I am writing this from hotel quarantine as I have finally, at the sixth attempt, made it back to Australia after more than six months stranded abroad. All of which means this column will go one of two ways; happy-clappy or a purging of anger and frustration. I think I know my readership well enough, so let’s talk about how firms that rely too much on technology and not enough on the human talent to back it up are doomed!
While the current unprecedented crisis is highlighting the positive impact of technology, it is also stressing the importance of having quality people programme and/or use it, as I found out on Friday in yet another episode with an airline!
Genuine machine learning is clearly changing our world, but I am wondering how long it will take before it learns the majority of scenarios it could be faced with. So many times I am confronted with a technology solution that is limited in scope and rigid in its application – and it is at times like these that we need a human with knowledge and expertise, to step in.
Take last Friday as an example. I turned up at the airport with my wife, only to be told she was flying and I wasn’t. There were claims that “someone had called me” that a quick look at my phone record will show didn’t happen, but clearly we were faced with a difficult and stressful situation.
The first solution was to ring the “help” desk, which was, predictably, of no help whatsoever. I was informed that there was nothing that could be done and that they could re-book me a flight on October 25 – a day that conveniently happens to be 24 hours after the Australian government is due to review its ceiling on entries to the country. The computer, knowing this, offered this as the first date available (whereas I, as the human, knew all it would take is an extension of the ceiling by the aforementioned authority and the flights would be cancelled again).
The very pleasant person on the no-help-at-all-desk said how sorry they were but that was all they could do. Seeing the distress that this was obviously causing, a supervisor from the airline walked over and asked me for the details, said “we cannot allow this to happen: and requested 20 minutes to see what could be done. A little while later my wife and I were re-booked for 24 hours later.
Brilliantly, and highlighting my point about having good people using the technology (which in this case was worse than useless), the person on the no-help-at-all-desk, having informed me that I would effectively be separated from my wife for two months or more (at this stage the latter cheered up for some reason), and leaving me in the UK without a credit card (which is close to expiry); medication; or, as far as they knew, somewhere to actually live; closed out the call with “have a nice day”!
So what does this have to do with financial markets? Well I suspect that what I discovered with my encounter with Etihad Airlines, has been the experience of some people having to deal with service providers who have overly “juniorised”. I spoke to someone a couple of weeks ago who was having real problems with a multi-dealer platform over a relatively minor matter. The problem was, the person on the other end of the phone was talking and trying to deal with the problem from a script. Every time there was a question that went off-script, the customer was asked to “hold while I check with my supervisor” (I got this three or four times on Friday).
The net result of all this is a dissatisfied customer who, like me when the world returns to normal, has a choice over with whom they do business.
We have seen the same issue with some of the flash moves we have seen in markets, unlike a human who will overlay some real world experience, the computer – dealing with data – can often exacerbate the move because, as I related the other week about SNB Day, it doesn’t have the capacity to understand that EUR/CHF at 0.1 only happens if the euro project ceases to exist or something has gone badly wrong with the market functioning.
I should stress that markets will continue to be largely run by the machines, but here is another aspect of relying upon the technology – market dynamic changes. A friend got in touch last week to discuss my thoughts on algos and highlighted the flight of risk capital from the sell to buy side in FX, something they saw as a real worry in the long term should it continue. I whole-heartedly agree and part of the reason it could continue is because the shifting sands in the LP world, where machines handle more risk, means that risk will be very short term by its nature and, therefore, even less capital can be allocated to the market making function.
This is one nightmare scenario I have been writing about for literally years, because it means FX ends up like the equities market where the only liquidity available is in “small” and anytime someone wants to do larger tickets the result is market impact – for the customer or the market maker depending upon how the large ticket is executed. It could be argued this is OK in equities because they are largely speculative markets, but in FX where the most important flow is typically in the form of large tickets? That’s a horrible scenario for the global economy as hedging costs soar – not to mention the systemic issues of the buy side holding more FX risk.
It’s not all bad news of course. A real positive of the advance of computer science is the ability to competently monitor and assess service providers (assuming the AI doesn’t restrict itself on the data inputs of course!) and this means that, if used correctly, customers will start to work out which service providers are not only helpful in executing the business, but also efficient and professional when dealing with a problem. I will be very surprised, based upon personal experience with an admittedly different industry, whether those firms that allocate their risk capital to short term trading in small, and rely upon semi-trained, pleasant people for their help desks, will survive the cut.
Technology remains the future, but we should never under-estimate the importance of the humans that back them up – they too, are going to be a vital aspect of any successful business going forward.