Cover Story: AI and the new horizons

This article first appeared in Enterprise, The Edge Malaysia Weekly, on August 14, 2017 - August 20, 2017.
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M Nazri Muhd was talking to a friend whom he considered a bit of a show-off. This friend was offering to introduce him to Datuk Dr Mohd Daud Bakar, the famous shariah scholar who serves as chairman of the shariah advisory committee at both Bank Negara Malaysia and the Securities Commission Malaysia in addition to running his own consultancy, Amanie Advisors, which has offices in nine countries.

Nazri decided to call the man’s bluff. “If you can, good. I will be happy to meet him.” To his amazement, the meeting was set up and he found himself flying to Kuala Lumpur to meet Mohd Daud less than a week later.

What Nazri, who is based in Singapore, did not realise was that he was involved in an area — impact measurement and data analytics — that had intrigued the older entrepreneur. Mohd Daud had done considerable work over the years, but he did not have the proper tools to measure the impact of what he had done.

Nazri, meanwhile, wanted the shariah scholar’s expertise and global presence. “So, it was a perfect match,” says Mohd Daud.

“I agreed to meet him so quickly because I liked the idea, which is something I had not heard of. But at the back of my mind, I knew there was something missing from our landscape. When I spoke to Nazri about impact measurement, I knew this was the way forward,” says Mohd Daud.

“We have done so many things in terms of policies, products and blueprints, but there is no point if you cannot measure the impact of what you are doing and try to improve from there.”

Nazri is quick to point out that the meeting took place in 2012, long before artificial intelligence (AI), analytics or big data had impinged on the public consciousness in a big way. “So, even before these technologies became popular, Dr Daud saw their importance and how they were going to be the next big thing. My company [VSC Asia-Pacific Group] just happened to have the tools that employ both cognitive and heuristic components in addition to using hard data,” he says.

The cognitive component is a system that mimics the human brain while the heuristic component adds flavour to the way the system assesses facts and figures, explains Nazri. Basically, VSC’s tools are able to process data and come up with important findings.

Being able to sieve through huge amounts of data has become a key component of any company’s success today, says Mohd Daud. “We are living in a time when data is abundant. It is everywhere, in every corner of the globe, through social media, official statements, reports ... and this provides a powerful tool to understand the behaviours, challenges, issues and problems in any sector of life, be it business or otherwise.”

The bottom line is that data is now the key component of business, he says. “There is nothing more important than being able to analyse data and turn it into a powerful business proposal.”

But will every business have this kind of access to data? Yes, says Nazri. “Every small and medium enterprise (SME) — whether you are a one-man show or a 10-man firm — will always have banking data, financial statements and things like that. So, you have records of expenses you incur every month for 12 months before you report it to the authorities. Every business also has personnel and sales records.”

All this, he points out, is raw data that can be turned into a goldmine. “You can actually use the data to identify issues, gaps, areas of excessive spending, potential revenue sources and even a lack of diversification. So, it is very relevant and important, even to SMEs.”

SMEs tend to shy away from big data analytics because there is a perception that it is a nice-to-have rather than a need-to-have and their scarce financial resources would be better employed elsewhere.

“There are two ways to answer this. Number one is that cloud computing solutions or software as a service (SaaS) has lowered the cost of acquiring software. So, things that used to cost thousands of dollars are now RM10 to RM50 a month,” says Nazri.

“Also, technology has been democratised to allow more people to adopt it. Moving forward, it will get cheaper and

cheaper. And that in itself will be a pull factor for SMEs.”

Number two is the cost benefit. “If you use analytics to do visualisation, to beautify your presentation, that is good-to-have, right? You have a lot of data and it comes in fancy charts and metrics. But if you use the same information to come up with predictive and prescriptive solutions, it becomes a doctor to help you improve your financial health,” says Nazri.

In the current challenging economic environment, with rising costs and competition, where most SMEs need to restructure their businesses to survive, this ability to process data is a need-to-have. “In the next six to eight months, things will be even more challenging,” says Nazri.

He knows what he is talking about, having assessed hundreds of Malaysian SMEs in the course of his work with government agencies such as SME Bank and the Centre for Enterpreneur Development and Research, as well as professional services firms. He wired up to 200 borrowers under the charge of government agencies, whose loans were past due.

Nazri found that 7 out of 10 SMEs would experience some volatility in their business model in the coming months. “That means their profit goes up and down. Some 60% of their balance sheet is stuck in inventory and receivables, so cash flow is a problem. They have contracts, but the collection is very slow. And about a third of them have limited access to funding,” he says.

“The other way to think about it is that a third of the SMEs have healthy balance sheets that are bankable while the other two-thirds are of borderline creditworthiness. It is already happening and the trend is likely to worsen in the next few years.”

This is what MyFinB — the financial technology (fintech) spinoff of Expert Analytics Centre Sdn Bhd (EAC) — can do. MyFinB is a robo-adviser that uses proprietary technology to assess companies, predict how they will perform and, if necessary, provide action steps for improving their business performance. EAC is a joint venture between VSC and Amanie Advisors.

The platform was built to solve a particular problem. Nazri, who has a background in finance (with Fitch Ratings, Citigroup and Prudential Asset Management, among others), noticed that many people did not know how to read financial statements. So, he came up with a technology that could do it for them.

“You need data? Don’t worry. We pull, we trawl, we process. You need to come up with a report? Don’t worry.The engine will process, prepare and write it for you,” he says.

Nazri was able to automate this process because of his years observing analysts, fund managers and chief financial officers. “In my various positions over the years, I got to see how senior fund managers or senior personnel made decisions so quickly. I wondered if there could be a technology that could replicate their expertise. Perhaps there could be

a robo-adviser that could think like them,” he says.

But standardisation was a problem. Each analyst or fund manager had his own way of thinking, investing and providing solutions. “You get to see that when they are in an investment committee meeting — either they are arguing, agreeing or giving their rationale. Over the years, through experience and observation, I have built up an expert system that is able to replicate how they think, analyse and evaluate, not as a single person but as a group,” says Nazri.

“We built MyFinB on the basis that we need a robo-CFO, robo-CEO and robo-COO that is able to think like a human and give recommendations to humans. So, people get to be involved in more strategic aspects of a particular task.”

Rather than being threatened by this, the coaches and intervention officers at financial services companies saw it as helping them in their jobs, says Nazri. “Productivity rose by 600% because things that normally take six weeks now just take one week.”

MyFinB’s clients — such as banks, government agencies and accounting and auditing firms — gradually began to understand the importance of automation and engaging with clients rather than doing back-end paperwork. “If not, you could end up spending all your time collecting data, spreading the data and preparing the report. Then, right at the tail end, you spend a little time with your client,” says Nazri.

“But what if you flipped it and spent 80% to 90% of your time engaging with the client and only 10% to 20% preparing the report? If the robo-CFO could prepare the analysis, well, why not?”

Nazri compares this to AirAsia’s famous tagline. “You know how they say, ‘Now everybody can fly?’ So for MyFinB, now everybody can read financial statements. Why is this important? Because there are eight million businesses registered in Malaysia and not all of those who run the businesses are trained in accountancy. We are talking about SMEs and mom-and-pop stores. Now, you do not have to worry about hiring costly accountants.”

Based on the structured and unstructured data it is able to procure from a company, MyFinB generates a 15 to 20-page analysis. “First, we diagnose how well the company performs against the industry. Then, we look at the drivers of the valuation. All these are autogenerated by our robo-adviser,” says Nazri.

“Our system will tell you your business potential and valuation. We even stress-test the company to see how it fares if problems in a particular sector dampen sales or increase costs.”

The platform gives the company a colour-coded indicator — red, amber, emerald or black. “It tells you that your company will have problems if your sales is reduced by 5% or there is a 2.5% increase in cost. It is that sensitive. Automatically, it picks up on what the issues are and the action steps that need to be taken,” he says.

The detailed reports contain more steps than this. “It is easy to state a problem, but if you have more than 100 problems, the robo-

adviser will prioritise them for you — what to look into for Phase 1, Phase 2 and so on,” says Nazri.

MyFinB uses IBM Watson’s AI engine. “With Watson, we are able to assess industry sentiment and this is integrated into our portal, our engine. It picks up all the latest trends in real time to supplement our analysis,” says Nazri.

“So, any company that operates in a particular industry is able to instantly see what is happening in that industry, feel its pulse, and then incorporate the sentiment, that is, what people are saying about the company.”

The technology can even add a CEO personality insight. “This does not affect the financial position of the company, but it gives the report some colour. It gives some perspective of how the person is by trawling through his social media, looking at his websites and all that. This section is new to us, where we blend personality, industry and country insights. This is our proprietary technology, which we combine with IBM’s technology,” says Nazri.

Basically, VSC’s technology serves as a barometer that is able to assess companies and get a picture of where the economy is headed through the results. Nazri was actually an early mover in this space.

“When I started in 2006, all this robo stuff was not sexy. Nobody seemed to know about fintech or AI. But with all the knowledge I had acquired from my stints in finance-related companies, I quit my job to set up VSC,” he says.

He managed to get funding from the Singapore government, which recognised the strategic importance of the area he wanted to get into. In fact, the company is 20%-owned by the Singapore government. Nazri is the majority shareholder, although he declines to say what his stake in the company is.

VSC’s first fintech product was a lot more involved than MyFinB. “It gave you a more detailed financial analysis, but the market did not appreciate the AI aspects of it. They just wanted to see the outcome. Our clients would say things like, ‘Just analyse 100 companies and tell me what their health is,’” he says.

Thus, Nazri found himself spending less time talking about the technology per se and more time talking about the outcome of his analysis. “We would say things like, ‘60% of these companies are amber, 30% are red, 10% are black. Here are 50 things you must do to improve the situation.’”

After three years, he realised that VSC could use the technology in other industries. “We realised that we could do healthcare, power, a robo-teacher, a robo-lawyer ... so many things.”

However, AI still was not popular. “So, we decided to incubate it internally and carry on with life as normal. We started to get traction in other countries as VSC Group. In the last three years, however, we have seen the emergence of new technologies and have identified five key areas into which we want to spin off,” says Nazri.

This was when VSC turned into a venture builder. “Instead of being a pure analytics company focusing on finance, we became a venture builder with 15 verticals,” he says.

Mohd Daud invested considerable resources in this joint venture. “I have to walk the talk and put some capital where necessary to welcome the idea,” he says.

EAC does not build ordinary companies such as restaurants or infrastructure firms. It has to be digital or analytics-driven.The company also plans to roll out three start-ups this year — in legaltech, edtech and powertech.

MyFinB is valued at RM20 million. The team is talking to potential investors from all over the world, especially early-stage venture-capital firms. “We are looking to raise about RM5 million, with the first RM800,000 over the next three to four months,” says Nazri.

IBM Watson created the world’s first AI lawyer known as Ross. “We created Ross’ girlfriend called Missy, a robo-lawyer that is able to look at the probability of two parties suing each other and contracts failing,” he says.

It has also created an education narrator. “It is like a robo-teacher that is able to profile students using a mix of academic and non-academic factors to look at the probability of students failing a subject in the next three to six months.We feel that the robo-educator has a role to play, not to replace teachers but to quickly identify — in a classroom of 40 students — the underachievers, underperformers, those at risk and the issues they have.”

Nazri says it is relatively easy to find out about children these days because they let it all hang out on social media. “We can pull the data from their social media such as Instagram, their comments and feedback. We can look at their grades, which are available at their schools. With just 5 to 10 questions, we are able to decipher what their thoughts are.”

All these products will be developed and neatly packaged. “That is what a venture builder does. It builds the product, puts a shelter around it, raises the seed funding internally and finds customers,” he says.

Mohd Daud chips in, “First we get the client, then we hire the people. We put some limited resources, money and people-wise, then get one or two deals and put in more people. That is how we create companies.”