of new information technologies as well as the changing cost structures of established manufacturing zones. One of the key themes is that manufacturing is moving westwards, away from China and over to India and Africa. China still has lower-wage areas inland and a fast-growing productivity advantage due to the rapid adoption of automation and robotics; nevertheless the centre of gravity is moving, they say. Furthermore, the westward transition is also being facilitated by technology, especially things like the falling cost of radio-frequency identification technology and inventory tagging and monitoring. We presume it’s much easier to trust new supply networks if and when you can monitor their output and productivity real-time. As Standard Chartered’s analyst team of Madhur Jha, Samantha Amerasinghe and John Calverley note (our emphasis):
Bruce Packard over at the Lafferty group has an upcoming report on the fintech disruption that’s about to hit the traditional banking sector. As he notes, most of the corporations vying for a slice of the action don’t look much like traditional banks and many don’t even have banking licenses. But they do offer substitute products that have the potential, he says, to harm bank margins. In Packard’s view, even though new entrants have been trying to disrupt old banks since the 90s, banks find themselves in a vulnerable position today because their opaque price structures and overall reliance on cross-subsidisation techniques don’t necessarily do them any favours when it comes to defending market share.