The Financial Brand | Bill Streeter
The industry is entering a critical phase. Legacy technology will finally be superseded by a combination of cloud computing and AI, putting banks and credit unions closer to par with fintechs. But without phasing out the traditional product silo/back-office environment, that change won't happen.
Ramamurthy is Global Managing Partner, Banking for IBM’s Global Business Services group , the giant tech company’s banking and consulting practice. 15 years in total with IBM, and 12 as a PwC banking consultant gives him a broad perspective. The Financial Brand interviewed Ramamurthy about the most significant tech-related developments banks and credit unions face. The consultant identified several key areas, grouped under four broad themes.The Rapid Advance in Cloud Computing and Artificial Intelligence Q. What are the top technology issues retail banking executives should prioritize?
Shanker Ramamurthy : Clearly digitization on the back of cloud computing and artificial intelligence (AI) is a key focus. Also blockchain. Only about 20% of the migration has already happened, typically for less-regulated workflows. The rest will happen incrementally, driven by business value. For the foreseeable future, banking will operate in a hybrid, multi-cloud world. Most financial institutions are in the process of transitioning parts of their workload from their data centers into a private cloud and into multiple public clouds. [The private clouds are operated within the institution, while the public clouds are offered by suppliers like Amazon Web Services, and, more recently, IBM.]
Q. What timeframe do you see for the rest of the migration to cloud? Ramamurthy : The rate and pace are picking up, but the big issue — externally — is with security and privacy regulations. Internally the big roadblock is making the business case for cloud migration. It can’t just be what we call “lift and shift” — taking stuff that runs in the data center and moving it to the cloud. It requires transforming the business process. Given that a typical large or midsize bank has hundreds of millions of lines of code to be migrated, it will be a years-long transformation.
The more financial institutions invest in business process transformation, the greater their return will be from moving to the cloud. Q. Is IBM’s partnership with Bank of America to create a public cloud for financial services just for the largest banks? Ramamurthy : No. It’s meant for a much broader range of financial institutions. Large and small banks and credit unions use hundreds of independent software vendors, and ensuring that those vendors are compliant is vital. What we’re doing with Bank of America is building a regulatory-compliant public cloud. Then multiple financial institutions will be able to use them.
Q. What’s the front-office potential for banks and credit unions from use of AI? Ramamurthy : It’s massively large. AI is going to have a transformative role to play not only in retail banking, but in every industry. In retail banking, one of the biggest impacts will be with digital agents. These AI-powered agents, or bots, will handle the multi-channel banking world of today and tomorrow. They will also materially increase the productivity of human call center agents, because the bot will be able to handle 80% to 90% of the calls. Risk management is another huge area of AI impact, particularly for fraud intervention as banks and credit unions move towards real-time payments.
Turning Today’s Bank Technology on Its Head Q. What’s the significance to retail banking of “transforming the business process”? Ramamurthy : You can think of today’s bank technology — much of which is decades old — as a pyramid. 70% to 80% of all the bank tech spend is for middle and back-office operations. Maybe 20% is spent on the front end, what we call the customer-oriented, multi-channel ecosystem. Tomorrow’s banking is going to upend that pyramid. Cloud and AI together will enable a dramatic reinvention of banking so that more and more of what happens is customer-facing — i.e. bringing technology to bear on consumers’ financial needs.
Q. Has anyone made significant progress in that type of massive transformation? Ramamurthy : The larger U.S. banks have a lot more invested in older automation. So they have a much more difficult transition. But they’re making measured progress down that path. For regional and midsize institutions, on the one hand they are able to move much more nimbly and quickly. On the other hand, they have smaller amounts of capital to invest. Some financial institutions that have been standing up entirely new brands — Goldman Sachs and Marcus, for example — have the luxury of being able to start from a much more integrated perspective. The sophistication of what consumers expect is the same, whether they are a customer of a small bank or a large bank … or a fintech.
National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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