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.
Harnessing the Full Potential of Emerging Technologies in Financial Services
Every financial institution is adapting and adjusting to compete in the realities of an ever-changing digital world. It is time to re-imagine how applications are delivered, how data is leveraged, and how to create immersive experiences to meet the needs of today’s customers.
The right strategy is to shift to a hybrid environment that leverages the key resources already in place, but combining those resources with one or more solution providers, to create a robust network that is future-ready.
We are very fortunate to have Roji Oommen, Managing Director, Financial Services at Lumen Technologies on the Banking Transformed podcast. He discusses how a platform mindset enables a best-execution strategy for delivering financial services now and into the future.
This episode of Banking Transformed Solutions is sponsored by Lumen
Lumen’s mission is to deliver amazing customer experiences with networking, cloud and security solutions that power next-gen business applications. We aim to democratize complex and cutting-edge technologies and deliver simple solutions, so our customers can focus on innovation, not their IT. Learn more about Lumen’s capabilities for financial services at www.lumen.com/financial-services.
Lumen and Lumen Technologies are registered trademarks in the United States.
It is time to reimagine how applications are delivered, how data is leveraged, and how to create immersive experiences to meet the needs of today's customers. The right strategy is to shift to a hybrid environment that leverages the key resources already in place, but combines those resources with one or more solution providers to create an even more robust network that is future ready.
We are fortunate to have Roji Oommen, managing director of financial services at Lumen Technologies on the Banking Transformed Podcast. He discusses how a platform mindset enables the best execution strategy for delivering financial services now, and into the future.
A hybrid approach to digital banking transformation can enable incremental changes to roll out as they're ready. Customers may not feel that too much is changing at once, allowing experiences to improve without disruption. In other words, what we should usually be trying to do is do incremental changes that do not disrupt as much as they just improve.
Sure, Jim. Thanks for the time. So, I am practice lead for financial services at Lumen. We are a global telecommunications and infrastructure company. And my job is to take sort of our broad capabilities and position them for the needs of our customers in banking, capital markets and insurance.
So, your question's an interesting one. So, we were talking about ChatGPT earlier. One of the things that I think technologists and business people are facing is that the adoption rate of modern technologies have skyrocketed. I'm sure you've seen the adoption curve on electricity to cloud, and in ChatGPT-3, it just felt like it was released like three weeks ago, and now, everybody's using it.
I think our proposition is, if you take your technology infrastructure, the plumbing that enables you to go do all that stuff, and you design it in a way that allows you to be flexible, you can incorporate these things and layer it on, on top of that baseline infrastructure and then experiment.
And I think that experimentation to see, well, what does it mean to deliver a good user experience using this particular tool? Does it actually work the way that I think it does? Do customers react with it in a way that furthers my business objective?
So, a lot of our solutions are built on enabling technologists in financial services. Which is a regulated industry. They tend to be risk averse for really good reasons. And people honestly, are touchy about things that touch financial services. So, here's how you roll them out, experiment to see what makes sense. And if it doesn't work, you can bring it back. If it does work, you can accelerate.
It's interesting you should bring that up as people that listen to the podcast or reading my writings will know, I was fortunate enough to visit WeBank in Shenzhen, China at the beginning of 2020, at the beginning of the COVID, it's Crisis.
And what was so interesting about that organization is, number one, they went from ideation to implementation in 14 days. But I think what was even more amazing was that you could see on their data screen of everything that's going on in the background, they were running four parallel cloud platforms.
Two of them were customer bases and actually the real database that they're running. The other two were test platforms that had the same data on it, but they're able to test different solutions, different product ideas, different things, and in a way that they say it's either working or not working.
And they weren't afraid to turn it on a little bit early or turn it off a little bit early. Which is really outside the normal thought process of traditional bank in the US, which is, we don't want to take any risk as opposed to limited risk or calculated risk.
Yeah. So, I love the story of WeBank and your model of sort of calculated limited risk, and then you learn from it. So, what we do, we operate one of the world's largest internet backbones. We carry a significant percentage of global internet traffic.
And we think in the end, financial services and banking is a connection-oriented business. It connects lenders and borrowers, buyers and sellers. So, we deploy the global infrastructure that essentially makes the internet function.
And what we enable banks to do is say rather ... in the old days you had to build all this stuff yourself. And the reason sometimes I think banks appear reticent to adopt new technology is that the technology infrastructure footprint they have, they built over time slowly. And it was an artisanal business. IT was an artisanal business. They spent a tremendous amount of time doing it.
The industry has changed, and it's become fairly industrialized. And there are components of your technology stack like cloud that you can just go adopt wholesale from AWS or Azure and then just go run. And it enables you to be more agile. It enables you to be significantly more cost effective.
What Lumen allows you to do is to say ... Jim, you were talking about the three cloud platforms that WeBank has. What we allow you to do is say, "We'll give you a network and infrastructure footprint that says, 'Hey, if I want to use Azure's Cognitive compute, perfect, I can just plug it in and it just works. If I want to use Google's TensorFlow to do maybe location-based analytics, I can plug that in and it seamlessly works.'"
So, we allow you to be sort of cloud agnostic, but connected to all of the key access points that you need to. And then we allow you to do so in a very, very cost-effective way, which enables you, we think, to experiment and go try things without like building a massive business case from the ground up in the beginning.
So, obviously, Lumen doesn't just work with the banking industry, it works with many industries. When you look at the banking industry today, where do you see the industry as far as your digital transformation process? How far has the industry come and how far does it still have to go?
But now, bank digital platforms are actually pretty sophisticated. Most within the top couple of tiers of banking institutions, I think they're all world class. They're really flexible architectures, they've become much more user-friendly.
And most importantly, I think the demographics of the user population, which has adopted digital has changed. Everyone has become comfortable with video conferencing about using apps to go do things. So, all of that has changed for the better.
Where we think there is an interesting opportunity is in the physical footprint and presence. There's 27,000 some odd bank branches in the United States. The bank branches per capita in the US we think is about two X REDC peer group.
So, there's the optimal number of branches is probably somewhat less. The difference is there are 5,000 banking institutions in the United States, and if the predominant means of customer access is digital, there just isn't room in the market for all of those banks, right?
And we think there's an opportunity for small and mid-size banks to figure out how do I use the branch, which is the only tangible brand experience a customer will have with me in order to create stickier and better relationships. And that is something that we have seen in retail and hospitality.
And part of it honestly, is being humble. Customer behaviors have changed forever coming out of COVID. And we're not sure which of those are permanent. We're not sure which of those are actionable or desirable.
Well, actually, you have a white paper, if I'm not mistaken, that talks about what banking can learn from the retail industry. Where you talk about the branches, you talk about experience, you talk about the integration of the human and digital aspect of customer experience.
And I think that's interesting because, as you mentioned, we have too many branches. We have many people that are right now, underemployed, but have extraordinary talents when we're talking about the ability to interact with customers, be empathetic, the things that we really want our relationships to be. But they don't see nearly as many people anymore.
So, is this an opportunity or is this an area where we have to be looking at the democratization of data and insights where we actually don't compartmentalize these data and insight components within the IT or an analytic department, but really spread it across the organization so that the product areas can do better.
Oh, absolutely. I love the premise of the question. So, historically, I think bank IT departments would go to the business and say, "If you can describe to me in exquisite detail what you want, I am happy to go build it for you and then give you the budget."
And the response from the business is typically, well, at this point in time coming out of COVID plus all the adoption curves for all these technologies, I actually don't know what I want yet. And we need to go experiment.
So, one of the things that we talked about is banks have these really sophisticated telemetry. They capture lots of data about users on their digital platform. All of that ends when a user walks into a branch. So, why does a customer go to a branch?
One, it's to go open an account and they're required to by KYC regulations, make a deposit, or because they have a problem and they feel they get a better answer in person than they would via calling somebody or online. If you can turn that experience into something positive, that builds long-term customer value.
So, the technology exists for you to know when a customer enters the branch, you can identify them individually using all the cameras. You can actually, understand who they are. You can greet them as an individual.
And then using tools like GPT-3 or large language models, you can give your teller or your banking professional a script. That, “Sally was on the student loan section of the website last night and she's here, maybe there was an issue.”
And you can greet the customer by name and then create an experience that turns something that may have been negative into something positive. And we think those kind of brand experiences, our counterparts in retail tell us that that's what builds long-term brand value.
So, all of that technology that I described actually exists. And it's not hugely expensive to go deploy. It's just a question of implementing it and then adopting the cultural shift within IT to turn from, "Hey, I protect the bank against regulatory oversight, and they make sure that stuff breaks. But I'm not necessarily leaning forward to give ideas and to partner with the business on how to innovate."
One is Amazon, which is the obvious go-to. It says, "Why are people paying $130 a year for an interaction that basically, you can't even define what you get for that $130, except comfort level and the fact that on an ongoing basis, you know they're using your data to make your buying experience better."
The other example is a little more you got to think back a little bit, but with Disney and the family bands. The bands that were ID, that actually identify who you are as you're going through the park and give you ideas of what you should go to, what you should visit, how long the lines are.
But at the beginning of them, it also, helped to define at every age category, every structure of family. What's the route the family's taking? Where are they going to first, where do they go to last, how long did they stay in the park? Even to the degree where talking characters would address your child by name.
Now, that's one of those interesting dynamics where it says, "Where's the balance between scary and helpful?" But Disney knows better than anybody. I'm going to continue to drive better value from that experience, that engagement, thereby you allowing me to take those liberties.
And it's funny because at the beginning of this, I talked to a Disney official way back, and he said, "It was terrible for the parents to see the character address their child by name until the child looked at the parents with the awestruck look that said, 'Oh my God, I'll never forget this. Snow White recognized me.'"
It's interesting, when we're looking at this, the opportunities are massive. The ability to leverage technology, data analytics for better experience, and more importantly, better engagement is enormous. But they're stumbling blocks. What we can do and what we do do in the financial services industry are sometimes there's that big gap.
What are the stumbling blocks that you see is you're going on the road, meeting with financial institutions, that financial institutions are facing right now, as they're trying to find new and better ways to address a customer's needs? What are the biggest things that you know immediately, "Geez, this is a problem we have."
Yeah. So, the Disney example and the Amazon example are really good ones. And I always think like I have a bank account with a bank because when I was in college, they gave me a free T-shirt and a Frisbee, and I have kept them ever since.
And historically, there has been a lot of friction with moving these banking relationships from one institution to another, so people didn't do that. As we are seeing today, live with like deposit flight. The fact that people got comfortable with digital means it's a lot easier to move stuff, so that the long-term brand affinity that you have with customers becomes increasingly important.
And it's sticky things like maybe it is greeting by name and even we've got to balance the creepy factor, but being willing to experiment and then finding the right link for your brand. Like maybe it's creepy if JP Morgan or Wells Fargo does it, it's probably less creepy if it's a community bank or a credit union that you already have a brand affinity with. So, figuring that out matters.
Now, in terms of obstacles to technology adoption, I think the two big ones that we see is IT historically, has been focused on operational stability and just running the shop rather than innovation. And that means that culturally, internally, budgets are hard to get.
No one wants to go spend a bunch of money going, deploying a new experience at the branch when you're not quite sure what the outcome is. Because you don't know how users are going to behave, yet you're not sure what the business value is.
The second big one is that just the IT in general at branches tends to be fairly creaky. A lot of it was you deployed, the big wave of investment was probably right around 2000. And they have upgraded and maintained it, but they haven't really enabled it to be software driven.
So, the two opportunities we see are by taking all of those creaky bits of technology and running the mass software, cloudifying them, if you would, you gain a lot of efficiencies through automation. Because it's easier to manage software than physical bits. You need to send less people to go visit, to go fix things.
So, by making it operationally simple, you can save enough money to then go justify investments in technology that give you flexibility. But that cultural shift, Jim, I think is probably the single biggest obstacle that we see.
It's interesting, we often talk about the fact that you can invest all you want technology, but if the management team, if the leadership continues to do things that they've done in the past, you've basically wasted your money.
The back office has to support the front office, but in much the same way that you just referenced, you need the ability to have a future view of what you need to do and then deploy against it. We need to move from saving money and the efficiency thing to actually making money through engagement.
And I've defined many times the difference between experience, which I consider as a form of satisfaction and engagement. How do we build that back and forth? How do we build that level of interaction that we have with an Amazon, which is transactional, but it's still very engaging.
The other challenge, as you mentioned, while you have not moved your account, your relationship is diversified. And I think financial institutions continue to look at old metrics, which is what percentage of our customers have left versus the ones we've kept. That does not give you any indication as to how strong your relationships are anymore.
I still have my Wells Fargo account, but I also have Robinhood, I have Acorns, I have SoFi. And that's not indicated as part of that overall relationship built. In addition, the biggest concern (and you've referenced it a little bit already) is that while my financial institution knows me, they don't show that they know me enough.
And in other words, if you don't show me on a daily basis that you understand my needs, that you're going to be on top of things on my behalf and show empathy, you don't have much of a relationship with me. You're simply a transaction-oriented organization that you carry my balances, not much more.
When you're working with finance institutions and you're walking in the door, what part of Lumens offering are you talking to most customers about? Because most customers right now, aren't saying, "Oh, I want to convert my entire core." So, they're not doing that. They're looking at compartmentalizing that.
For some of the Durban exempt organizations, it was because they wanted to go partner with FinTechs and become sort of a wholesale provider to fin technology providers. Which required them to put sort of a software layer on top of the core that enabled them maybe to look at data in a more rich way than they had previously.
So, often it is about, I need to get access to cloud, I need to figure out a way to get my data, which my InfoSec teams have all sorts of restrictions on. How do I go insert that into a cloud or a data provider, and then how do I mine that for insights?
And then once you begin doing that and you start building sort of those correlations, like the 360-degree view of the customer that you were talking about, a lot of this data exists within financial institutions today. They're just not linked in the right way.
So, once you extract it out of the silo and then begin to gather sort of, here's the actionable business insight, then the, “Okay, now, here's how we go make that thing happen. Is it an upsell, cross-sell digitally? Is it a phone call or is it something that we do physically when the customer's at the bank, and then you can go engineer those things?”
But generally, I think there's been a huge amount of interest in the cloud transformation and how do I go take advantage of that versus building that internally. So, that's been a huge entry point for us.
The second big one has been around security. Like if you go to banks today, they're consuming a lot more external software than they have in the past. Employees used to work in glass buildings, in city centers. Now, tons of them are at home.
And as software and IT infrastructure has stopped being physical things. It's no longer just a box that I plug in, it's virtual. The surface area of things that the security team is responsible for grows, often exponentially. There's just many, many more things that I need to protect, and my budget is not growing exponentially.
So, for us to say, well, you can use software and automated tools to go secure your perimeter better and get data into and out of cloud so you can make use of the data is often the simplest entry point.
And we like that because it enables the business to sort of define, here's an insight that I think I could potentially action. Now, in order to action it, I need to go deploy this sensor or this VDI, do a terminal instance at the branch, and then go build the case that way.
So, Lumen actually is somewhat the bridge and also, the glue to make these things work in the best possible way, correct? Because you're connecting to, as you mentioned earlier, different cloud providers and you're also, connecting to different service and FinTech companies.
That's exactly right. Yeah. So, we want to make sure that we build the data highway between the bank's data centers, the bank's offices and branches, and to any external provider that ... we connect all the data centers together, of course, but then all the external providers, all the cloud providers, all of the SaaS and software providers in capital markets to your counterparties and to your trading partners, et cetera.
And then we want to make sure that that highway ... telecommunications and networks used to be like railroads. It's a capital intense process. I connected from point A to point B. It takes an enormous amount of time, and then once it's up and running, it runs forever.
So, what does that look like in an age of Uber where you don't necessarily know where the data's going to flow? And maybe I'm using one SaaS provider today and I want to switch for another one tomorrow.
So, we've been investing a great deal of time in turning the network and making it more cloud-like, where you can make an API call and your software can define, "Hey, I want to go connect to this endpoint. I want to send this record or this thing. And then here's a record of the fact that it happened and why it happened for compliance purposes and make it all software defined."
And we think that gives the banks developers a great deal of flexibility and allows them to experiment with new tools and go build things. So, our focus has been on making the network a seamless way for you to get to whether it's business partners, counterparties or service providers securely and effortlessly.
It's interesting because when I go around and talk to different financial institutions, one of the biggest problems they have is they have no time. They've got to find partners that can actually turn things on, and they can do it and forget it.
You're really working as a firm that can be there to say, "We are going to make this so you don't have problems along the way." As again, the bridge, you're enabling a person or a part of an organization to work more efficiently and not have to pay attention to all the different components to make it work the way it should with their different partners they're setting up, which are becoming great and great every day.
And you referenced it earlier, this provides both speed and scalability. And I was just at the FinTech meetup conference in Las Vegas, and one of the themes that continued to be high in the industry was that even the smallest organizations now, because of banking as a service, and what they're trying to do outside of their traditional physical markets, is to make sure they have scalability.
Yeah, we do. So, part of technology is riding waves that are occurring within the industry anyway. And if you catch the right wave, you are riding an advantage of scale. So, what we've been fortunate with is think of things like streaming video and social media, technology companies.
They have been building out massive amounts of infrastructure at the boundaries of the network to go make the ... when you log into Disney Plus, or when you view something on TikTok, to make that experience really good, they've been investing and building infrastructure out at the edge.
What we allow financial institutions to do is to leverage that hundreds of billions of dollars of capital investment over the years. You can borrow the scale that those guys are deploying. And we just put a software layer on top of it. So, we operate it in the means that you would expect from an FFIEC regulated institution.
So, you're riding a wave of investment that already occurs, you automatically gain the benefits of scale. And because it's pre-built, there aren't long complicated lead times. You just could log into a portal, or you call up an API, you ask for 10 gigs of bandwidth to AWS and shows up instantaneously within minutes. You use it for as long as you want to use it, and then it just goes away when you don't need it.
So, when you're reaching out to different financial institutions, different size of organizations, what types of data can financial institutions today, reasonably collect? Because basically, the winners in any of the industry is going to be those that know the most about their customers and their prospects.
So, Jim, you said before, most institutions already have access to a tremendous wealth of data digitally. So, there's location-based database on your IP address. So, they have a rough idea of where you live, which infers things about your financial assets and income, your home values.
They are collecting a tremendous amount of data on again, digitally about your social network and your social graph. So, a lot of that data already exists. There's a tremendous wealth of transaction data that banks have.
The challenge, as you said earlier, is a lot of this exists within silos across different business units. And tying that together into a 360-degree view of the customer is tough, unless this is something that you've been focused on.
So, a lot of that data already exists. It's just a question of organizing in the right way and then tying it into a customer. And then being able to take limited risk, as you said, in figuring out, is what's the ... for long-term customer value, you want to be less transactional and more advisory.
So, I am a different banking consumer when I was in college than I am now. And making sure that the bank's relationship with me has evolved as I have because all of the information about me is publicly available now. And as you said, consumers never choose privacy when given a choice.
We think an area where they're probably not collecting as much as around physical and location data as well. There's a tremendous rich data set of location data. So, you can identify customers by name, when they enter a premises you have an idea.
You're no longer relying on survey information to figure out why customers are at a specific place and where they're located. The data's accessible in near real time. And being able to use that is a competitive differentiator.
We did a bunch of work during COVID when there's a big thing about mask wearing, using machine vision at construction site to detect whether people were wearing masks or not. And machine vision algorithms have gotten unbelievably sophisticated over the past couple of years because of things like that.
So, there's a whole bunch of sort of location-based data where you can take the bank's rich digital platform, which they already have, and they've invested an enormous amount of money in, and then tie that into physical places as well. In your example, that's what Disney and some of the leaders in the hospitality space have managed to do well.
It's interesting you bring that up because Chase has just announced that they're going to be testing facial and palm reading as part of the payments process, where you'll no longer need a phone or need a card or any of the traditional ways of having to pay.
But when you look at the deep down capabilities that that all brings to the table, I think you bring up a very good point that it's a difference in the experience between me going to my traditional bank and trying to open an account today and my experience trying to open an Apple Card account.
Apple Card started off providing all the data they were able to collect on who I was upfront and saying, "Validate if this is right." Now, every financial institution can do that. That's not something that was simply the ability for Apple to do it. It's out there in different ways.
Secondly, as you brought up, when they asked for my last four digits of my government ID, my Social Security number, or they asked for my income, it's basically just a way to revalidate that I'm me. But as they're doing that, they're also saying, "Where is this person using this phone? And is this Jim Marous?"
All that gives you the know your customer without needing you to input any data, without needing you to show a driver's license or some an archaic way. I mentioned the drawers behind you reminding me of signature card boxes.
We didn't get out of the signature cards until the government said, "By the way, we never said you had to have signature cards. We just said you had to know your customer." That's the same thing. We've got to get out of the legacy ways of doing things.
As we're looking at this and you go in to see financial institutions ... I'm going into your sales project again because I'm a salesperson at heart. And when a financial institution learns about what Lumen can do, what gets in the way of them saying, “Yes, move forward when you show all the advantages you've mentioned to me today.” What stands in their way, if you're to take one or two reasons?
I think the biggest one, I would say, and we've talked about this a little bit, is it depends on the buyer. So, historically, technology is bought by IT, who for all kinds of reasons historically, has been an operational expense line for the bank.
And they tend to view things within does this reduce cost of stuff that I do today? And there are workflows that exist within the bank that have existed that way maybe because of regulation or for historical reasons, and they're looking for ways to reduce the cost of that workflow, generally. Make sure that it doesn't fail and then keep the cost low.
And if you go to them and say, "Well, facial recognition at the branch may be a way to differentiate customer experience." And they say, "Well, you know what? That isn't one of the workflows that I am responsible for. So, this sounds very interesting, but thank you very much."
I think when you go talk to the business though, it's quite different. Because they're thinking or they're tasked to think, "Does that workflow need to exist? Am I solving for the problem the customer actually has? Or am I just solving for sort of a way I interpret regulations internally within the bank." So, the business buyers generally are much more open to going and deploying this.
The second obstacle is just to be straightforward, the bank doesn't know how long am I going to maintain this branch presence? Is this worth investing a bunch of money in to go differentiate at the physical layer?
We operate one of the world's largest network. We use machine learning and AI all the time to triage and troubleshoot events that happen. And that reduces the impact of outages, reduces their frequency, and it reduces the amount of money that we spend on managing IT itself.
So, the challenge that we present our salespeople with is to how do you go talk about improving IT operational efficiency by using some of these things to help reduce the cost and simultaneously go talk to the business about enabling new experiences. We have to solve for sort of both of them simultaneously, if that made sense.
Yeah. So, as you look in the future, and we don't want to go too far in the future because we're finding out that we're always wrong when we're going more than a few years in the future right now. What's the biggest opportunity in the banking industry from your perspective as you go to visit financial institutions and talk about what Lumen can do?
I think yeah, it is hard to predict. But if we look at other industries where they're also, dealing with like sort of massive secular change, you were talking about the banks who establish their Nextel cross-sell is based on their own sort of product frameworks and internal metrics.
What customers are actually after is sort of financial wellness. And the relationship that you build with an institution that is looking at like your transactions and where you spend money, it can very easily build sort of a custom user experience to optimize your finances over time. But very, very few banks do it.
But coming out of COVID, a lot of the FinTech providers were very good at sort of aggregating customer financial information and then putting them on a glide path to maybe it's to aiding and improve your savings rate for retirement. Maybe it's, "Here's how you go achieve an objective."
And they were able to say, "If you save X more and invest in this return profile or cut cost by Z, and here are the areas where you're spending too much." Like those kinds of relationship banks are the only ones that have all of this data. So, I think the ability to go organize that data and present it to customers in a meaningful way, I think is really, really transformative.
And if you look, in this day and age, with the stuff that's going on right now, where there are questions being asked about what is the role of small banks in the United States, like we're unusual economically with the number of smaller banking institutions we have relative to our peers.
I think that's an amazing opportunity for community banks, credit unions, and smaller institutions to go build higher value relationships by using data in a way that I think benefits society at large. And the data exists within the banks, the technology frameworks to go do this stuff exist out in the market.
And it's not just me or you that know what can be done that's not being done. Everyday consumer looks at their interaction with Amazon, with Netflix, with Apple, with Countrywide Mortgage, whatever it may be, and they question why can't it be done everywhere?
And I think that the key here is for financial institutions to realize they're not competing just for the financial institutions across the street, but they're competing with the mindset of customers when they use OpenTable or Uber or anything else and they go, "Wait, why can this firm do it and not my financial institution?"
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