Embrace change, take risks, and disrupt yourself

Hosted by top 5 banking and fintech influencer, Jim Marous, Banking Transformed highlights the challenges facing the banking industry. Featuring some of the top minds in business, this podcast explores how financial institutions can prepare for the future of banking.

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Contextual Data is Changing the Future of Banking

The financial services industry has seen a great deal of disruption from digital-based alternatives. Many of these challengers use advanced technology and expanded data sets to offer apps that provide financial solutions at a lower cost, with less friction and greater personalization than traditional bank or credit union offerings. Toronto-based startup Flybits believes that the best way to compete in the future is not just by developing innovative products and services, but by becoming the repository of choice for data in addition to money.

In this episode, Hossein Rahnama, CEO and Co-Founder of Toronto-based Flybits, discusses how the future of financial services will be based on the ability of institutions to use contextualized insights to enrich consumers’ daily lives inside and outside of banking.

Hossein Rahnama // Banking Transformed 2019

Hossein Rahnama: You can ignore the H in the middle, spell it as a Spanish last name Ranama or saying Ranama.

Jim Marous: OK.

Hossein Rahnama: Ignore the H.

Jim Marous: Okay. That’s easier then. Okay.

Jim Marous: Welcome to Banking Transformed. This is Jim Marous and today I am really honored to have the guest Hossein Rahnama from Flybits, Inc. Hossein’s background is interesting in that he not only is the founder and CEO of a startup that works in really contextual engagement and applying other realms of data outside of what we’ll call the financial services data that we’re used to. And not only does he head this company but he’s also a professor. He’s a professor at M.I.T. Media Labs and also a professor at Ryerson University. So pretty much it takes two dynamics here both from a CEO standpoint of a startup as well as a professor in the educational side. So I’m really glad to have you here today Rahnama.

Hossein Rahnama: Thank you very much it’s great to be with you.

Jim Marous: And I just used your last name as your first name. We’re going to start over again. I’ll get right to the intro. I’m sorry.

Hossein Rahnama: No worries.

Brigid Coyne: Hey Jim. Jim if you want to say– just pick up from, “Glad to have you on the show.”

Jim Marous: OK great. Hey it’s really great to have you on the show today Hussein. And one is to touch base a little bit can you tell me a little bit about Flybits and what its mission is as well as its application in the financial services industry.

Hossein Rahnama: Sure. If you look at the consumer sector you’re seeing that digital channels are becoming more predictive, more learnable, and more context aware. Think about Siri on Apple. Think about Amazon and Alexa. Think about Google Assistant and Google Live on Google. These are next generation digital services that can learn from their users and they can get better as their users use them. So if you think about the enterprise world, if you think about the banking world, almost all the banks trying to build such services on their digital channels, these next generation concierge services that can understand the needs of their users and can adapt and give the right information to the right user at the right time. That’s what we refer to as context aware computing or contextualization. Doing and building these types of capabilities in the past required a lot of I.T. processes, algorithmic expertise, understanding things such as statistical modeling and predictive modeling. So what Flybits has done is that it has really simplified that process for banks. So instead of expecting the bank to go and build silos of data scientists and algorithmic experts, we have built platforms that even a marketing intern can be trained on and they can focus more on use cases and creativity rather than worrying about I.T. complexities and they can bring these next generation predictive use cases to the market faster and in more efficient ways.

Jim Marous: So really what you’re talking about there is taking a new realm of secondary data and applying it so that instead of waiting until somebody does something and you tell them it’s happened, you’re actually able to predict or work in the advance of what a consumer should do. You can make outside information and provide solutions that are that are predictive. Correct?

Hossein Rahnama: That is correct. And you know AI without data doesn’t really mean anything. So in order to build a capable, scalable, AI strategy for banks you need to have a lot of data and you need to know a very good data strategy around that data. So what Flybits does is that it empowers the bank to leverage their proprietary data assets, enables them to correlate it with external data assets whether it’s coming from a sensor, whether it’s coming from a phone, whether it’s coming from loyalty program providers, airline merchants, and really allow them to put those data sets together in an effective way and use that to build customer logic. They can use that logic to do better automation within the bank. They can also use that logic to engage with their customers better. But the key thing we highlight here is that customer identifiable information is fully protected and in some cases the banks don’t even see them. But using our capabilities on how we encrypt the data, how we tokenize the data. Although the data is not identifiable, the bank can still have the ability to use that data logic to engage with their customers in a more personalized fashion.

Jim Marous: So when we’re talking about an open banking environment will this also enable the association of services outside financial services where the bank could actually be the holder of the customer identities, so to speak, and that they would then be able to apply it towards other applications maybe outside of banking?

Hossein Rahnama: I’m very glad that you asked that question. Our belief is that the banks of the future will not necessarily be seen as banks or finance institutions. They will be seen more and more as data hubs or ecosystems for a much broader set of industry verticals. Not only can they provide better financial products and more relevant financial products to their customers but they’re in a perfect position to leverage data to form these data alliances and data partnerships with other members of the ecosystem, such as grocery stores, airlines, energy companies. And think about models that the customers can subscribe to these data hubs and alliances. I’m very glad that you brought up open banking because now it’s up to the user if they are willing to share their information or not and they will continue to receive benefits and services from members of these alliances which are complementary businesses that are sharing data based on the consent of the user to receive better, more relevant and higher impact service as on their digital channels.

Jim Marous: So when you’re really talking about the collection and application of data the reality is we’re trying as financial institutions to increase the value proposition and make it more valuable to the consumer but at the end of the day we could get into issues regarding privacy. How do you see privacy playing out with solutions such as yours?

Hossein Rahnama: Very good question. So we look at privacy not just from a data point of view but also from a design point of view. You mentioned open banking. In Europe you know we have guidelines such as GDPR and in the UK things such as PSP 2. Combining all of these, I think the paradigm will shift. The paradigm will shift from the bank has a lot of data about you therefore they can mine it and push you information and it’s changing towards a model that this service that the bank provides should be so good that the user is now willing to share more and more data to get better service from the bank. And the moment they are not happy about the service or they are not comfortable about how the data is being shared they have the ability to delink all of that data. So when you mentioned privacy, in the past I’m sure you and many of your listeners remember it’s not a new thing that these organizations want to share data to provide cross-channel services. The difference now is that with the capabilities that Flybits created, and also it’s a trend in research in data science, is that you don’t need to co-locate data in one location. Probably we all heard about these notion of data leaks. The moment you co-locate data you make it very prone to security and privacy risks. The new capabilities that we built basically allows the data to stay in their premises. You agree on an edge, not within the cloud, but within an edge for the data insights to be computed among these data sets and members of the data alliance will have access to the insights not to the atomic data. So think about a grocery store, a telecom operator, and a bank partnering with each other. Absolutely they are not interested to disclose each other data sets to one another because that’s a very important asset and it’s very much prone to privacy and security risks. But if there is a trusted edge that all of them can rely on to understand the insights and the patterns and the correlations between that data and only the insights can be shared rather than the data. I think we have reached that level of data maturity and data science maturity that a lot of the great concepts that we have had in the past can now get commercialized and be implemented in the market.

Jim Marous: So you know when you apply this then, how do you see… You see this as the financial institution really being the personal concierge for a consumer’s life both inside and outside financial services. Is the banking industry in the best position to be the daily concierge for a consumer do you believe?

Hossein Rahnama: Let us look at a few attributes to see whether banks are in a good position to be the driver of such services. In order for an organization on a vertical essentially to be able to lead this, first of all they need to have a lot of data. While we agree that many banks have a lot of data about you, especially when it comes to transactions, income level, credit score, that’s very valuable data. This is data that many tech giants such as Facebook and Amazon and Google do not have access to and that is why they are trying to get into the financial sector because they want to have access to such data. So if data sets exist in a bank, I think it’s a great asset for the banks to leverage it to build new business models out of that. The second attribute is we need to have a lot of existing users. We don’t want to start with a cold start problem like a B2C company to go and you know acquire users 1 by 1. Banks have a lot of users so combining these two and still believe that banks compared to many of these centralized repositories of information such as Facebook and Google and others are still more trusted. I think they are in a good position to leverage digital design. Bringing creativity such as storytelling and narrative design combining them together and really need their way to become the hub of the next generation concierge services.

Jim Marous: So when you’re looking at this and we look at the fact that in your environment the importance of real time data becomes imperative. Because you’re really trying to provide solutions on the fly in a way that if I’m in a location and I’m doing something and anything as simple as weather changes or something in my life changes to a degree that it may recommend not only a financial service but maybe something outside the financial realm. How do you do this? How do you implement this in financial institutions that right now are not really structured with their legacy data structure to deal with that rapid of a turnaround of data and insights?

Hossein Rahnama: You raised a very good point. I think gaining maturity on data science and understanding what data ecologies mean in a banking sector is extremely valuable to empower and enable a bank to innovate for the future. You mentioned weather data. There are sensory data there such as location. There are commute patterns, there are purchase behavior patterns. In the past, as you know, the infrastructure of a bank were built in silos. Let me kind of share a common story that Flybits hears almost all the time. Every single digital executive that we talk to at a bank tells us that since about a year or two years ago they started something in the bank called a digital transformation strategy. And what they meant was that they wanted to bring a lot of data from within the bank and from outside the bank and really automate both within the bank and also engage with their customers better. When we talk to those executives after about six months into the project almost all of them tell us that about 90 percent of their budget is being spent on managing I.T. complexities, data complexities, and although they came up with some amazing use cases to begin with, they really could not bring them to the market. Now there are a number of reasons for that. Software engineering paradigms has changed. The old way of procuring multimillion dollar software from tech giants, changing all your paradigms and then bringing a system integrator and waiting for a year for some capabilities to be alive in the market has passed. With the advent of micro services, effective orchestration in that cloud, you can really cluster the bank into smaller more agile product units and really empower them around product capabilities rather than function and feature capabilities in a bank. I think if such things can be understood better and be advocated within the bank, banks can really leverage these new capabilities in partnership with startups. Also leveraging some of the existing capabilities they have and really focus on time to market. So combination of these I think will allow banks to be more innovative and more agile when it comes to design and implementation of such services.

Jim Marous: So you really see that the role of financial institutions may move from being money vaults and products and services around financial services to really being data vaults where the value proposition moves to being how financial institutions can make consumers lives easier. Correct?

Hossein Rahnama: I definitely think so and I wouldn’t be surprised. Let’s remember a co-ops in the 60s. There were entities that represented their members and they were trusted by members in their own community. I wouldn’t be surprised that if I use this analogy that in the past you were going to your local branch to deposit a check and in the future you may still go to your local branch but you’re going to deposit your sensitive data. You don’t give up the data. The data belongs to you as the deposits were owned by you but the bank now has the responsibility to manage that data on your behalf. So I definitely see that banks are in a perfect position if they innovate right. They can actually be the perfect data vaults for the future managing the privacy and also the data of their customers on their behalf and use that data to drive healthier behavior in their community. There is a lot that can be done there. This could be things around the notion of connected cities, smart cities, really leveraging these new types of shared economies to drive better behavior. So I think banks can really innovate there but they need to understand the value and importance of data in achieving such transformation. Not just on an immediate basis but also for keeping the bank relevant for the decades to come.

Jim Marous: So you’ll also probably see this also, is a change in the way that people access that data. So what do you see as far as the role of voice, for instance?

Voice, is it? So that’s a good question you ask. So I would say there are a number of interesting interaction layers that enables banks to interact with their customers better. These could be conversational interfaces like we have seen chat bots there are lots of companies in this space, in the fintech space. There are voice assistants like Google Home and Alexa. There are messaging platforms out there. These are all presentation layers and the role of context and that’s where Flybits plays, is that it understands which interaction model is more relevant for that customer in that particular situation. For example if you are in a busy environment maybe the right way to interact with you is through a display driven interface rather than voice. If you are in a position at home that there is not a lot of ambient noise and your interaction with your bank is more passive rather than active, you’re looking for advice, maybe switching to a voice assistant will be better. But I don’t think we should compare these channels and kind of think, “Which one is better than the other?” I think we should think about as a contextual layer that determines the needs of our banking customer when they are at home and the needs of the same customer when let’s say he or she is traveling on business at an airport requiring cross-border services or cross-border travel services. That is more important and I think there are lots of interactions you can think about even including robotics. We are working on humanoid robots that can act as a customer service representative at a branch. But those are all the application and presentations. We also need to have a deeper look in terms of what infrastructure do we need to use the right channel for the right use.

Jim Marous: OK so you know, looking at the way we apply data, look at all this advanced analytics and applications so that the consumer really knows that the financial institution knows them, understands them, and looks out for them. But the challenge still is that banks are for banks and bankers are bankers. What do you see as the leadership challenge and the cultural challenge in being able to apply this level of service, this level of application of data, and actually is changing the overall business model. What do you see as the challenge internally for financial intuitions in actually moving forward and embracing this type of technology?

Hossein Rahnama: I think there are a number of factors that leaders in a bank should look at. One of them is organizational. Usually if you look at the structure of the bank you have three core silos. Usually you have an I.T. team. These are groups that are managing the infrastructure, security, ensuring the servers are up. Then you’ll have a digital team. The digital team is about, “OK now that we have all of this data, how are you gonna bring it outside the organization?” Whereas the role of the I.T. team is exactly the opposite, its that, “How do I keep the data inside and secure?” So I.T. plays a defensive role, digital plays more like an offensive role and then it’s usually many of these banks introduced another silo called the analytics and the AI team, which is like, “Oh now we have all of these data assets siloed and fragmented. How do we make sense of it?” I think the first thing that frankly the banking leaders should do is to really create a horizontal and abstraction layer among these units. So first of all they don’t compete with each other but also they complement with each other. And one approach to do that is to really create these smaller more agile, more interdisciplinary units in a bank rather than to say, “Oh we have an AI team of about 200 scientists.” That is the job of a university, its not the job of a bank. And really create interdisciplinary teams that in them they have people from computer science, data science, design, business, project management, and really empower them to bring capabilities to the market. And there are technologies that allows these to be done in a more effective basis in a secure environment like banks. The second thing I would say is their view on A.I. There is no such one thing as A.I. Even a subset of A.I. which is machine learning, there are about 50 different ways of doing machine learning. Context is very important there. Do you want to use machine learning to manage risk? Do you want to use machine learning to optimize selling and up-selling? Each of these require a different type of A.I. strategy, A.I. infrastructure and expertise. How do you procure technology that you can basically plug these capabilities and not necessarily build such capabilities in silos. This is kind of how CTOs in an organization can play a role. And also the last thing I would say almost every single bank that you talk to these days they have an innovation arm. It’s very important that the innovation arm of a bank is interconnected to a business unit and understands how to solve a pain point. An example I can share with you, I’m not going to mention the bank, but we went to a very big innovation presentation by a very large bank. And what we saw was on one table there is a humanoid robot. Then there is a drone. Then there is a bit of a block chain and then there is a bit of a robot. It is great but partner with universities lead them to do such things. You bring capabilities to the bank that is actually solving a key pain point. And that means you need to connect the innovation unit of the bank to the leaders of business units and really create a compensation structure and incentives for these individuals to talk to each other. In some cases innovation arm is just there to hopefully… they’re people hope to bring innovation in. But there is a need for some organizational alignment between what business wants and what innovation can do.

Jim Marous: And finally could you tell me… Recently you announced the partnership with MasterCard. Could you tell me a little bit about how that partnership works becasue you know our listeners obviously want to see how the technologies are being applied. And MasterCard is obviously doing quite a bit with their innovation lab and also with their capabilities as far as an innovation engine. Could you talk to us a little bit about what your partnership with MasterCard is going to involve?

Hossein Rahnama: Sure. So the relationship that you mentioned is part of our recent fundraising that includes Point72 VC which is the venture arm of the big asset management in New York. City Ventures, the venture arm of Citibank. Green Venture which is the venture arm of Westpac the bank in Australia and MasterCard. So we intentionally created a support structure an investment that we have very complementary organizations coming and investing in Flybits and supporting us to move forward. Now MasterCard is an extremely innovative, agile organization when it comes to understanding their customer and also empowering their partners to leverage their digital and data assets to really personalize information for their end users. As you know they are one of the major, if not the biggest card issuers in the world. They have relationships with merchants, with banks, and with many many other entities. So when we looked at that dynamic we basically said, "This is a perfect setting for Flybits to demonstrate its capabilities, whether it’s leveraging transaction data, whether it’s leveraging loyalty data, whether it’s leveraging relationships with merchants and airlines. And really work with them to understand the needs of their users while we protect their privacy to really deliver useful, high impact, and timely services. Not just to MasterCard direct customers but also to MasterCard partners whether they are merchants or card issuers.

Jim Marous: Well it’s been great to spend some time with you and it’s exciting to see where contextual insight can drive financial services in the future. We talk a lot about the movement from reactive to proactive engagement and your solution obviously gets to that point. Again really appreciate you spending some time with us today. And again today we’ve spent some time with Hossein Rahnama from Flybits and looking forward to talking to you and seeing where reorganization goes in the future.

Hossein Rahnama: Thank you very much Jim. It was a pleasure speaking with you and looking forward to staying in touch.

Brigid Coyne: All right thank you.

Jim Marous: Hey thank you so much. I’ll tell you what it is exciting, I do a demo at a lot of my presentations where I have a fake Siri and I talk about Siri actually is asking me questions as opposed to the other way around and it says, “You know we see that you’re out of something to your pantry. We see that you’re out of something your refrigerator. Your schedule says you’re supposed to be meeting with so-and-so today, do you want us to get an Uber for you to go to the restaurant? We know where the guy likes to go to eat. We can take you there and don’t forget your umbrella.” And it tells you all these things and we’re so close because the data’s all there. It’s not like the information is not there, it’s how do you bring this together and how do you make it so that it’s more applicable, it brings higher value, and I didn’t talk about it on the interview but, you know one element also is how do you make this as a revenue generator? You know banking continually gives away everything for free but the reality is there’s a revenue model here. Amazon right now, they get one hundred twenty dollars a year and it’s not for free delivery because almost every retailer has that. It’s for the fact that you really know me better than anybody else and that’s the competition in the future because they’re already applying this daily to make my life easier. And we didn’t talk about it either but in an invisible way that is 1000 percent transparent and seamless and worse behind the scenes so you’re not actually flicking a switch or pushing a button, it actually comes to you which is just so exciting.

Hossein Rahnama: That’s correct. And I think on that note that company who can actually do that while enabling the customer to own that data and giving them comfort that their data will not be misused without their permission I think will be a big winner in this space.

Jim Marous: So where are you… Where are you located out of on a normal day to day basis?

Hossein Rahnama: At the moment I’m in London, UK, home is Toronto, Canada for me and I spend a lot of time in Boston for M.I.T. and also in San Francisco.

Jim Marous: Well we’re going to definitely have to meet up in person because–

Hossein Rahnama: Of course.

Jim Marous: I appreciate this and I’m glad we were able to put this together so thank you again.

Hossein Rahnama: Thank you so much Jim all the best.

Jim Marous: OK. Thank you. Bye bye.

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