Sibos 2021: What will Industry 4.0 and 5.0 mean for the financial sector?

Sibos 2021: What will Industry 4.0 and 5.0 mean for the financial sector?

Opening Swift Innotribe’s red thread – Banking on Change – on day one of Sibos 2021, was theoretical physicist, futurist and science communicator, Dr Michio Kaku. Known best for his seminal work on string theory, Kaku analysed science’s contribution to wealth generation since the first industrial revolution, and made predictions as to how further technological innovation, particularly artificial intelligence (AI), will steer the financial services sector through the fourth and fifth industrial revolutions, this century.

Ask an economist where wealth comes from, and she will say money printing. Ask a politician, and she will say taxation – or rather, “robbing Peter to pay Paul,” in Kaku’s estimation. Whether you agree with this political characterisation of taxation or not, it is, unavoidably, a zero-sum game.

So, what happens when you ask a physicist at Sibos where wealth comes from? The answer you get is: “physics”.

How is wealth generated today?

Throughout history, a negligible portion of humans have avoided living in poverty, sickness, and disease. According to Kaku, the average life expectancy for an individual before the industrial revolution, may have been as low as 30 years.

Two hundred years ago, from a mire of infirmity, emerged a branch of physics that deals with heat and temperature, and their relation to energy and radiation – thermodynamics. The principles powered the first industrial revolution, and underpinned the invention of the locomotive, the weaving loom, and by extension, capitalism.

With physics established as the engine room of wealth creation and the first industrial revolution, Kaku went on to argue that science also seeded Industry 2.0 – characterised by mass production and the assembly line – thanks to James Clerk Maxwell’s articulation of the electromagnetic force.

This pattern of scientific innovation fuelling industrial revolution continues today, with quantum theory enabling Industry 3.0, and the invention of the computer and the internet; all of which have become central to our financial systems and economies.

Today, however, Industry 3.0 is starting to subside, and Silicon Valley is blistering into the new Rust Belt.

Wealth generation in Industry 4.0 and 5.0

So, what insights did Kaku hand the Sibos audience around wealth generation in the fourth and fifth industrial revolutions – the former of which is already underway?

As we have already seen in the financial industry, technological innovations, such as AI and machine learning (ML), are characterising Industry 4.0. From better and faster credit decisioning, to risk management, fraud prevention, trading, process automation and robo advisory services, AI is revolutionising the way financial players operate and serve customers. In the near-term, IoT will play an increasingly important role in cash management, and enabling banks to automate key business processes.

“Almost every aspect of the fourth wave will soon be dominated by AI,” argued Kaku. Indeed, the oil that once greased the wheels of capitalism is being replaced by data, with AI stepping in to mine it. “Tackling mountains of meaningless data allows you to overcome inefficiencies in your corporation, or track market trends,” Kaku pointed out.

The impact on the job market

A commonly cited drawback of automation, AI, and ML tools – particularly within financial services – is of course their impact on the job market. Fortunately, Kaku’s talk addressed the undercurrent of concern, that humans may, someday, be replaced by robots.

Artificial intelligence is taking us to a model of “perfect capitalism,” Kaku explained. Indeed, under our current model of capitalism, prices are essentially set by supply and demand. This is an imperfect arrangement, in Kaku’s view, since “you don’t really know what something costs, or whether someone is cheating you. There’s also many hands between you and the product.” Naturally, this causes friction.

A computer-based revolution smooths out these “speed bumps”, by making the flow of goods and services easier. “Why is Amazon creating the richest people on earth?” asked Kaku. “It is because they circumvent the middleman via digitisation.” Evidently, this is what end-users want.

Kaku’s illustration of a ‘perfect capital’ model, then, charts a transition from commodity-based economics to one of intellectual capital. Technology moves us from “products of the hands to products of the mind,” he said. The jobs that will thrive in Industry 4.0, therefore, are ones that involve creativity, which cannot be performed by AI.

“Every revolution has winners and losers,” Kaku admitted. Fortunately, “the future belongs to intellectual capital – this is why humans will always be needed. They can provide leadership, innovation, analysis, and creativity.”

The acceleration of computational power – Moore’s law – however, is levelling out, Kaku noted. To bring about the fifth wave of technological revolution, we need to “replace the digital internet with the neural architecture of living brain, and create a brain-net.” Within the financial industry, this would enable end-users to receive banking services without the need for an interface, such as a computer or a mobile phone. This would have significant implications by streamlining access to finance.

While sci-fi-sounding, Kaku assured the Sibos audience that these ideas are already backed by investment – not least by the likes of Elon Musk, today.

What will the fifth wave look like?

Brain-based technology will underpin Industry 5.0 – its source of wealth being cutting-edge physics, at the atomic level.

In the fifth wave, quantum computers, for instance, could facilitate the creation of:

  • Super batteries to usher in the new solar age;
  • Cheap fertilisers to help feed the world’s fast-growing population; and
  • New photosynthesis channels to better harness solar energy.

Clearly, this technology is an ace in the hole, and would spell good news for the global decarbonisation effort: “When we enter the fifth wave,” noted Kaku, “fusion power becomes a reality. This means unlimited energy from the sea – all fuel for a reactor.”

This is more than a pipedream. The International Thermonuclear Experimental Reactor (ITER), for example – an international nuclear fusion research and engineering megaproject – is currently working to replicate the fusion processes of the sun for near-limitless energy generation on earth. In order to store all of this energy, “quantum computers can simulate processes to create a super battery,” Kaku said.

As ever, the funding of these innovations will fall under the purview of the financial industry. “In 10 years, we may see quantum computers come to market,” Kaku predicted.

The challenges ahead

Kaku concluded his prophetic barrage with a list of pointers the financial industry should heed on their journey to Industry 5.0:

  1. Technological evolution should not increase the digital divide geographically, or limit access to finance.
  2. All technology comes with drawbacks – AI will soon be integrated into everything. Just as mother nature has combatted viruses for millennia, we must continue to develop tools to protect our online privacy against bad actors, as opposed to rejecting technological progress outright.


Comments: (1)

Michael Rada
Michael Rada - IBCSD LAB s.r.o, - Praha 13 October, 2021, 07:48Be the first to give this comment the thumbs up 0 likes

Dear Finextra, thank you for delivering INDUSTRY 5.0 related content to your readers and audience. My name is Michael Rada, I am the Founder of INDUSTRY 5.0 and implement its principles in businesses and companies since 2013 already. I would like to correct Dr. Michio Kaku.

INDUSTRY 5.0 is not the fifth industrial revolution, but the FIRST INDUSTRIAL EVOLUTION EVER LED BY MAN (HUMAN). It is based on the principles of systematic waste prevention recognizing forur types of waste PHYSICAL, SOCIAL, URBAN and PROCESS WASTE. 

At the moment of article publication INDUSTRY 5.0 principles are represented in 75 countries thanks to growing network of the INDUSTRY 5.0 AMBASSADORS and it is already officially part of the EUROPEAN SUSTAINABLE DEVELOPMENT FRAMEWORK introduced by the EUROPEAN COMMISSION so as it is being acknowledged my the UNITED NATIONS. FOr more details feel free to contact me of watch one of the keynotes delivered to international audience