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Robotics: More Creative Destruction Hits Financial Services & Manufacturing

In the 9 months since MRP added Long Robotics & Automation as a theme, advances in cloud computing, artificial intelligence, Robots as a Service (Raas), and the Internet of Things (IoT) have taken robotics to a whole new level, further unleashing the forces of creative destruction on manufacturing and services businesses around the world.

One industry experiencing significant disruption these days is financial services. Not only are robots conquering wealth management through AI, they are also about to transform retail banking and possibly even the corporate advisory sector.

WEALTH MANAGEMENT: Ever since robot advisors were introduced as industry disruptors in 2008 by firms such as Betterment and Wealthfront, they have steadily captured market share from their human counterparts, in the same way that Amazon and Netflix have eaten into the share of Walmart and Regal Cinemas. Consulting firm Deloitte estimates that “assets under automated management” (yes, “AUAM” is now a thing) in the U.S. will grow to $5-$7 trillion by the year 2025 from about $300 billion today and $100 billion in 2016. That would represent between 10% and 15% of total retail financial assets under management, which is why traditional retail investment giants Schwab, Vanguard, Morgan Stanley, BlackRock, and others have rushed to develop their own robo-advisors.

CONSULTING: The trillion-dollar corporate advisory industry seems ripe for the same type of disruption, per Harvard Business Review. When corporations buy advice from human advisors, these advisors — be they consultants or investment bankers — usually take a data-driven approach, guided by previous experiences and past corporate data, to come up with solutions. As it turns out, the volume of worldwide corporate data has exploded thanks to cloud computing. It is doubling every 14 months and will reach 10.5 ZB by 2020. The availability of all this data – which is both financial (revenues, profits, growth) and non-financial (customer sentiment, employee engagement, marketing effectiveness, product feedback, and partner ecosystems) – is great fodder from which machine learning intelligence can glean valuable insights helpful for solving complex problems.

Such data will enable “robo-consultants” to deliver highly-predictive, error-proof, and algorithm-based advisory services at a low cost to smaller companies that cannot afford the investment banks. Many believe it’s only a matter of time before the $60 billion consulting industry in the U.S. is disrupted by such corporate robotic advisors which will take business away from the likes of McKinsey, Deloitte, & Bain – unless, of course, they develop their own robo-consultant divisions. And because the costs of AI-enabled tools are falling and availability is rising, it won’t be long before AI-as-a-Service (AIaaS) also becomes a thing.

RETAIL BANKING: China Construction Bank (CCB), China’s second largest lender by assets, has launched the first bank branch managed by AI robots. This self-service branch, which runs on a combination of facial recognition, artificial intelligence and virtual reality technologies, provides a range of services, including opening accounts, money transfers, foreign exchange, and a few investment offerings. Additionally, QR codes on screens allow consumer to pay for products & services while VR machines showcase the bank’s latest home rental offerings. CCB officials say the robo-bank can handle 90% of the cash and non-cash demands of traditional branches.

As exemplified above, physical robots continue to penetrate all sorts of fields these days, with 1.7 million new industrial robots projected to be in operation by 2020. They are at work in a wide range of areas including defense, healthcare, construction, agriculture, and of course manufacturing.

ROBOTS-AS-A-SERVICE (RaaS): But, even within manufacturing, robots are still out of reach for most firms because of the significant upfront investment required to acquire one. These costs can range from $30-60K for collaborative robots to 120K for industrial robots. Now, several startups are looking to democratize access by turning what’s been a capital expense into an operating expense. Companies such as Hirebotics and Ready Robotics allow any manufacturer, large or small, to hire a robot for its factory, with the same ease as hiring an employee. The RaaS model is gaining popularity, as it allows businesses to test automation with little risk.

The “Subscription Economy” first took off when software service providers such as Salesforce, Zendesk, and Adobe introduced Software as a Service (SaaS). Next came subscription-based digital entertainment services such as Netflix and Spotify which disrupted media, and Uber and Lyft which disrupted transportation. Now, the subscription model is about to revolutionize manufacturing thanks to the emergence of Robots as a Service (RaaS).

Another fascinating development is the emergence of companion robots, which fall in the realm of social robots.

SOCIAL ROBOTS: In India, a companion robot called Miko engages, educates, and entertains children above the age of five. Miko, weighing 750 grams and measuring a foot in height, can talk to and play games with kids. It also answers questions related to general knowledge and academics, and responds to non-verbal cues like motion and physical gestures to incorporate emotions as well. Social robots like Miko, which retails for Rs19,000 ($280) in India, could eventually capture market share from tablets and computers. Another social robot, Ipal, serves as a companion for elders living alone. Ipal, created in China, can be programed to aid in medication compliance, medical monitoring, and to provide other assistance around the house, helping elderly citizens live independently longer.

The pace at which the robotic revolution is disrupting services and manufacturing businesses around the world continues to amaze our team at MRP. One general metric that might be of interest to investors is robot density, which is rising globally. In 2016, there were 74 robots for every 10,000 employees globally, up from 66 units the previous year, and that number will only accelerate. By region, the average is 99 units per 10,000 workers in Europe, 84 in the Americas, and 63 in Asia. Countries with the highest density are South Korea with 631 robots per 10,000 employees, Singapore with 488, Germany with 309, Japan with 303, and Denmark with 211.

Not surprisingly, the pace of automation as measured by robot density is slower in highly populated countries such as the United States with its density rate of 189, China with 68 and India with 3 industrial robots per 10,000 workers. These economies also happen to represent the greatest opportunities when it comes to the robotic revolution.

MRP added Long Robotics & Automation as a theme on July 20, 2017. Investors can gain exposure to the theme via the Robo Global Robotics & Automation Index ETF (ROBO) or the Global X Robotics & Artificial Intelligence ETF (BOTZ).

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