Futurist David Shrier: Blockchain, AI, FinTech, Digital Identity and You

The future of cybersecurity rests on AI and machine learning. David Shrier, a prominent futurist, author, and entrepreneur explains what you need to know during a conversation with CXOTalk host, Michael Krigsman.


Jan 04, 2019


The future of cybersecurity rests on AI and machine learning. David Shrier, a prominent futurist, author, and entrepreneur explains what you need to know during a conversation with CXOTalk host, Michael Krigsman.

David Shrier is a globally recognized authority on digital identity and financial innovation. He is the founder and CEO of Distilled Analytics, a machine learning company derived from MIT research that is the world’s leader in Predictive Identity.

He also leads the University of Oxford’s online programmes Oxford Fintech and Oxford Blockchain Strategy, as well as MIT’s Future Commerce (the first graduate fintech class in North America), all of which he created. He has published multiple books on fintech, blockchain and cybersecurity. 

In addition to his role with Distilled, he is Vice Chairman of Endor, a blockchain-enabled crowd intelligence platform, and Chairman of Riff Learning, an AI-driven collaboration technology platform provider. David is an Associate Fellow with the Said Business School, University of Oxford; Lecturer at the MIT Media Lab; and Fellow with the Payne Institute at the Colorado School of Mines.

David counsels the Government of Dubai on blockchain and digital identity; Millennium Advisors, a middle market credit liquidity provider, on technology trends; the OECD, on blockchain policy and standards; and Ripple, a blockchain cross-border payments company, on strategy. He previously advised the European Commission on commercializing innovation with a focus on digital technology.


Michael Krigsman: Blockchain, AI, FinTech, changes in the economy, trust, digital identity, what are these things and what do they mean for us, because that's what matters? Today, on CXOTalk, we're speaking with David Shrier, who is a futurist. He is a man with many talents and many interests. He's going to read the future for us.

Hey, David Shrier. How are you? Thanks so much for joining CXOTalk today.

David Shrier: Absolutely. Thank you, Michael, for having me. I'm really excited to speak with you and your audience about what the future holds.

Michael Krigsman: David, tell us briefly about the scope of your interests. It's pretty extraordinary, actually.

David Shrier: Well, I've been really lucky because I'm a little bit of a geek groupie. I like hanging out with really smart people and learning from them where things are going. I have a dual appointment at the MIT Media Lab at the University of Oxford, Said Business School. I get to hang out on both sides of the pond with some people who are not just envisioning the future, but actually creating it.

One thing we like to say at the media lab is, the best way to predict the future is to create it.

Then I also run a software company that I spun out of MIT called Distilled Analytics.

Michael Krigsman: Okay. Really quickly, tell us what is Distilled Analytics? Give us the 15-second pitch.

David Shrier: Yeah, so we're an AI biometric software company. We create digital identity profiles for financial institutions to help them work better with their customers around things like making loans, securing their data systems, or managing risk. It's a big problem. There are 3.5 billion people in the world who are not well served by our current financial system and we're trying to help.

Advice for Startups

Michael Krigsman: Okay. You also wrote a book. Well, you've written a number of books. This one is called Trust::Data. We're going to be talking about this topic as well during our excursion in the next 45 minutes or so.

David, you're an entrepreneur. You're focused on innovation. You're focused on business models. I've just thrown out a whole bunch of buzzwords, so let's begin with startups. What are the implications of all of these changes for somebody who is starting a company or they're running a company; they're looking to raise money? Tell us about that.

David Shrier: It's a really exciting time to be an entrepreneur. The implications of all these different technologies, of AI, of blockchain, digital identity, and all of the transformational technologies that are now engaging with multiple levels of society are that there are going to be inefficiencies that emerge. There are going to be challenges that big companies can't move fast enough to grapple with. That's where an opportunity arises for entrepreneurs, someone who is nimble, someone who can see a little further ahead, and someone who is now bound by all the red tape that wraps around big companies. I think the next five to ten years are going to be a tremendous opportunity for someone who as entrepreneurial spirit.

Michael Krigsman: What should entrepreneurs do to take advantage of these disruptive changes?

David Shrier: Well, the first thing, and it may sound facile, but many people forget, is just to solve a problem. Figure out what problem are you solving specifically and where do you have some unique advantage to pursue it. You might have novel expertise or insight. You might have invented some new technology. Somehow, you need a way of solving a problem that is impacting a lot of companies or a lot of people. Once you identify your problem, then you can help build out a business around your solution.

Michael Krigsman: Is there something that is unique today about these disruptions? The notion of solving a problem, that's sort of timeless advice. What about today?

David Shrier: Well, there are brand new technologies emerging that large organizations are still struggling to get their arms around. Blockchain is a great example. That is a new kind of database, essentially. It's a distributed database technology. It's something that is very interesting, not only for the financial services industry, but for a number of other industries, whether it's consulting, transportation, or healthcare.

The large organizations still haven't figured out what they're going to do about blockchain. That realm of the proliferation of new technology and the opportunity for nimble experimentation is where entrepreneurs really shine. You can try out a lot of different ideas quickly without having to go to a committee and go through nine rounds of budget approval.

Within these sort of broad categories of a big tech, lots of disruption, I think there are going to be some novel solutions emerging where the ability to rapidly iterate different experiments around solutions. For example, with blockchain, we still don't really know what it's best killer app is. People are still figuring that out.

I like to say about blockchain, it is both less and more than people say it is. In the near-term, it's a lot less than the hype. In the longer-term, I think the impacts are going to be more profound.

Michael Krigsman: Yes. We'll be talking more about blockchain as we go forward, for sure. Just to close up advice for entrepreneurs, you've been doing this for a long time, you talk with a lot of people, what is the essence of what advice you would offer?

David Shrier: Build something fast, get it in front of people, and get their feedback. I am a huge fan of the market discovery process where you go out and you actually talk to customers. You see if that idea you have about the problem that you're trying to solve is actually viable. Don't just sit in a room or make business cards and say, "Look, I'm an entrepreneur." Actually, build something, go out and show it to people, and try and get them to use it.

Michael Krigsman: Of course, the great innovator and teacher, Steve Blank, says, "Get out." What is his phrase exactly? "Get out of the office."

David Shrier: My favorite one is that he says that startups are search engines for business models. But absolutely, you want to get out of the office and find out, from talking to customers, what is the problem that you're solving and is the solution you came up really viable.

Advice for Large Companies

Michael Krigsman: All right. We've just been talking about startups. Now, let's turn to large companies. How should large companies, large organizations, thinking about these disruptive issues you were just describing? The dynamics are completely different for a large, established business than for a startup.

David Shrier: If I wanted to be clickbait-y, I'd say, "Be afraid. Be very afraid." But less facetiously, I think big organizations need to take these new technologies very seriously. I think there's a tremendous opportunity for corporate innovation, which does require risk-taking.

Big companies need to increase their failure tolerance for small-scale experiments. Try out a lot of different experiments. Eighty-percent of those experiments should fail or you're not being experimental enough. You want to try and figure out how you can reposition your organization for this new future.

The impacts are going to be profound. For example:

  • In financial services, we think there could be anywhere from 30% to 50% of jobs lost in the next 7 years, so to 2 million to 6 million jobs just in the U.S., North America, and Western Europe, from disruptive technologies like artificial intelligence and blockchain.

  • In the transportation industry, autonomous vehicles are going to replace long-haul trucking. Five-percent of employment in the U.S. is going to be upended as a result of automation.

  • In the healthcare industry, opportunities for improving quality of care and dramatically reducing costs can emerge from using combinations of technologies like artificial intelligence and blockchain. That's $3 trillion-plus in the U.S. and $5 trillion to $6 trillion globally. That's a lot of dough that is going to be undergoing movement, dislocation, and repositioning.

And so, big companies have opportunities to carve out new markets as well as new market share if they're smart about the adoption of new technologies.

Michael Krigsman: Okay. David, we all know that, yeah, if companies are smart, but we all know that companies, on a visceral level, big companies kind of hate to innovate because it disrupts their existing revenue streams. They say they want to innovate, but it's not so easy.

David Shrier: It is difficult. Clay Christensen wrote about this very famously in The Innovator's Dilemma where you get really good at doing one thing, so it's hard to try something new. What I see a lot is something I call the corporate immune response where, when a new idea comes up, the white blood cells of the company come and attack it and kill the new idea.

Michael Krigsman: Yeah, the antibodies, corporate antibodies.

David Shrier: You've got to create systems that help protect that new idea from the corporate antibodies.

It's not all doom and gloom. Some large organizations have figured out ways to embrace new technologies. For example, I was on a panel last January at World Economic Forum in Davos with the CEO of Accenture North America. They very fervently and widely embraced artificial intelligence and adopted it into their organization, but they did something really enlightened that a lot of companies don't do. They took 60% of the cost savings that they got from the labor change around artificial intelligence, and they invested it in reskilling.

They said, "Okay. We've got all these people. It was expensive to find them, expensive to recruit them, expensive to train them. Now that we've got them here, rather than just throw them out of work when we adopt AI, we're going to repurpose them for higher-order tasks." It is absolutely not impossible for big companies to innovate, and it is not impossible for big companies to embrace new technology. It is difficult and it requires courage, leadership, and a willingness to allow small failures along the way to finding the big success.

Michael Krigsman: We've had, on this show a couple of times, actually, Paul Daugherty, who is Accenture's chief technology and innovation officer. They are a good example of innovation. What advice have you got for companies to not fall prey to that innovation antibody syndrome?

David Shrier: A few things. I've worked with and for 11 different Fortune 1000 companies, helping them with various new division, new product launches, and innovation efforts. You need executive sponsorship from the very top of the organization. The CEO needs to say, "Innovation is important and I'm going to stand behind it." If you don't have that senior-level executive sponsorship, there will be other dynamics that emerge that make innovation difficult or impossible.

You need to have a dedicated function around identifying new opportunities and incubating them. That protected environment, that kind of greenhouse that's separate from the main organization, so it's not a distraction.

Then, you need a translation mechanism that allows that new idea, once you've matured it enough, to make its way into the mainstream organization. A number of the large banks, for example, have begun adopting this model, so BBVA is a great example of a large bank that has created a successful innovation function that's also able to bridge those new ideas into the broader organization.

Michael Krigsman: David, I've seen chief innovation officers, in some cases, fall prey to the organization paying lip service to the desire to innovate, but not funding it properly or, even more likely, creating incentives for the organization to not innovate. You have this kind of schizophrenia in some instances.

David Shrier: Yeah, we call that innovation theater when the organization kind of dances to the tune of innovation on a show and tell basis but doesn't actually do anything in a substantive fashion. Again, we come back to this idea. If you have C-suite sponsorship, you align budget and incentives, and you have a disciplined process that says, "Okay, now that we've done 100 experiments and we've found the 5 things that we want to move forward, we're going to put serious resources behind them and fund the 3- to 5-year development chain that it will take to get from that sort of early-stage idea to a successful, scaled business."

Now, another issue is sometimes big companies don't have the patience for that 3- to 5-year cycle. In that case, they'll innovate through acquisition. There, there's a whole other set of rules around making sure that if you are going to innovate through acquisition, if you're going to say, "Look, we have a low cost of capital, so our best way to innovate is to acquire," that you don't kill the thing that you just bought. [Laughter] That you have an intelligent way of bringing its best qualities into your organization without destroying what it is that you acquired in the first place.

Michael Krigsman: Okay. Final, final advice for large companies. I know you've been giving a lot of advice, but what's the hardest single problem they face when they try to innovate and take advantage of these disruptive technologies?

David Shrier: Embracing an innovation mindset. I actually find that a lot of big companies are filled with great ideas, but people get tentative. They have trouble bringing it forward. Leadership is focused on something else and has trouble focusing or listening to these ideas as they come forward. Helping reframe your thinking around being willing to try the new and being willing to embrace the new idea is probably the hardest thing that these organizations have in terms of making the shift in something that they really need to invest the most in developing.

Michael Krigsman: Okay. I wanted to remind everybody, we're speaking with David Shrier. He is a futurist. He's an entrepreneur. He is the author of this book Trust::Data.

David Shrier: That's it.

Data and Analytics

Michael Krigsman: As well as a bunch of other books. Let's talk about analytics and data. We hear these catchphrases, "Data is the new oil." I'm not sure what exactly that means, but it sounds good. We know data is really important, so why? What's going on with data with analytics, David?

David Shrier: Because of more and more ubiquitous devices, so I'm speaking to you now through an iPhone X, which has a very pretty camera, so it makes for good visuals, we have, and many people have, an Amazon Echo or a Siri. They have some kind of device in their home.

As these connected devices get more and more ubiquitous, as they have better and better sensors, and as the networks get better, we're generating more and more and more data about ourselves, about our lives, about commerce, and about society. What's interesting is that not only are we generating all that data, but the computing power and the sophistication of analytics are now reaching the point where we can understand this data. We can actually do something with it and make it useful.

For example, with artificial intelligence, people have been talking about the big wave of change that AI is going to drive for 40 or 50 years, but we've only started to see it come to fruition in the last 10 because the computers, the networks, the algorithms have finally gotten sophisticated enough to be useful. And so, it's now a very, very exciting time if you're engaged in the world of data or analytics because of the potential power to help make a better society.

Michael Krigsman: Dude, that's pretty abstract, "Make a better society." Elaborate on that one, please.

David Shrier: Well, there are a bunch of problems we can solve now that we had trouble solving before. There are a billion people in the world who lack a legal identity. They don't exist in the eyes of government. They're mostly women and children, and they're abused, they're trafficked, and they're exploited.

With the advent of newer technologies, the UN has set a Sustainable Development Goal, SDG 16.9, that says, by 2030, everyone on the planet will have an identity. These new digital technologies can help create that identity in a way that's much less expensive, much more robust, and much more useful. My company is working now with another company in the UN around providing these digital identities to refugees.

There are 3.5 billion people who are underserved or unserved by today's financial system. That's holding back economic growth and economic progress. Ninety-five percent of the world's small businesses are underserved by banks. That's holding back economic progress because small businesses create four out of five new jobs. All of these things can be better served and actually addressed through the new kinds of data and analytics that we can use leveraging technologies like artificial intelligence.

Michael Krigsman: How can companies of all sizes take advantage of these data and analytic capabilities? What kind of toolsets are needed? What kind of data? How should they be thinking about aggregating the data, collecting the data that they require?

David Shrier: Well, a couple of things. You used an important word there. You said, "Aggregating data." I'm going to come back to that in a second.

The first thing the organizations can do is improve their data literacy. People throw around words like data and analytics without really understanding what they mean. People throw around words like causality, which is, essentially, did thing over here A lead to event over here B?

A lot of people make assumptions about cause and effect that turn out to be false, so there's a wonderful book that I'm reading called The Book of Why, which talks about this idea of causality, so getting a better understanding of data and of just some basics of statistics. I'm not saying you're going to become a data scientist or data programmer. I'm saying that with a few weeks of training, with a little bit of effort, the general manager can understand enough about data analytics to ask intelligent questions of their data scientists. The data scientists should be able to answer those questions. That level of data literacy, I think, is critical. Once you're asking the right questions, that can help mobilize your organization towards developing the right answers.

Michael Krigsman: From a management perspective, it is essential to understand enough about data and analytics so you can ask the experts, ask your data scientists the right questions.

David Shrier: And come up with the right strategies as well. It's not only asking the right questions of your people but also coming up with strategies for how to marshal their resources.

You just mentioned earlier, this concept of data aggregation. Can companies be thinking about different ways to aggregate data?

In the book Trust::Data that we talk about, we actually espouse something different. We espouse what's known as a federated model, which means you don't aggregate the data. You don't do what Equifax did, which is put a lot of data into one giant pile and make it easy for hackers to get to. You leave the data in the more secure, distributed manner, and you send the algorithms to the data. You create different kinds of software and you put them together with the data. Then the software generates answers off of this federated data. Understanding that new data architecture is also important.

GDPR, the General Data Protection Regulation, has been passed in Europe. It has implications not only for European companies, but for any company that does business with a European citizen. Even if they fly from Europe over to the U.S. and are walking around the U.S., if you're touching their personal data, you are subject in some fashion to GDPR. This has caused a lot of consternation in corporate C-suites around, what the heck do we do with GDPR and what does it mean for us?

Longer-term, these innovations and policies around things like GDPR and around PSD2, and some analogous and somewhat weaker efforts going on in the U.S., these things will all actually create new business opportunities for companies as much as they are currently generating better protections for consumers. Understanding that changing landscape is something that is not optional for a big company, whether you're a healthcare company dealing with health records, you're a social media company dealing with social media profiles, or you're a bank dealing with bank data. Anyone who touches a consumer at any point needs to understand the new world of data and the new world of data privacy.

Michael Krigsman: Okay. We have a question from Twitter. I'll just ask you to respond to this very briefly because we have so much that we have yet to cover during this relatively short conversation. Arsalan Khan makes the important point that, for many executives, for many managers, data means either blind acceptance or an excuse to veto something without fully understanding the implications. How do we overcome that issue inside companies?

David Shrier: Well, I think leadership needs to become more aware of the risks of that binary approach of just sort of throw everything out or just sort of say yes to everything. That creates real risk that can impact market cap to the tune of tens of billions of dollars.

I point you to Exhibit A, Facebook's market cap. Facebook is not an evil company. It's not a company that set out to destroy people's lives. That was not their mission. But through a failure to properly understand the nuances of the personal data that they were aggregating and using, they created tremendous shareholder value destruction. They are now undergoing an effort to address that. It's much better to close the barn door while the horse is still in the barn.

Artificial intelligence and Economics

Michael Krigsman: Okay. Fair enough. Let's talk about artificial intelligence and economics, the financial system. How is AI going to change our relationship to money?

David Shrier: Gosh. AI is going to change our relationship to money in many ways large and small. At a macro level, let's say you're a decision-maker inside of a corporation or inside of a bank. You want to understand--oh, I don't know--inflation. Inflation has an impact on your cost of capital, on your price of goods. It's all sorts of things that are relevant to how you manage your business. Well, in the old days, you'd go to a government statistics office, and you'd have to wait six months, three months, six months, a year after the passage of time for them to provide you a backward-looking assessment of what was the inflation that quarter.

Well, thanks to AI and thanks to smart machine systems and some clever algorithms, one of my collaborators, Professor Roberto Rigobon at MIT Sloan, created a daily rate of inflation. You're not waiting 12 months to find out what inflation was. You can see it in real time and it's more accurate because it's based on real observations instead of on what turned out to be sometimes manipulated statistics from various government statistics offices. He now creates a daily rate of inflation for over 100 countries. That's a powerful application of artificial intelligence that has profound, real, and wide-ranging effects for corporations and value for management.

In small ways, our lives are made easier every day when we talk into our phone and say, "Where is that new restaurant that I want to go see? Where is the nearest Thai restaurant?" or, "What's the address of that office I'm going to?" It seems silly, but it's improved our lives in little ways and made us a little more efficient.

What we can see coming in the next five to ten years is that those artificial intelligent agents that live on our little smart devices are going to get a lot smarter. They're going to customize to our particular interest and needs. It'll be like having a buddy who is shadowing us, who anticipates what we need and puts it in front of us before we even explicitly ask for it. That's a really exciting way that, on a small scale, artificial intelligence is going to have an impact.

I was watching one of my favorite movies, Cloud Atlas, the other night. That little drop of innovation goes into a multitude of drops in the ocean. And so, if we have people inside a company with these little AI buddies who are helping them be slightly more efficient, corporate productivity is going to skyrocket.

Michael Krigsman: What about the impact on jobs and the potential for worker displacement?

David Shrier: There is profound potential for worker displacement thanks to AI if we're not careful. I say that because some worker displacement is not a bad thing. We are reallocating resources, in theory, to something more efficient. If we do what our friends at Accenture did and retrain those people and invest in reskilling, then we've done a great thing. We've helped improve efficiency, we're redeployed people against higher order tasks.

If we do what the steel industry in the British Midlands did in the '80s or the U.S. auto industry did in '80s and '90s and use automation to just throw people out of work and not retrain them, we create a generation of people who are permanently unemployed and unemployable. That's going to create political problems. It has already created political stress in the U.K. and the U.S., and it's going to get worse if we're not careful.

Michael Krigsman: Advice for managers, leaders inside large organizations who are reading about this stuff, hearing you talk, and trying to say, "How do I get ahead of this?"

David Shrier: A few things that you can do if you're inside a big organization or if you're a startup, if you're a leader who is trying to grapple with these changes:

  • First and foremost, get smarter about it. It's important that you build your data and analytics literacy.

  • Second of all, invest in educating your people and keying them in on what they should be focused on. Keying them in on creating new businesses. Supporting them when they come forward with new ideas.

  • Finally, embrace the startups. The big companies have an opportunity to take advantage of all of this innovation from all over the world using an open innovation model. The very, very smartest ones are actually building innovation ecosystems. This is a very sophisticated approach where you're saying, "We're not just doing open innovation and we don't just have a shingle out where we let people have an ideas box or something and submit ideas, but actually have a coordinated effort to engage with a number of different stakeholders within their industry segment who are pushing forward to the future and bringing that knowledge back for the larger organization to then implement it and drive change at scale.


Michael Krigsman: A lot of what you've been talking about has been management making intelligent decisions about how they lead with an open mind, essentially, an open mindset. Let's talk about blockchain. We all hear about blockchain. [Laughter]

Actually, I was going to say, we know Bitcoin is not blockchain, but a lot of people think Bitcoin is blockchain. What the hell is blockchain?

David Shrier: Okay. Blockchain is, very simply, a better kind of database. It's distributed. Instead of, as I used in my example earlier, having all the data in one place in this big central repository that is attackable by hackers, you have it in lots of different places, a thousand copies of the database. These copies of the database all talk to each other.

What that gives you are a few things. First of all, it gives you better transparency. Let's say you're using this blockchain for auditing votes to make sure that there was no double counting of votes or something. It becomes instant and trusted.

Second of all, it's more cyber-resilient. If you want to steal money from a bank today, you don't go in with a gun. You go in with a hacker. And so, $84 million was stolen from the Central Bank of Bangladesh by someone hacking into an old version of Microsoft Windows. Instead of having that one central database where someone changes a bit and they can steal $84 million, they now have to change a thousand copies of that database, so it's much, much, much more difficult to steal money from a bank.

What's interesting about blockchain, this technology was developed originally by a bunch of people who didn't trust each other very much. They definitely did not trust the system, they didn't trust governments or banking institutions, but they trusted the technology. We've created a kind of digital trust that now can be used for all sorts of activities in a more cyber resilient and more robust fashion.

Michael Krigsman: It's interesting you describe it that way because one hears blockchain being discussed in the context of trust, blockchain enables trust, and yet you say that it grew out of distrust, the lack of trust. Maybe you can share and enlighten us on that conundrum, if you will.

David Shrier: Yeah. The original trust model was, if I give my money to the bank, it's safe because the government stands behind the bank and everything will be okay. If you were a customer of Lehman Brothers, you discovered what was wrong with that assumption set.

Remember in 2008, during the height of the financial crisis, there were a lot of people who were not just disillusioned with banks, but they were facing the fact, and we still have this problem today. A lot of millennials are underemployed or unemployed, and so they feel the system has failed them. They've accumulated all of this debt for college, and they can't get a job or they can't get a good job, and so that fosters mistrust in institutions.

A bunch of hackers got together, computer programmers, and they said, "Hey, we're going to create digital trust. We're going to create something where you don't have to trust any one party. You don't have to trust a central banker. You don't have to trust the government. You can trust the network of software and everyone can see what the software does, so everyone can validate that it's okay." That was the birth of blockchain.

Now, today, blockchain is still being used in these, what we'd call, semi-trustless or completely trustless environments, but it's being used for different purposes, including by mainstream corporations, which I think is a good thing. For example, a number of big banks have started setting up new kinds of trading vehicles where different trading partners can trade with each other without revealing proprietary trading strategies, nonetheless exchange information or transact.

One of the areas that I'm particularly excited about is around digital identity. Today, thousands, ten thousand financial institutions all over the world duplicate a lot of effort with each other. They end up replicating the process of checking your paperwork out to make sure you're okay to do business with. This drives a lot of cost in the system.

It costs as much as $130 to onboard a new customer. Now, this creates a lot of exclusion because, if your customer only has an average balance of $100, you can't afford to spend $130 onboarding them. And so, that makes the poorest people not able to do business with these banks.

Well, if we created a system where, using blockchain as an example, you could stand up these identities and have a system for sharing that information in a trusted fashion and in a distributed fashion, you could dramatically lower the cost by two or three orders of magnitude. Now, we can bank the un-bank, and that's exciting.

Trust and Digital Identity

Michael Krigsman: Okay. Let's talk about digital trust. The first obvious question is, what is digital trust?

David Shrier: Digital trust, so what is trust, right? Trust is the belief that we can do business together or that if I say something to you, you can act on it and believe that it'll happen. Digital trust is a way of putting software code around that and saying that the software will make sure that whatever implied or explicit promise that we make each other is actually going to be followed through on.

Michael Krigsman: Then there's the concept of digital identity. What is digital identity and how does that link back to the concept of trust?

David Shrier: Digital identity is an effort to solve a broken technology problem that we have. I mentioned earlier, a billion people in the world lack a legal identity in the eyes of government and 3.5 billion have what I'll call imperfect identity attributes, meaning they either don't have a credit history or they have a credit history but has bad information or, for whatever reason, their identity is not matching up with their potential. And so, the systems behind how we deal with all this date back to King Artech Xerxes I of Persia in 480 BC where he was giving somebody little clay tablets to use as their passport --the Prophet Nehemiah, if you're curious.

We're using technology that goes back to clay tablets and cuneiform, and so we really need to update our technology for identity. The concept of a physical passport is a broken model. It can be forged. It can be hacked. The problem people are dealing with in Europe right now is that more than 10% of Syrian passports are forgeries, and so you want to give humanitarian aid to all these refugees pouring into Europe, and yet, how do you know who is who?

We can use new technology. We can use these ubiquitous communication networks, new digital devices, new algorithms, artificial intelligence to create an identity that is not reliant on that piece of paper but, instead, is using an understanding of who you are at a very fundamental level, what we call behavioral biometrics, in order to craft something that can't be forged. Well, it's very difficult to forge, very difficult to hack, and has a number of interesting features around it like it can help you get credit.

Michael Krigsman: When you say behavior identity, what is that?

David Shrier: Well, it turns out that how you go through your daily life is a unique way of identifying you as you.

Michael Krigsman: Elaborate on that point.

David Shrier: How you hold your phone, how hard you press on the screen when you type in keystrokes, how you walk, where you go when you walk through your day, those kinds of behavioral observations are something that your phone knows about you. In our model, which is what we call self-sovereign, that information stays with you. It's very secure and you hold onto it. Then you can decide, yes, I would like an abstraction, an encrypted, anonymized version of that to then be used to let an organization like a bank do business with me.

Michael Krigsman: For the sake of the non-technologists among us, what does that mean that you just said, in English?

David Shrier: Well, you know right now you don't own your personal data; Facebook does. Right now, you don't really control your credit file. Equifax does.

In the model that we propose, which we talk about in the book Trust::Data, instead, you control your personal data. It is up to you to decide who gets to look at it when, for how long, and what's done with it. Some of your personal data include your personal behavior data, which we can use, using our software, to make a new identity around you that is more secure, that can give you better, lower fraud rates, that can help you do business.

Here in the U.S., for example, if you want to use your credit card, it works 99.9% of the time. But if you're in Columbia, it only works one time out of four because the fraud systems can't tell good guys from bad guys. If you're in Indonesia, it works one time out of two, or Brazil, and so there's a lot of commerce in the world, about $360 billion a year, that's being held back because our current identity systems can't figure out who you are. Now, some of the poorer people in the world can actually do business, can actually grow their economies, can get the goods and services they want because we can use this better digital identity to create a better relationship between them and the merchant or the bank.

Michael Krigsman: Okay. It seems like you're raising two issues. Number one is, how do we identify somebody, as you were just describing? Then, number two is, where does that data reside and who owns it?

David Shrier: I think those two need to be linked. The fact of who you are and where the data that identifies who you are, those two things you should not separate.

Michael Krigsman: Why?

David Shrier: Because it creates issues around abuse and cybersecurity if you do separate them. If you create a big pile of personal data about you that you have no control over, that creates opportunity for hackers, as has been demonstrated by the Equifax hack and several other personal data hacks.

All three billion Yahoo email accounts were compromised. Anthem Health's 44 million health records were compromised. The list goes on. We've had major cyber breaches, which will get much more difficult if we keep the data federated.

Michael Krigsman: All right, but aren't you fighting now the business model? You mentioned Facebook just as an example. You're fighting the business model of Facebook to own that data and, all of these various companies that you're describing, their business model does not include allocating the resources necessary to safeguard that data. And so, you're fighting the tide of human history, human tendency, and human psychology, not to mention economics.

David Shrier: I'm not doing it alone. Regulations have changed. In particular, in Europe, GDPR is a seismic shift in the ownership and control of personal data. That came out of, in part, some of the world economic forum working group efforts around digital privacy, which one of my collaborators, Sandy Pentland at MIT, was instrumental in driving.

There's a new approach that's actually the law of the land in Europe. The U.S. seems to be moving more rather than less in that direction. And so, if you're a big company whose business model relies on monetizing personal data, you now have to deal with a new set of rules.

In addition, there are some commercial imperatives because personal data is getting more useful and more valuable. And so, I've spoken to a number of financial institutions that have said, "Just as we are custodians of financial assets, in the future, we are going to be custodians of personal data and personal identity assets." And so, there are actually very large, very, very large commercial enterprises that are pursuing this model of personal data custodianship and federated personal data.

Michael Krigsman: What's the timeframe, do you suppose, for this, this being the ownership of personal data, the control of personal data, the timeframe for this to proliferate more broadly, would you say?

David Shrier: It's three to five years on the legal ownership of it. It's probably seven to ten years on the monetization of that new landscape. The gap between three years and then years is where a lot of the innovation, market disruption, and opportunity is going to be created.

As I mentioned, GDPR in Europe has made this the law of the land that you now own your personal data if you're a European citizen. What does that really mean? People need more data literacy to understand that they now can do things with their data that they couldn't do before.

Open banking and PSD2 are other regulations that, again, make it easier for people to take control of their personal financial data that they couldn't do before. But now, companies need to step forward. Startups, largely, are entering this space, but bigger companies now as well to say, "Hey, here's what you can do now that you have ownership and control of your personal data and we, XYZ startup, or we, large financial institution, are going to help you do that." And so, that is going to play out over the next decade.

International Developments and Innovation

Michael Krigsman: David, we're almost out of time, but among the things that you have spoken about is what's happening in different regions of the world, like China, India. We expect that, but Latin America, that's unexpected.

David Shrier: There's a lot of innovation going on in Latin America. The Inter-American Development Bank is driving a lot of efforts to improve financial access and to address the fact that 50% of Latin American adults are under-banked or un-banked. In Brazil, for example, 72% of the population lacks access to credit, the adult population. There are new technologies and new opportunities to open up those markets.

I believe that if these efforts are successful, we're going to see a new kind of prosperity emerge in Latin America, in Southeast Asia, in Africa, and in various regions around the world. The MENA region, for example. The Arab world, 92% of the Arab world is under-banked or un-banked, and there's an opportunity to address that with new technology.

Michael Krigsman: To what extent will technology be the driver of significant global improvement, and what's the mechanism by which that will take place?

David Shrier: There's an opportunity for technology to be an enabler of change around the world. It's going to take courageous leadership and innovative entrepreneurs to actually turn that into results. It's not enough to just invent a new technology. We have to solve a problem, and we have to have people who know how to solve problems building organizations around that new solution.

That's where innovation and entrepreneurship is so exciting for me. We've created some programs, for example, at the University of Oxford to help people create those new businesses. Oxfordfintech.org and oxfordblockchain.org are two of the websites that tee up our classes where we help people figure out how to build these new businesses and new ventures.

Michael Krigsman: Are there other parts of the world that you're seeing a lot of activity that we should be aware of that maybe we're not?

David Shrier: Well, I think that people don't know enough about what's going on in China to really understand how profound it is. China is its own ecosystem of dramatic change in innovation around financial services and, more broadly, digital technology. A lot of it happens behind the great firewall, so we don't see it here, but some of the largest organizations that have been doing this, like the BATs, Baidu, Ali Baba, Tencent, and a few others. CreditEase is now beginning to look more globally.

These organizations have refined new kinds of technology that we don't really have an awareness of elsewhere in the world. And so, its impact on our lives is likewise potentially quite profound as it begins to emerge from behind the great firewall. And so, I would say China is probably the biggest place where we don't understand enough, in Western Europe or the U.S., what's going on there and what it could mean for our lives.

Michael Krigsman: What does it mean for the U.S., technology out of China, the innovation, and the fact we're not even aware of what's happening?

David Shrier: Well, in the U.S., we're at a little of a trade war right now. The Western Nations, particularly the five I's countries, are getting more aggressive about prohibiting Chinese technology from being used. Huawei, most notably, in the headlines around that.

It's a little hard to tell because we have these exogenous factors of political activity that are impacting market activity. If we didn't have political intervention, I would say that the big Chinese companies are going to be getting into a shooting war with Facebook, Amazon, Netflix, Microsoft, and Google over this new kind of technology, these new generation digital, data analytics, and AI.

With the political interventions, we may see some homegrown solutions that don't take advantage of some of the ideas coming out of China that may or may not have a long-term impact on us. I tend to be more in favor of open borders rather than closed borders, but we are a very innovative country and it's very possible that we'll be fine without what's coming out of China. But I would not sleep soundly at night if I were a global executive because not every country has engaged in a trade war with China. If the U.S. becomes more insular, those other countries are going to be able to take advantage of the collaboration opportunities.

Michael Krigsman: David, going back to the issue of data ownership, given the differences in the Chinese political system and prevailing attitudes in China, are they going to be saddled with the same kind of disruptions, shall we say, around the management of personal data that people in this country are going to have to be dealing with over the next decade or so?

David Shrier: That's where the analogy breaks down when you look at how the Chinese government has decided to handle personal data. The government owns it, so it's not a question of do you own it or not. In fact, the government is using it to manage society. And so, whether or not you can get travel papers, whether or not you can get a loan, and whether or not you can get an apartment is increasingly being governed by what the digital networks say about how well you collaborate with your neighbors and how well you obey the party dictates.

To someone from the U.S., it may look a little bit like Black Mirror, but I am very cautious about cultural relativism. It seems to work for them. I would not recommend the Chinese model applied to the U.S. or the Commonwealth.

Michael Krigsman: In China, it's a relatively simple solution enabled by very complex technology and the solution is, the government owns it all.

David Shrier: The government has actually been proactive in preventing abuse against its citizens by corporations because that's infringing on the government monopoly.

Michael Krigsman: What advice do you have for American or Western European policymakers, regulators, legislators regarding these issues?

David Shrier: I spent a lot of time talking to policymakers and regulators in the U.K., continental Europe, the European Commission, the European Parliament, as well as in the U.S. What I say to them is, you want to get a lot more sophisticated about these technologies, not unlike what I say to C-suite executives. You want to get smarter about them and understand what questions to ask that your subject matter experts, that your technical experts can answer. When crafting policy, you want to open up opportunity and innovation, and you want to have a light touch.

In another book we've written called Frontiers of Financial Technology, we have a pretty lengthy chapter about regulation and innovation policy. One of the things that we talk about is that we use the e-commerce regulation that the U.S. put forward as an example of creating safety for consumers and consumer protections without inhibiting growth of a new industry. And so, companies like Amazon and Netflix were able to be successful because we were able to solve a lot of problems through policy that enabled their businesses to grow while, at the same time, we were able to create consumer protections.

Similarly, for things like artificial intelligence, blockchain, and data analytics, I would be cautious about overregulating. I would also be cautious about underregulating. I think it's important to find the right balance and the only way to do that is active consultation with industry and academia to make sure that you design policy that suits the purpose.

Michael Krigsman: Okay. Well, I'm afraid we're out of time. David Shrier, thank you so much for taking time to be with us today.

David Shrier: Thank you, Michael. It was a pleasure.

Michael Krigsman: We've been speaking with the futurist, David Shrier. Here is his book Trust::Data. It's one of many books he's written. He is with the MIT Media Lab. He founded a company called Distilled Analytics. He has a pretty extraordinary career, and so you can check him out online.

Thank you so much for watching, everybody. Before you go, please subscribe on YouTube. Do that right now, and would you please tell a friend, tell your colleagues about CXOTalk? We have lots of amazing videos, and we'll be back next week with another show. Thanks so much, everybody, and I hope you have a great day. Bye-bye.

Published Date: Jan 04, 2019

Author: Michael Krigsman

Episode ID: 573