One does not have to browse for too long in today’s news headlines before encountering a story about how machines are replacing a lot of the jobs that used to be done by humans. These stories usually come with dramatic headlines, and for an avid reader of science fiction such as myself, it feels like the next step may actually be Isaac Asimov’s vision of humans starting to develop romantic relationships with robots, or robots taking over the task of raising and nurturing our children (arguably some parents have already started taking this leap with iPads).
While it is hard to predict when the first romantic relationship between a human being and a machine may occur (for the record, in a story that he wrote in 1953 Asimov predicted that the first self-driving car would be created in 2015, and romantic relationships were just a few decades behind – so watch out!) it is clear that machines have already started to take over a lot of the jobs that people took for granted, and this has clearly caused a profound level of stress in people that are being replaced by efficient (and more effective!) machines.
As an investor in technology driven companies, I have to admit that this triggers two conflicting emotions in me: On the one hand, it is impossible not to worry about all the disruption that society will be going through with this tsunami of technological change, while on the other hand one gets quite excited about all the new possibilities that the new technology enables.
So, will we ever be able to constructively deal with our own creations becoming better than us at what we do? In an attempt to gain some insight, I decided to read a book that I thought would be relevant in this context: “Deep Thinking” by Garry Kasparov, which is a first-hand account of how the then reigning world chess champion Kasparov came to terms with being beaten by a chess playing. With the whole world watching intently, Kasparov was decisively crushed by IBM’s Deep Blue in 1997, and thus became one of the most well documented case studies of machines trumping humans.
Based on Kasparov’s public statements after the match, as well as the general media coverage back then, it would be all too easy to conclude that Kasparov did not take the defeat very well!
However, with the benefit of twenty-two years of hindsight, it is amazing to see how Kasparov has come to terms with his loss. Everybody should certainly read his book to find out for themselves, but one key insight that stands out is that humans can actually partner with machines to beat computers at their own game. In his book, Kasparov has some rare tidbits, one of which includes Kasparov’s Rule: Weak Human + Computer + Strong Process is better than Strong Human + Computer + Weak Process. In other words, we as humans can beat just about anyone as long as we know how to employ data crunching computers on the one hand and smartly designed processes on the other hand.
So how does this all relate to the world of finance and fintech? While Kasparov was a very publicized example, it turns out he was merely the canary in the coal mine, as what happened to him soon started happening to others. Brokers, traders, accountants and all sorts of finance professionals started being impacted, not to mention other industries such as travel agencies and organized retailers. The accounting example in particular is interesting for us at QED, since we believe that there is great opportunity in the midst of all this disruption in an area we know particularly well: small business lending.
Just as Kasparov was able to see the silver lining for the world of chess in his defeat, cloud accounting software and bookkeeping automation has opened up new horizons for the accountants of the world. Rather than seeing a job being taken away, they can now see it as an opportunity to start focusing on how to devote their energies on advising their business clients on other important finance related questions beyond just balancing the books. Obviously, the most important such question is to how to grow their business, which in many cases relates to funding, something that is not always easily accessible for a small business.
One of our investments in particular, a London based fintech startup called Capitalise, has tackled this opportunity head-on, by creating a platform that connects the hundred thousand plus accountants in the UK with finance providers, hence enabling these accountants to do what community bank branch managers used to do fifty years ago – advise entrepreneurs how to fund and grow their business. And the timing could not have been better! As bookkeeping was being automated, thousands of bank branches were shutting down, leaving their small and medium sized business clients with nobody to talk to on important questions like what kind of funding solution to use to finance the future growth of their business.
Hence Capitalise takes the challenge created by what seems like a disruption and turns it into a win-win-win solution: Accountants can focus on providing higher value-added corporate finance advisory solutions while machines do the bookkeeping, the small businesses that had nobody to talk to about growth & funding (with neighborhood bank branches closing down) can now talk face to face with their trusted accountants, and all the alternative finance providers and banks that have less branches or a reduced physical presence can now access thousands of small businesses via trusted accountants that help create positively selected loans (i.e. much less risky loans – it turns out Capitalise accountants consistently create loans with much better credit quality). And while doing all this, Capitalise is certainly adhering to Kasparov’s Rule, utilizing smarter processes as mentioned above.
So here is yet another example of how one technology platform can help mitigate some of the disruption that other technologies are creating. While an automated bookkeeping software can only tell you how much money you spent exactly last month, a human accountant, supported by Capitalise’s platform, can actually help a business owner ask the right question: What kind of financing is right for my business?
To take a quote from Pablo Picasso that Kasparov also references in his book: “Computers are useless. They can only give you answers.” Only truly empathetic and intelligent beings know which ones are the right questions to ask.