Thursday, February 7, 2019
Rory Van Loo (@RoryVanLoo) recently posted a new article exploring how automated personal assistants increasingly influence consumer purchasing decisions. As these digital intermediaries play an ever-larger role, we need to think more about how protecting consumers requires protecting these digital intermediaries. He opens with an example showing how a digital assistant may soon be able to efficiently shift consumer purchasing:
Siri. As part of my regular monitoring of your spending, I have located an opportunity to save money on your phone bill and on your grocery bill each month. Would you like to hear more?
Consumer. Tell me about the phone bill.
Siri. Based on your monthly data usage and the performance of the networks where you spend most of your time, you can receive comparable service through Sprint at $140 less per year. Let me know if you want to hear more. Or, if you would like me to switch your account, place your thumbprint on the phone.
Although some might fear the arrival and widespread adoption of this technology, I'd be thrilled. Sure, I could puzzle through Project Fi, Sprint, and Verizon to find the optimal deal, but my time has real value and I cannot buy more of it. I recently burned some of it trying to figure out the best way to deal with a dataplan when traveling in Europe over the holiday. I'd much rather delegate that task to a digital assistant--assuming I could trust the assistant not to skew recommendations to benefit its own interests.
Professor Van Loo has thought through this issue in a deep way. The article covers the need to protect access to the streams of information available for AI to sift. It also dives into what significantly reduced transaction and switching costs will mean. In many instances, reduced transaction costs will allow consumers to get a much better deal than they would have otherwise found. Hyperswitching could also create real economic instability. Take the example above and think about how 60 million users getting the Sprint savings notice at once would impact Verizon. If half of them switch instantly, Verizon may suddenly loses about $1.5 billion in monthly revenue (assuming people were paying $50/month). This could make it hard for Verizon to undertake long-term projects because customer churn rates would rise and future revenues would be less certain. The same thing could happen with online banking deposits if capital flowed more efficiently to whatever account offered the best return. Personally, I'm using Marcus at Goldman now with its glorious 2.25%. PNC offers a hair better at 2.35%. With my asset level, it's not worth the switching cost on my time. If I could do it with an AI butler and my thumbprint on my phone, I'd do it. Sorry Goldman. Markets are doing God's work. (I'm also assuming my AI butler can handle the additional tax form hassle.)
These are issues we should think more about. Digital intermediaries do more every day. We should make the transition to an increasingly digitally-intermediated economy in a way that protects consumers, markets, innovation, and the overall stability of our financial and other key infrastructure systems.