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.
Money 2020 Europe: AI Takes Center Stage in Banking Transformation
Our expectations of what a bank is, and customers will engage with financial services has changed immensely over the past several years. And that change will only happen faster in the future. It’s indisputable that technology has been the driving force behind this change.
As the industry gets ready for Money 2020 in Amsterdam, it good to assess how technologies such as artificial intelligence, machine learning, the blockchain, cloud computing, IoT, robotics and biometrics are reshaping banking, enhancing customer experiences, and paving the way for new banking business models.
I am excited to have John Duigenan, General Manager, Financial Services and IBM Distinguished Engineer, IBM Technology on the Banking Transformed podcast. We will be discussing how technologies like AI will impact the future of banking, and how banks must become future ready.
This episode of Banking Transformed Solutions is sponsored by IBM
IBM delivers technology and industry expertise to the global financial services industry through its infrastructure offering, software portfolio and consulting services. As a trusted partner to banks, insurers, asset managers and other financial institutions around the world, IBM enables modernization and digital transformation of the world’s mission-critical businesses. IBM is a leading provider of enterprise AI and hybrid cloud architecture to banks and insurers and leads a robust ecosystem of fintech partners serving financial institutions. For more information, visit https://www.ibm.com/industries...
Our expectations of what a bank is and how we engage with financial services has changed immensely over the past several years, and that change will only happen faster in the future. It's indisputable that technology has been the driving force behind this change.
As the industry gets ready for Money20/20 in Amsterdam, it's good to assess how technology, such as artificial intelligence, machine learning, the blockchain, cloud computing, Internet of Things, robotics, and biometrics are reshaping banking as it is today, enhancing customer experiences and paving the way for new business models.
I'm excited to have John Duigenan, general manager of financial service in IBM, distinguished engineer from IBM Technologies on the Banking Transformed Podcast. We'll be discussing how new technologies will be impacting the future of banking and how banks must become more future ready.
Innovation and business led transformation is critical for the future growth of banks and credit unions worldwide. To remain competitive and relevant, every bank must embrace disruption and strategically build a better digital ecosystem, not a bigger bank for modern technologies.
I'm the general manager of the financial services industry in IBM technology. And I'm a general manager who also, happens to be an IBM distinguished engineer with a long history as a technologist in IBM, and prior to that working in financial services.
My role in IBM is to ensure great alignment between the products and capabilities that IBM offers and the needs of our clients. And I am relentless in pursuing that alignment and helping our clients be successful with IBM technology.
It's interesting, John, I go way back in banking, too far back. But IBM's always been there. And it's interesting to me how IBM continually evolves as an organization and stay relevant, not just in financial services, but beyond financial services.
And so, we ground our portfolio in the capabilities that regulated enterprise clients need, such as IBM infrastructure, especially our z16 platform. The mainframe, the new z16, which is over 50 years old now … no correction, the Z platform is over 50 years old.
The latest incarnation, z16, is ready for AI with the new Telum chip providing on-chip AI acceleration. It's the only platform with out-of-the-box quantum-safe encryption, a major cybersecurity risk advantage that regulated clients, especially banks, financial services, insurance company need.
And the Z platform's also, ready for hybrid cloud with OpenShift running on the platform, enabling those APIs and microservices to run right next to those transactions that have been running for years.
So, what looks like a platform that's been around for a very long time is actually the most modern technology. Alongside that is our software portfolio and that's extremely relevant for IBM's financial services clients.
So, while banking is playing in as an industry more of a catch-up role, IBM not only provides the massive core technologies, but also, what I'm going to call the mini technologies that enable organizations to really make change happen at speed and at scale for the little solutions that are integrated within their own core.
Well, we're all excited about being in Amsterdam for Money20/20. It should be a really terrific event. I think Money20/20 is really interesting because of the way it gathers such a broad ecosystem of industry participants and then it gathers them together and it really emphasizes innovation. I love that about Money20/20.
There's a couple of broad themes that I think will be top of mind this year, not only from a US focus, but also, the global lens. There's a massive focus on the economic conditions, they're tightening.
And alongside those economic conditions, there are all the risks in the system right now. Certainly for the small and mid-size institutions, we are seeing that happening and it's so concerning to watch. That's driving new risk posture in the industry and it's also, going to drive further industry consolidation.
I see a further emphasis on the establishment of industry platforms and standards. Platforms and ecosystems are just so valuable in the way that they incorporate or bring banking services directly into industries or other industries’ business processes.
So, we can think about any industry where payment or money moves, and how the bank is no longer separate from those business processes, but directly incorporated into them via APIs and the platform-based ecosystems. All of those services are fueled by hybrid cloud technologies.
And last one, not the least by a long way, (and I'm sure we'll talk about this at some length) you, like all of us, see the news and the world is a buzz with AI and generative AI. That's super exciting. It's a topic in every single boardroom and beyond. And I fully expect AI to be a starring role in Amsterdam at Money20/20.
It's interesting to me, John, because as I look at going to Amsterdam and being part of the partnership with IBM at the event, it's really interesting because we have greater opportunities and in many ways greater risks than ever before at a time when economic uncertainty and risk really play a role in saying, how far do organizations or how far can organizations go?
While organizations are looking at their investments, they really have to prioritize. And at the same time, they had the fear of missing out on new technologies. As you mentioned, generative AI being one.
What should be on the top of the priority list for finance institutions in 2023? And I know all of them are at different points in the digital transformation overall landscape. But overall, as a bank or as a financial institution, what do they have to prioritize to make sure they've got right, right now?
One, laser focused on ROI. There's all kinds of programs that happen for technology's sake. Can't do that under this constrained situation. You got to be laser focused on the why. Am I generating new business? Am I taking out expense?
And equally, the other giant aspect here is stakeholder alignment inside these firms. We see so much trouble and angst in a system when clients don't have the alignment of senior stakeholders around the core mission.
And so, that's a massive issue. And there are many new techniques emerging around how these firms do product management and how they run technology programs. And certainly hybrid cloud is there to help that.
It's interesting, John, through the years, until relatively recently in history, the ROI question was really about how do you take expenses out? But we're seeing more and more organizations realizing that it's about bringing revenues in.
And as you've brought up so eloquently, the importance of making sure there's alignment in the executive suite, which has always had ... you look over the last 20 years, they've avoided a lot of challenging times and done very well. And that sometimes can make you a little bit passive.
what do you see as the biggest challenge in financial services right now, with regard to integrating some of these new technologies? Now, you mentioned that a little bit about the whole issue of the legacy thinking, but what gets in the way of a clean implementation in general when you're looking at new technologies?
So, there's a whole regulatory aspect to it, Jim, to begin with. That's very significant because regulators want to ensure that firms are behaving responsibly, that they're building software responsibly, and that that software runs in a way that's reliable and not locked in to specific services in a way that workload can be portable.
When we can break down those silos, then it comes down to how do we architect for efficiency? How do we architect in such a way that we are not driving some giant 30-year program, but we're delivering incremental value quickly so that the ROI cases actually do close.
So, it's about how do we build for a reimagined experience, how do we ensure that ESG is baked into our products, how do we ensure that our products are resilient and that we take advantage of new modernization approaches? Like new ways of working, new ways of decision making, new ways of operating. Those are how I see firms approaching this, Jim.
So, when you look at all this, technology becomes simply the foundation upon which a lot of other things have to be looked at. And those actually drive the success of the technologies more than anything else.
You've written quite a bit and IBM has written quite a bit on the need for new experience and talent that understands future technologies. But more than that, more than just a technology person, they have to understand the impact on, as you mentioned, ESG and customer experience, things of this nature.
How do you envision this war for talent playing out? Or do you see organizations really doubling down on the investment on talent that they already have to make them more well-rounded beyond the technical aspect of what they're doing?
I've spent a lot of time in Asia Pacific recently, and the market there is very much localized. In the US, it's different, but talent is concentrated for the most part around large cities. And so, firms have to be aware of this.
I see a couple of successful approaches playing out. And one of the areas where this is especially important is in the notion of mainframe skills. Mainframe skills are perceived in some senses incorrectly to be old-fashioned.
And so, it can sometimes be hard to bring new people into that world. We've worked with clients to build modernization programs specifically around the talent. And in doing that, we sit very experienced developers alongside very new developers and build cross pollination of skills in both directions.
That goes alongside with a product like the mainframe being able to run all of that existing code, some of it 50, 60 years old, and coding all of the new programming languages running in containers of microservices. And so, it’s that and using the new tool chains, the new DevOps tool chains on that platform.
Even when they have core technology partnerships, organizations are stepping outside of those to find those partners that can implement a solution that is very specific to a need of that organization very quickly and very much on a scalability platform.
Are you seeing that as well, where a lot of outside organizations are being brought in to make it so that these organizations aren't all building from scratch or asking their core providers to do all the work?
Jim, it's a must. In 2023, that's a must. It's a given. IBM's all in. As part of our ecosystem, we love our clients to work with IBM Consulting, we'll help them work with any and all of their services partners. Because for them to be successful with IBM technology, they need to be able to do that with their chosen partner.
And equally, you spoke a little bit about ecosystems. Another aspect of that, and another area where we get some leverage or acceleration is around the standard space platforms. Because having standards-based platforms enables a talent pool that's skilled.
And so, an example of that, I guess a Swift APIs and ISO 20022. Message formats are one example. Another great example in our industry around BIAN APIs, the Banking Industry Architecture Network, and the work that they're doing to standardize and describe domain specific banking functions and the kind of formats and flows of those business operations.
Having standards like that adopted across a broad ecosystem of partners absolutely helps all of our clients, IBM's clients, and our services providers, mutual clients, and our independent software vendors clients, to all come together, work together for the successful outcomes of our banking financial services clients.
And when they talk about the survival of the fittest, it's going to be interesting to see how it plays out when a lot of the new innovations are being done at the biggest side because they have the money and at the smallest side because they have the ability to pivot on a dime. And it's very exciting, at least for me, to see these organizations thinking out of the box.
You mentioned it earlier, John, and it's the elephant in the room. Everybody's chatting or talking about ChatGPT and generative AI. It's interesting because AI was on everybody's mind before this, but it's taken on a whole new perspective as of November 30th of last year.
Can you put recent developments a little bit into context for financial institutions? What is the IBM position on the approaches that are possible and how should bank leaders today, be thinking about these new technologies? And what emerging case studies have you seen?
So, thank you very much for asking on this one. We've been working in AI as IBM since the 1950s and have pioneered much of the scientific research in this space. So, I couldn't be more thrilled, I couldn't be more excited that this topic is front and center in the public conversation. I think that's amazing.
That said, I see businesses being very overwhelmed by this topic. It's a topic in every single CEO suite. And I think firms are really unprepared and unsure how to profit from the technology. While everyone's interested, there's great uncertainty.
Yeah, yeah. Absolutely. Especially for a business. Developed in the wrong way, we see AI being frivolous and at worst, flame dangerous. It can be wrong and produce toxic results. It can be infused with extreme bias. It's not explainable.
The other thing I think is so important here is that a lot of organizations already have experience with machine learning and AI, but they've really struggled to scale that and especially scale it quickly across multiple clouds.
Foundational models are pre-trained on massive amounts of data, unlabeled data, which is less expensive to prepare, cuts the costs of training. And these models once they're built, can be adapted to existing use cases, tend to a hundred times faster than the previous approaches.
So, we are entering a really exciting phase and firms existentially need to get ready and work with a firm that understands AI in the context of the specific needs of a regulated enterprise. We're one of those firms that can do that.
It's interesting, John, because if you really look at it, ChatGPT and generative AI is really directionally an extension upon which financial institutions especially should have been using AI to begin with. And we talk about certainly there's a risk in fraud issues, but more importantly, we've been talking about personalization and engagement for quite some time.
And what I'm seeing at least in the marketplace is organizations have been using AI successfully, but it's been very much within the organization. It comes out in great reports, it comes out in great research, things of this nature. But it's that final mile is deploying it so the customer feels it.
I get frustrated as a consumer knowing what's possible with all the information my financial institution has, that they don't talk to me as an individual that they know very well, but they don't show that they know very well.
And I think what we're really going to see with ChapGPT and the next phase of AI and with IBM's help, is really working on that last mile, making sure the consumer and the small business and the corporation feels the impact of AI and machine learning.
Because up till now, there's very few organizations, if any, that are doing a good job of personalizing the experience on my behalf, looking out for me and showing empathy. We're talking a good game, but we deploy it terribly, if at all. And-
But when consumers are exposed to things like Amazon, Hulu, Netflix, Uber. All these organizations that take the information and make it better for me, that's the expectation that financial institutions are going to be under and eventually the consumer's going to call them on it.
And speaking of that, just in the last few days actually, IBM announced the launch of watsonx at its annual climbing, which extraordinarily exciting. We all know a little bit about Watson, but watsonx is a whole new game.
Thank you, Jim. The watsonx platform enables collaboration on a single workbench to build and refine machine learning and foundational models. That's its purpose. It's going to launch with three product sets.
First of all, watsonx.ai, a new generation enterprise studio for AI builders to train, validate, tune, and deploy traditional machine learning and new generative AI capabilities powered by foundation models through an open and intuitive user interface. So, the studio is at the core of this.
The watsonx AI library is going to include open-source models from including Hugging Face, a leader in this space on open models. And that's very much in harmony with IBM's ecosystem approach that I outlined earlier.
And so, these are the new capabilities that IBM's providing in this space. We expect there to be a huge applicability for generative AI and financial services, specifically in the realm of digital labor as one example.
So, imagine expressing requests in natural language and having those requests orchestrated and performed through one of those open ecosystems of API services. Think about the way that contracts or analysis reports could be summarized by generative AI and think about the kind of contracts and documents that generative AI can create.
So, I may be oversimplifying this a little bit, but IBM partnered with Bank of America on the development of a cloud-based platform that took care of a lot of what I'm going to call the general questions that every institution has to ask when they implement a cloud solution.
Do you see watsonx being able to do this for banking work? You mentioned contracts, things of this nature. So much of what the banking world does is consistent across the entire industry, but every institution does it for themselves.
No question about that. Whether I develop, whether IBM develops it, or whether our ecosystem develops it, it doesn't matter. But the language of banking and the processes of banking, the languages of capital markets, the language of insurance, can be described and captured in generative models and foundation models.
The development of a cloud platform, a cloud solution that finance institutions wouldn't have to rethink, I'm going to call it 80% of what they do when it's always the same for each financial institution. Giving organizations the ability to, what I'm going to call start at the third turn as opposed to doing the entire race.
So, let's take this in two parts. First of all, you spoke about the collaboration between IBM and Bank of America, a great client of ours. The result of that collaboration was the IBM cloud for financial services.
And the reason why that capability matters is because we took Bank of America's and a broader set of industry requirements around a specific controls needed for a cloud service, and packaged that in a standardized way that manifested those controls in a way that's very inherent to our cloud service, enables them to be monitored on a continuous and enforced on a continuous basis.
And the net benefit of doing so was that it becomes much easier and faster, specifically faster, simpler for firms and their ISV partners to onboard onto our cloud service, knowing that many of the risk factors have already been managed and taken completely off the table.
So, that's the result of an industry collaboration with clients. And following Bank of America, other clients came on board and we continue to innovate. If we think about how we do that with watsonx, it's about assembling a similar collective of industry stakeholders.
Well, it's interesting because I'll take the GPS systems that we all familiar with that because the crowd source allows the GPS system to tell us how to get to the destination we want quicker, easier, avoiding detours and challenges in the road and taking advantage of shortcuts.
This is what watsonx can do for financial services, while at the same time standardizing what is legal, what isn't legal. Because the compliance and the regulatory environment will be built in because of the crowdsourcing capabilities.
And what really is amazing, even when you just go back a couple years to the cloud technology built with IBM, is that this iteration of the innovation is going to happen so much faster. I mean, you look at just what's happening with ChatGPT and you go, "What can be possible with watsonx is just so exponentially faster and more scalable than anything we've ever imagined."
There's a key point about this that I feel compelled to make, because it speaks to that shift that you spoke of. If we sort of look back in the rear-view mirror, AI was something that was added to existing applications. So, it was plus AI. So, applications plus AI.
The shift that we're seeing for future applications is that the AI is at the heart and that the platform services are the plus. So, it's a shift from AI being an afterthought to AI being the centerpiece of an application. That's a radical, transformative shift. It's for sure the way that new applications are going to be created.
And so, I think it represents an incredible shift and an incredible opportunity. And the leaders and the innovators in this space, especially the leading institutions that take advantage of this and gain experience and learn very quickly, they're automatically going to have competitive advantage.
It's interesting, some private conversations I've had recently, and we look at what's going on in the whole AI space, and you're a distinguished engineer and you're a technologist. Is the technology right now, going so fast that it's very challenging for the technologists to keep up with a pace of change?
There is no question about that. There is no question that it's difficult, but those of us who love doing this, living and breathing it, we're constantly in our books, we're constantly playing with code. We're constantly experimenting.
Jim, just to speak personally for a moment, I'm very proud of the fact that I'm an IBM general manager that still writes code. Because if I become distant from all of this, and if I become the person who only ever uses PowerPoint, why do you need me anymore? So, I want to stay close to that technology.
But it's very interesting because when we look at this, you look at the watsonx capabilities, the ability for multiple organizations to help build this and improve upon it at scale and in speed, no single person needs to have all the answers.
I mean, the potential is enormous and it's so exciting because you've provided a sounding board, a platform, and an area of gathering in a virtual world that allows us to have iterative innovation and iterative advances in technology that were not possibly before.
And to deploy them, that's going to be the key. We've talked about it before, but it's great to have the capability to do it. But will you have the organization culture to deploy it in a way that the consumer is going to feel the value add?
I've had a 20-year banking relationship in the US since I arrived and one of my banks still considers me a student despite the fact that I've never been a student in the US. Imagine the kind of customer experience that I enjoy as a result of that.
So, this notion of using AI to take friction out of a customer experience and make it profound and profoundly relevant to the needs of each and every client, that will become hugely important. And it goes beyond the current approaches that most institutions have been using into a much deeper level of customer understanding.
And if you understand your customers really, really well, doesn't matter whether they're consumers or giant businesses, doesn't matter, every area of banking financial services will be impacted by this. If you understand your customers really, really well, the way that you can differentiate and the kind of stickiness and value you can build into the relationship will be unstoppable.
It's interesting because the risk that currently exists and it's happening every day, is that consumers, small business corporations don't have to close their account when they're not happy. They simply go and open a new account someplace else where they feel like an organization understands them better.
And the reality is, we've got to stop that silent attrition as legacy financial institutions. And the only way to do it is to give a level of experience and of engagement that is different than we've ever seen before.
I think I bring this to one fundamental. I think there are a lot of things that firms can do, but I would focus on one thing, as being the key change maker right now. I think in my mind, hybrid and hybrid technologies are the key step.
And so, as we think about this, I said very early on, this is about thinking about why. Why do I need something? Not the what is it, but why do I need it? Why do I need AI to deliver new kinds of customer service? Why do I need hybrid?
It's because I want to unlock innovation at an unbridled pace. I want to simplify operations by standardizing and I want to benefit from an open community of contributors and innovators creating a platform and an ecosystem effect.
The architectural constructs that underpin the new ways of thinking or working are APIs, microservices, containers orchestration, DevSecOps, site reliability engineering, AIOps, and the future of AI platforms like watsonx.
But with the Red Hat portfolio and our cloud packs and watsonx, we are unlocking the future of hybrid for customers and clients today, and doing that across all of the IBM platforms, including z16, the mainframe. But also, enabling all of that capability to run in any of the clouds and in any on-prem data center or hosting center or at the edge.
One example, if we think of a monolithic bank or a monolithic firm using the old ways of working, Jim, they might release a banking platform twice a year, four times a year, maybe even 12 times a year. That's not innovation at the speed of thought.
I can think of institutions that release 200 changes a day. Why are they doing that? Because they're using hybrid techniques and tools, hybrid architecture. Those firms that can do 200 times a day even ...
So, I think that's the compelling example for me and being able to innovate at speed, at will, but also, doing that in a way where my costs aren't exploding and that my access to skills, talent, and in new culture, new ways of working, new ways of decision making, new AI capabilities are all inherently available to me.
It's interesting, John, to wrap this up, you said it so well and it's sticking in my mind, is that at the end of the day, I don't want to build banking the way the bank across the street built banking, or the way that some of the biggest banks in the country or world build banking, or the smallest financial institutions build banking. The first thing I have to do is understand my why.
And you said it so well because as I think about the why, that can't be a PR term, it's got to be something you live to. And if you understand your why really well, then you won't get completely overwhelmed by the massive new technologies that are out there because you'll be using those technologies to solve for your why as opposed to the whys of everybody else's out there.
And again, with AI, and with the technology out there, with hybrid cloud, with blockchain and everything else that's going on, you can solve for a very specific why. And those organizations that are doing that are being very successful today. Could they stick to what they believe in as opposed to trying to be everything?
And we have the ability not only to serve individual customers, but companies like IBM and others have the ability to serve individual finance institutions that have maybe a potentially vastly different objective and mission than the bank next door.
John, this has been a treat. Your enthusiasm for the industry, your enthusiasm for technology, your knowledge of what IBM brings to the table, and how IBM can collaborate with other organizations to make them and you better in an watsonx world is extraordinarily exciting.
Jim Marous (45:01):
And I can guarantee you, I got to get a promise from you, I want you on the show again.
John Duigenan (45:06):
No problem. Any time, Jim. Thank you.
Jim Marous (45:11):
Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. If you enjoy what we’re doing, please take some time to give us a review on your favorite podcast app.
Jim Marous (45:21):
In addition, be sure to catch my recent articles in The Financial Brand and the research we’re doing for the Digital Banking Report.
Jim Marous (45:29):
This has been a production of Evergreen Podcasts. A special thank you to our senior producer, Leah Haslage; audio engineer, Sean Rule-Hoffman, and video producer, Will Pritts.
Jim Marous (45:38):
I’m your host, Jim Marous. Until next time, remember, emerging technologies are continuing to pave the way for a better customer-centered revolution in banking.