Decoding the Digital Banking Trends of 2024

Jim Marous (00:00):

Welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous. Today, we're thrilled to have Michael Abbott, Senior Managing Director, and Global Banking Lead at Accenture on the Banking Transformed Podcast.

Jim Marous (00:26):

On this episode, we explore the top banking trends from 2024, diving into a world where AI, cloud computing and the new regulatory landscapes are redefining the banking industry. We discussed the need for banks to adapt to changing customer expectations and their growing importance of sustainable banking practices. We also highlight the need for speed and culture emphasizing the practical application of these trends.

Jim Marous (00:56):

The conversation provides a roadmap for banks and credit unions to navigate the evolving banking ecosystem and to embrace these transformative trends. It is no surprise that the speed of change and the impact of AI is at the foundation of many of the transformative trends of 2024.

Jim Marous (01:13):

With exponential technologies advancing, our guest today shares where incumbent institutions face threats or opportunities to reinvent experiences amid nonstop disruption. So, Michael, you've joined us in the last few years to discuss Accenture's annual take on the trends in the banking industry.

Jim Marous (01:32):

It's interesting, so much is going on and change is happening so fast, but there are still some emerging trends that should excite or alarm bankers, most of which as we enter 2024 with the economy in the shape it is today. So, which trends may feel overhyped or maybe underappreciated right now?

Michael Abbott (01:55):

Jim, it's great to be back again this year. This is one of my favorite podcasts that I get to do with you because we cover a lot of ground and it's a great question you started with, which is, which trends are overhyped, and which ones are not.

Michael Abbott (02:08):

What I would say right now is if you look at generative AI, and I think when you look at where it's going, one of the things I think that's happened, I actually think it may very well be under hyped at this point in time. And where I think the industry sees a lot of the potential and sees it pretty quickly is certainly, I think on the cost side of it. But where I think it actually may be underestimated is the revenue potential upside for the banks on this technology.

Michael Abbott (02:36):

Because when you look at this, and I look back and when we wrote this year's report, we realized that 1999 was the height of the dotcom boom. It’s hard to imagine that. 2024 is 25 years later, a quarter of a century of digital. It's been a quarter of a century of digital.

Michael Abbott (02:53):

And we went back, and we looked, and we said, "Hey, where's the equivalent of the Amazon, the Google or the Facebook of the banking industry? Where's that big disruptor?” Because it was so hyped, you can't find one. So, at the end of the day, digital fundamentally altered how we bank.

Michael Abbott (03:09):

I think we can all agree on that, but it did not alter banking itself. And when you look at generative AI, unlike digital, that really changed how we bank. I think generative AI is going to hit every single function inside of the bank over the next 5 to 10 years.

Jim Marous (03:26):

It's interesting because when we looked at the digitalization of banking, we were able to, as an industry, simply do what we always had done but in new ways using digital technology. So, even though we should have rethought how we did it, we kind of just turned everything that we are doing in person to be able to do it digitally.

Jim Marous (03:48):

And as you mentioned, when we look at completely upending an industry, the potential of generative AI is really going from experiences to engagement, from the ability to deliver transactions, to be able to deliver experiences in a way that makes a difference to the consumer, the small business, the corporation, using insight data and AI to drive predictive analytics, to drive better recommendations and as you said, to drive revenue.

Jim Marous (04:19):

Because generative AI really has the ability, I believe, to increase the value transfer. It's not an even deal between, like it was back in the beginning of digitalization where it's kind of like, "Okay, we just did it differently. Sometimes faster, sometimes slower, sometimes more complex." But this really changes everything.

Jim Marous (04:38):

So, when you look at it not being just the next shiny object, how can banks best harness generative AI to boost productivity and efficiency without losing the human touch?

Michael Abbott (04:56):

And Jim, you covered a lot of ground in the front end of that and I couldn't agree more with you. I think in many ways in becoming digital, if you rolled a tape backwards and you think about banking in the 1990s, banks would've told you that 60 to 70% of the value of the franchise came through people walking into the branch after they got a deposit account and being able to sell them a mortgage, a credit card, an auto loan, deepening the relationship. And all of that happened through conversations.

Michael Abbott (05:21):

And in becoming digital, the way I would describe it, we become functionally correct. We can push people through our wire frames, we can make sure they can check their balances, we can make sure they can pay their bills, but we become emotionally devoid. We've forgotten how to have a conversation.

Michael Abbott (05:37):

And what you're pointing at Jim, is the real magic of generative AI is the ability to put humanity and conversation back into it but going a little deeper to answer your question very specifically about productivity. And what happens is, what I'm seeing happen is generative AI can take an enormous amount of what I would describe as the waste in a process out.

Michael Abbott (05:59):

And the real question for banks is going to be, and this is my point I made earlier around revenue. Are you as a bank going to simply take that waste out and take it to the bottom line, which you can do, you can take it in terms of productivity, or are you going to use it to do exactly what you described, which is put the value back in? Let me be a specific example.

Michael Abbott (06:18):

Give me a second here around mortgages. Let's take U.S. mortgages in particular. They require a loan officer to dive through a Fannie, Freddie Mae document that might be 1500, 2000 pages long, look for red flags.

Michael Abbott (06:31):

And then by the way, if your customer happens to have a challenge with their down payment, there's a thousand down payment assistant programs out there, state by state by state, name one mere mortal loan officer that could get through all of that, what I just described.

Michael Abbott (06:46):

Now, take generative AI, vectorize the Fannie Mae, Freddie Mae requirements, have the loan officer put the loan against it, look for the red flags, pull it up, help guide them into the conversation. And when the down payment assistant, when the down payment's a challenge, it can search through the thousands of down payment programs and then recommend one to the loan officer, all of a sudden, that loan officer's job, could you double the productivity? Absolutely.

Michael Abbott (07:10):

But would you rather take the time to focus now on getting into down payment, closing more loans, and driving the top line and having a conversation again with a customer. And that's what I really believe the power of generative AI is.

Michael Abbott (07:24):

Is to get beyond this functionally correct, emotionally devoid world of digital that we've created, which is, by the way, has app ratings that are very high and get back into having a conversation and growing the top line of the banks account.

Jim Marous (07:35):

It can be interesting because it gets away from transactions and costs and really does get into, as you mentioned, a value transfer which takes into account trust, risk, speed, all these elements that are value added elements, even when you talk about the ability to make more of an open banking model around the mortgage process to bring more value to the equation.

Jim Marous (08:01):

And what's interesting, we're jumping into generative AI right now, and yet we haven't fully, in my opinion, in your opinion, I've read embrace digital maturity. So, we talk about, I always call the digital account opening the digital loan process where we do a research project, and we find out that 80% of the organization says we can open an account and we can do a loan application digitally.

Jim Marous (08:28):

Well, that’s true but if you were to ask the consumer, "Is this a digital loan or digital new account opening process," they'd say, "There's no way, it's taken me 15 minutes on my phone still." So, we haven't even got fully out of the digitalization process and make ourselves ready for the AI process.

Jim Marous (08:48):

So, when you look at your predictions for 2024, obviously generative AI was a major element of almost every one of the predictions in some way. What were the two or three predictions that you have that go beyond just general AI, but really look at the way we do banking?

Michael Abbott (09:10):

I think that's a great question. So, let me give you two in particular. One is, we talked about the digital dividend, and it goes back to the heart of what you're talking about, is that if you look at all of our digital touchpoints right now, for the most part, banks treat them as check your balance, pay those functions. They're meant to offset servicing.

Michael Abbott (09:29):

If you turn that around, you think about those digital touch points like a Facebook would or like a Google would, you would treat them, those unique opportunities as gold. And you would say, "How do I embed an experience in there that allows me to deepen the relationship, do what I did in the branch before?"

Michael Abbott (09:47):

And by the way, this doesn’t mean dropping a banner ad on the mobile app. But Jim, it goes right to the heart of what you just said, which is imagine now that I can send into my mobile app, and I have a credit card feature functionality, and just like I do on my Apple phone, I could slide it over and turn it on.

Michaeal Abbott (10:03):

Digital should be that simple to be able to add feature products and functionality. And that's a great way to integrate in and monetize the touch points of digital, solve that humanity question you're talking about. And frankly, push digital to the point where it's a logical conclusion should be, which it should be, make things very, very simple, not a 15-minute process. So, that’s one, I think very transformative trend that’s sitting out there.

Michael Abbott (10:30):

The other one, which I think a lot of people aren't paying attention to, but I think maybe the single most transformative one as we look forward over the next decade is this next generation of cloud that we're seeing right now. And this kind of what I would call operating in a cloud first mentality. And again, it may sound very technical to many people, but we’re looking at it right now.

Michael Abbott (10:52):

We're actually working on the third generation of cloud initiatives at many of the banks. And this third generation, what's happening is instead of banks taking their internal experiences and projecting them onto the cloud, they're saying, "How do I build the bank to look like a cloud to be able to stand up, stand down features, functionalities, not to put a bunch of checklists on the security patterns, but to embed it in."

Michael Abbott (11:14):

And when you take that cloud first mentality, all of a sudden, you're going to build your infrastructure, even if it's on-prem to look like the cloud. And furthermore, this was not as big for the U.S. but there's these new requirements in Europe called DORA, which says that any critical process in banking has to be work on multiple clouds at the same time, or on-prem has to be able to be moved back and forth.

Michael Abbott (11:37):

What that, I believe Jim is going to push us to, this is going to be a moment in time like the early 90s, when you had TCP/IP, LU 6.2, SNA protocols, you had all these networking protocols competing with each other, but all of a sudden the internet protocol, the open source standard wins, I believe you're about to see kind of an open source standard in cloud computing as the core base lit went that'll allow you to move applications back and forth very seamlessly.

Michael Abbott (12:02):

Add that in with the ability to generate AI to do the development going forward. You have, I think, a new bank operating system in the world that's going to start emerging over the next three to five years. I think that may be very well the most transformative trend and change fundamentally the way banking works from being hundreds of operating systems to being much more like TCP/IP as a standard.

Jim Marous (12:22):

So, it's interesting, we know that cloud can increase velocity and can handle a lot more data. How do you see it changing culture across the banking industry? And just as importantly, how do you see cloud and composability, the composable solutions working together to make it so that maybe banking can catch up to the lack of innovation they've had as to how banking can be done?

Michael Abbott (12:50):

So, let's start with the culture one first and then maybe go a little more tactical on that front. And again, this is one of the big trends we see for this year. This is beyond just generative AI, we call it from technology to engineering.

Michael Abbott (13:04):

And you've seen some great banks out there, like BBVA has talked about it very publicly. I can tell you privately, a number of banks are looking at it saying, look, as you roll the tape forward, and is compute become standardized, as the components become standardized, as generative AI can help you do development and forward engineer from specifications directly in the code. The real value in technology is going to be created in engineering. It's going to be around having those product engineers that understand the business really well.

Michael Abbott (13:34):

And the testers, that distance is going to collapse in this cultural shift from being the CTO/CIO of the organization, to being the chief engineer of the organization, to being the engineers that are leading the product development of the bank. I think we’ll see as a major shift over the next three to five years, especially as technology fades in the background.

Michael Abbott (13:55):

And it becomes more important, as you mentioned, the second part is you have composable architectures. It becomes the engineers that can pull the building blocks together of those different components to build applications and product feature functionality at paces and speed you just couldn't do before. So, it is a great question Jim and I do firmly believe we're moving from a world of technology to engineering.

Jim Marous (14:19):

Well, it's interesting because you talk about the engineering concept, you talk about the AI and generative AI, in your report, you talk about the power pricing, and you mentioned the cloud situation. All these take bankers going beyond what they learned as bankers while their legacy knowledge is certainly always going to be key because you still have to know how to do the concepts of banking.

Jim Marous (14:46):

A lot of what's going on in the marketplace now is brand new. And we can't just flip a switch and change all the employees. How do you see the future of learning and the future of leadership adjusting to what your list of 10 trends are all new to banking to one degree or the other?

Michael Abbott (15:10):

They are, and to your point, I'll be clear, I don't think the nature of banking taking deposits and loans that is banking. We all know that is not going to change. But the way you do that banking underneath, I think will change dramatically.

Michael Abbott (15:22):

And specifically, I think the question you're getting at is one of culture. And it's interesting being in the job I'm in because I get to see bank cultures from the outside and which ones are winning and which ones I think are probably laggards.

Michael Abbott (15:36):

I would say, if I were to boil it down, one word, curiosity. The banks that have a culture of curiosity tempered with execution and risk, focus are the ones I see winning because of the ones when I walk in. It's very interesting as a consultant walking in when you walk into a bank, and I can tell you some of the smartest banks in the world I walk into, they are just grilling me for information left and right.

Michael Abbott (16:02):

There's other ones which I think we could probably argue are not some of the best ones. I walk in, they tell me how smart they are, how much they know, and they're not willing to learn. So, Jim, if I were to bullet down the one thing from that point of view, I think the culture of the bank and that natural sense of curiosity tempered with risk foundation and execution is going to be the things you have to do.

Michael Abbott (16:22):

And what you have to do to answer your question very specifically is you cannot go out and hire somebody with five years’ experience in any of these things, you're going to have to invest in your talent. And if you can have that naturally curious talent and you make that investment, I think that is a winning combination for the banks.

Jim Marous (16:38):

It's interesting Mike, same thing as you when I go visit banks, it sounds overly simplistic, but overly difficult, both. Whereby you say, I can tell in about a 10-minute discussion with leadership whether or not they're innovative, whether or not they're really embracing the change that's necessary, and whether or not they're going to be digitally and AI mature, or if they're going to extend continually in that mass in the middle.

Jim Marous (17:08):

And it's amazing. You think that it would be more than that but it's not the amount of money they spend on technology. I see a whole lot of firms spending a whole lot of technology and not getting anywhere because it's deployment. It's embracing what you're trying to accomplish.

Jim Marous (17:23):

And then on the other hand, I see some very small organizations that can't invest all that money doing extraordinarily well because as you said, they have that curiosity to do different and you just go, "Wow, they're punching way above their weight in the capabilities."

Jim Marous (17:40):

But in a time like this where everything's changing so fast, unless you get on the train, you will get left behind. That's very cliche-ish but the reality is it goes beyond true. I mean, you said it, you can take just a few minutes and say, "I hear what they say, but they're not there and they're not getting there."

Jim Marous (18:00):

It's very difficult and those organizations have a very hard time getting ready to their legacy debt, tech debt whereby they look to solve the problems, but they don't do it well. Or they bring a composable solution and then they change it on the way in. And you go, "Wait, you didn't buy this. You just kind of like you bought it, but then you changed it before it got implemented."

Michael Abbott (18:26):

And by the way, it goes right to the heart of where we started this conversation, technology versus engineering. If you're technology, you're thinking, "I'm going to implement what I've got." If you're engineering, you're thinking, "How am I solving the problem?" It goes to that very heart of natural curiosity and willingness to learn, listen, and take things forward.

Michael Abbott (18:42):

And I'll tell you, I think that is going to be the major factor that separates the winners from the losers may very well be the culture more than the technology. And we talked about that in the report too. The ability to have an organization that's willing to learn and move forward in a time of change like this, when you can't just go hire five years of prior experience from somebody is different.

Michael Abbott (19:01):

In fact, Jim, I would tell you, I had a bank come in the other day and they said to me, they go, "Can you do a benchmarking study for me and can you get out the rear view mirror Mike and put it in the car and tell me what everyone else did two to three years ago and what I should be doing?"

Michael Abbott (19:13):

And I'm thinking to myself, I'm thinking, "Yeah, I can do that for you," but that's not the answer. The answer is, you need to be looking out the front window and asking what's coming and how can I redefine, how can I reinvent the very way that I'm working? Don't ask me about the rear-view mirror because the rear-view mirror-

Jim Marous (19:29):

You'll never catch up.

Michael Abbott (19:31):

You'll never catch up. And that sums it up. That sums it up. That sums it up right there.

Jim Marous (19:36):

It's interesting, at the same time, we're in an environment that still has significant regulatory pressures, and I'm going to call them trade group association pressures where everybody's pulling, trying to make things even. But from its outside point of view, it tends to slow down the process.

Jim Marous (19:54):

So, how do banks balance innovation against the regulatory challenges in their current landscape? I mean, how do you see regulation keeping pace with an industry and with consumers that want so much more but we tend to kind of cell ourselves. We put ourselves in handcuffs sometimes.

Michael Abbott (20:15):

No, it's a great question. We talked about this also in this year's trends around the kind of what I would say is the need for collaboration between the banking industry and the regulators. Because in many ways it's a game of cat and mouse. And I don't think it has to be because they both need each other going forward.

Michael Abbott (20:30):

And to the extent that they can kind of get closer together, I think in many ways will make their lives simpler. I mean, it kind of goes a little bit to the engineering mindset we've said before, which is you have to have natural curiosity associated but you also have to have a mindset of risk and execution. You have to do what you say you are going to do. And I think that’s a lot of times where banks get challenged on that front.

Michael Abbott (20:52):

But to look at it more broadly from a regulatory point of view, this is happening right now quietly. It's certainly happening in the U.S. and happening in Europe where the regulators and banks are starting to talk to each other and saying, "Look, how can I share the information back and forth that you need to be able to monitor, look at what I'm doing. How can I basically make the regulatory process basically just embedded into what I do every day?"

Michael Abbott (21:13):

Whether it be from an ALCO perspective or whether it be from an operations and controls because when you do that, it changes. And I can tell you, I had one bank that did this when they did their agile process. What they did, Jim, is they pulled — usually regulatory is like a backend control function. It's like a gate that you have to get through later on.

Michael Abbott (21:32):

They took the regulatory piece, and they brought it all the way into the agile team in the front end and they embedded regulatory compliance people in the front of the agile process. And they embedded regulatory thinking into the design of the product. They went from probably 70 different controls to two to three on the front end now, and everything flows through. And I can tell you, this is one of those banks that does not get MRAs.

Michael Abbott (21:57):

So, it goes back to the culture of embedding it right up front into the process. So, I think you're about to see a complete change in thinking from the cat and mouse game to one of, "Look, we need each other, and regular regulation and controls need to be embedded into our way of thinking going forward. Not just be an afterthought as a gate that's checked farther down the process."

Jim Marous (22:19):

It's interesting, we talk about that with organizations that I talk to as well, saying, you got to put the people you're most afraid of, the regulatory compliance, what used to be the legal side. But the legal side now says, "Hey, we're just going to tell you our opinion on what could happen if you do this this way as opposed to the yes/no switch.”

Jim Marous (22:38):

Well, the problem is you got human nature involved. If you involve regulatory and compliance on the front end and have them buy into what you're doing, you're not going to run against that problem of, “Well, I don't understand what you mean by this (because they haven't been in the meetings), and I'm only going to take it from the black and white perspective.” And you'll never move forward in that way.

Michael Abbott (22:59):

So, Michael, as you look back to 2023, boy that seems like 15 years ago instead of one, what did you maybe get wrong on the predictions last year? Was there one that you said, "Geez, we kind of missed the mark. We either overshot or we undershot."

Michael Abbott (23:16):

Yeah, there some ones we definitely get wrong. And I think admitting your mistakes is … maybe I won't say mistakes, but admitting what you probably didn't get so right is a good one. Look, I mean, we talked about the metaverse last year that we thought it would find its footing.

Michael Abbott (23:29):

I still believe the metaverse will get out there. Especially if you look at Apple with the way they're launching their new headset, it's going to be there. But until we get to kind of an equivalent of an HTTPS, open standards, and the ability to do all that, I do think eventually, Jim, instead of you and I being on speakers and microphones here, we'll be on headsets, and we'll be able to do this podcast virtually at some point in time.

Michael Abbott (23:49):

But I think we're a little early on that one, thinking that was going to have an impact last year.

Jim Marous (23:56):

So, let's take a short break here and recognize the sponsor to this podcast.

Jim Marous (24:03):

Welcome back to Banking Transformed. So, I'm joined today by Michael Abbott, Senior Management Director, Global Banking Lead at Accenture. We've been exploring the challenges, opportunities and strategies that will define winners and losers in 2024.

Jim Marous (24:19):

So, Michael, we are talking about all the different trends that you see coming in, the probability, and as we said, the generative AI, which it's amazing, it's only November of last year, the revolution of what generative AI can bring to the table and the recognition of what AI as a tool can be, is kind of underlying almost every one of the trends.

Jim Marous (24:39):

But when you look at other trends that are not as tactical and maybe not as monetary driven, one of them is the importance of sustainability and ethical banking. What do you see happening in 2024 in this space that sometimes is really hard to get your hands around and bankers like things that drive revenue, all this. But I'm seeing a real wave of understanding of what sustainable banking, ethical banking can be.

Michael Abbott (25:09):

And we had trends in the prior agenda, we call it green gets real. And the point we've been making about this and the trend, what I'm seeing is I'm seeing it kind of go from a point of hype to a point of, "Okay, what is the reality of what we can really do and how should we do it? And how should we go about it?"

Michael Abbott (25:26):

I've seen many banks that have made the commitments publicly but they're working with their suppliers to ensure that their suppliers have a strategy and that they know what they're doing. They're working with the risk and underwriting with even their commercial clients, at least understand where they are and be able to measure it.

Michael Abbott (25:41):

Now, they may not have the perfect plan, they may not be carbon neutral or the other pieces they want but they're working on the commercial side to figure that out. And then I would say what's fascinating is most aggressively is I'm seeing a whole host of European banks which has a more politically, it's driven more of a policy in Europe than it has been in the United States.

Michael Abbott (26:00):

Actually, believe it or not, coming and looking to come to the United States to do underwriting around what I would call a sustainable banking on that front, try to lead the way. So, in many ways, Jim, if I blow it down, I'd say green gets real.

Michael Abbott (26:14):

We're moving past the hyperbolism and the hyperbolic language, and we're moving towards a scientific thoughtful approach to saying, "How do we actually make this happen?" And I think that's a good thing for everybody involved.

Jim Marous (26:30):

When we look at banking today, a lot of the innovations in 2023 happened around payments and the starting of embedded finance. And we talk about this without sometimes knowing exactly how this is going to all transform and how many are going to play and to what degree.

Jim Marous (26:48):

But when you look at the balance between those, you look at, let's say, mobile wallets, that really seems to be something that from a consumer perspective could really take off because the power of what a wallet can do and embedded finance words everywhere.

Jim Marous (27:07):

And a lot of what happens today, we almost take for granted, we go through the toll booth on the turnpike, and we don't stop. We just have our little trigger device and it's really elementary. But we look at, as I brought up before the break, what Uber does with the embedded everything from meal plans to deliveries, to experiences, all around your point of getting into a car, to the point of just parking, this is really changing the way banking's done. How do you see this taking shape in 2024?

Michael Abbott (27:40):

A couple of different things, and I'll give you two sides to that, Jim. One is on the embedded banking side, you mentioned some great examples of the consumer side where all of a sudden, the payment is just simply embedded into the Uber experience, into your Instacart experience, into your Amazon experience, it's just incredibly simple.

Michael Abbott (27:56):

You don't even think about, frankly, how you're paying for it on the other side of it. And I think that's a great example of embedded banking. The same thing interesting we see is starting to come true on the commercial banking side now, which is quite fascinating.

Michael Abbott (28:09):

Which you're seeing transaction banking, cash management, and those pieces being embedded directly into the accounts payable systems where all of a sudden, you're able to integrate banking directly in. And I think that is going to be a fascinating trend on the commercial banking side of the equation, is embedded banking over there and how that works.

Michael Abbott (28:25):

And what we've talked about is payments. You're also, I believe, going to see that on the lending side of it, where you'll be able to have micro loans and other pieces that'll come out very quickly to be able to finance different components of this. I think that's going to be happening, you'll start seeing that happen as we go into the next year.

Michael Abbott (28:40):

But if you look at the other side of that, which you talked about, you talked about the mobile payments, the mobile wallets, I think that may be a very fascinating point in 2024. Because if you look at the EU regulations, the EU just came out and has said, "Look, with Apple, that they have to open up NFC."

Michael Abbott (28:58):

So, it is a very interesting thought experience for any of your listeners today to just simply ask yourself the question, if you have Bank X, ask yourself the question, "Why can I not tap and pay with my bank X mobile banking app? Why do I have to go to another wallet? Why shouldn't I be able to tap and pay with that wallet? And why shouldn't I be able to do that?" And that leads you right down that path of use. So, this kind of cold war for the user experience around payments, I think is a very interesting theme to watch in 2024.

Jim Marous (29:29):

And who's going to own it? I mean, just today word came out that PayPal is putting five new capabilities into their system, which is really enhancing the wallet capability well. If PayPal's doing that, how is the financial institution itself going to be part of that play? Or are they going to be behind Apple or one of those others? How do you not get left behind and become simply the money warehouse as Ron Shevlin often says.

Jim Marous (29:55):

So, it's interesting, we're looking at one year, we're looking at 2024, but we really have to take things into context and say, what's going to happen five years down the road or within the next five years, I should say? So, we're usually wrong on these, or could be, but what emerging technologies or capabilities do you think will separate the digital banking leaders from the laggards in the next five years?

Jim Marous (30:19):

So, that doesn't mean you have to get specific as to what's going to happen in the future, but what will be the separating point? What do you see in the industry today that may be boding well or terribly for organizations because they're may be not getting on board, or they are getting on board.

Michael Abbott (30:35):

When you look at it specifically around the technology, I mean, there's a few of them we talked about one, which is this mobile, who's going to own the user experience of tap-to-pay in the long run? Is it going to be a third party, or will the banks somehow come back around that? And I don't think there's too many that are winning on that front at the moment right now. I think it's a big question for the boards and the CEOs of those companies.

Michael Abbott (30:57):

But in particular, I think there's a few things. I think one, this idea as we talked about earlier, or this kind of cloud first mentality, the banks that can find a way to simplify their infrastructure and get towards, I don't if we'll ever get towards a single operating system, but start to bring that down, I think will have an enormous advantage when it comes to speed, execution and cost of technology if they can get to that platform.

Michael Abbott (31:20):

I think it's a really interesting way of thinking of kind of again, back to the analogy of the 1990s when you had SNA protocol, TCP/IP, Novel, where you had all these different protocols, apple talk, and all of a sudden you have a standard that emerged that changed everything and made the internet and made it that much simpler for everybody. I think the same thing is going to happen for the banks on the technology compute side.

Michael Abbott (31:41):

I also think a relative degenerative AI, I think the banks that can take a customer centric approach and move beyond these functionally correct experiences, functionally correct emotionally devoid and find a way to understand the intent of the customer, much like a branch manager would've done 50 years ago and embed that experience into their mobile and all their touchpoint and connect those experiences across channels.

Michael Abbott (32:07):

The ones who figure out how to do that are going to have an unsalable position from both a retention point of view. And I also believe from a franchise point of view, with the ability to deepen the relationship and get substantial more value out of those customers.

Jim Marous (32:25):

I cannot agree more. I mean, I think it's so interesting the whole concept of what generative AI could help you do in actually showing empathy. Where you talk about a predictive analytics and things of this nature, but let's go beyond that and say, not just predictive on what I would do, but predictive analytics on what I should do to make my relationship better.

Jim Marous (32:49):

And that happens on both scales of the spectrum, that can help those people that need financial wellness, that really need answers as to how do I take care of my debt right now? How do I take care of my work situation? How do I deal with daycare? Those answers could come from the finance institution.

Jim Marous (33:08):

On the other hand, how do I rejigger my investment portfolio for the future? And we are in a position as financial institutions to really help every single consumer, small business and big business do better with the data that we hold. We know more than anybody could ever imagine.

Jim Marous (33:30):

And if we were able to take everything you know about me, you could help me be a better financial steward. And I think you're right. I think that's really going to separate the winners from the losers. And it may not be all driven by the money that an organization has to invest.

Jim Marous (33:45):

It may get back to, as you've mentioned earlier, culture. What organizations will really live that as opposed to talk that, it's very interesting. So, I'm going to throw a curve ball your way now, Michael. So, we had a discussion, this one may be taken off the podcast.

Jim Marous (34:03):

We may say, "You know what, we can't talk about this." But we were having a discussion a week ago with some friends and talked about the fact that, do we even have a top 5 or top 10 banking organizations in the U.S. right now? Or do we have one and all the rest.

Jim Marous (34:20):

Has Chase Bank made themselves so powerful in the way they can leverage technology, they can invest in branch, they can invest in relationships, they can use that data to drive experiences and engagement. Are all the rest of the top four or five or six playing catch up to one that really right now has just the mentality, the culture and the investible assets to making banking different?

Jim Marous (34:49):

Now that doesn't mean, I'm not saying that all the rest have to pack it in. I see small banks that are going to be here well beyond my years, but I'm wondering, are we really seeing a unique situation in the industry that we're not really revealing that says, "You know what, we have one big powerful bank and all the rest."

Michael Abbott (35:09):

It's a good question. I don't know if I'm qualified to answer that one, but what I can tell you, Jim, is looking at it. Because I have a global perspective, so I can see all the banks around the world outside of the United States, which is fascinating because when you open the aperture beyond the United States, what you do is you see many banks that are not of the scale and scope of the ones you've mentioned here in the United States that I think are exceeding exceptionally well.

Michael Abbott (35:34):

So, my view is, it is absolutely possible. It's a question of leadership and desire the culture and do you have the wherewithal to execute with that type of mindset? And in fact, in many ways, what we are talking about through this whole podcast is the democratization of technology.

Michael Abbott (35:55):

I would say that five years ago you had to hire a bunch of PhDs in AI machine learning. Now I can buy these large language models, buy the drink using a credit card. So, the real question becomes now is not so much is there going to be one that I think the bigger question is, are others going to step up and actually realize the game is being played here? I think that's the bigger question.

Jim Marous (36:20):

Boy, Michael, that is a great answer, and it wasn't even political. I mean, because the reality, you're right. I kid about the fact that when I started traveling internationally and sometimes just to Canada, I realized the difference in perspective as to the rest of the world thinks they're part of a global universe. We think we're the center of the universe as the United States. But you're right, you look at WeBank, you look at Emirates NBD, you look at La Caixa, you look at-

Michael Abbott (36:52):

BBVA.

Jim Marous (36:53):

Oh, BBVA

Michael Abbott (36:54):

In Tesla, Sao Paulo, the European banks that have incredible cross sell rates on the digital side, infinitely better than any northern bank.

Jim Marous (37:02):

You look at some of the payment capabilities now in South America and in Africa, and you go, you know what, these people are almost ahead of everybody because they built everything on a digital platform. They're brand new, new in both the spellings that are out there.

Jim Marous (37:18):

But you look at this, and you're right, maybe in the U.S. you have one big behemoth and again, it gets down to culture. I think their culture works very well for them. They make mistakes, they admit them. They have a very visionary perspective because of their leader, and it gets down to that.

Jim Marous (37:37):

It's funny how we end this conversation about the trends, how many times we got right back to culture. Banks have to take that into account because you don't have to be big to have a great culture. And just because you're big doesn't mean you have a winning culture. So, if you had one major recommendation for banks looking to thrive in 2024 and beyond, what would that one recommendation be?

Michael Abbott (38:02):

Curiosity. Right where I started the whole culture question. Curiosity tempered with execution, with focused execution. Because if you can manage to hold those two somewhat incongruous thoughts in your head, in your organization, I think you will be a major winner this year.

Michael Abbott (38:21):

Because in many scenarios now, you can't go out and say, "Give me somebody with five years of generative AI experience.” You have to invent this. It goes right back to the point we're making, banks that are focused on the rear-view mirror are always going to be two to three years behind. And this is a point in time, a change in technology and capability that it requires someone looking out the front windshield almost all the time.

Jim Marous (38:46):

Boy, what a great thought. You look at what you do for a living and what I do for a living, we visit organizations often or we make presentations, but a lot of times it's visiting organizations. If those organizations are calling you in because they want to know what they should do and then are really bought into doing what you say as opposed to simply saying, "Oh good, we got that Accenture meeting out of the way."

Jim Marous (39:08):

You realize, well, I may not have all the answers, or you may not have all the answers, the fact that you asked the questions, and you had the right people in the room to look at them, you are already so far ahead of your competition.

Jim Marous (39:20):

I had a conversation on Friday with an organization in the Middle East and the fact that they were inviting me to come in and they have a monthly meeting with all their senior leadership to look at what's going on in the industry and new perspectives, all these go. And they're actually doing things with those.

Jim Marous (39:35):

I go, I told the firm, I said, "Guys, I already see you as one of the leaders in the industry globally." And I said, "Why do you want me to come in?" They go, "Because we never think we have all the answers." And that says so much about an organization.

Jim Marous (39:51):

And again, it doesn't matter what size it is, it can be in the Midwest of the United States, it can be in the Middle East or in China. Even though you're surrounded by a lot of great minds, are you letting those minds in to talk about it?

Jim Marous (40:05):

So, Michael, thank you so much for being on the show today and bringing your wisdom. And it's interesting because you always bring some surprises. You always leave with some extraordinary nuggets.

Jim Marous (40:18):

And I think the one you left with this year, the whole idea of curiosity, that's going to stand the test of time because it overrides everything else. It overrides the amount of money you have to invest. It does open the door to composable solutions because if you bring in the people that have already figured it out and they're there to always have to be on top of that, it's better than staying with your legacy solutions sometimes.

[Music Playing]

Jim Marous (40:41):

So, again, Michael, thank you so much for your time and for sharing your ideas on what to expect in 2024.

Michael Abbott (40:48):

Thank you, Jim. We can all learn something from anybody every day.

Jim Marous (40:53):

That's right. Thanks a lot. Thanks for listening to Banking Transformed, the top podcast in retail banking and the winner of three international awards for podcast excellence. We appreciate the support we've received to make this endeavor a success. If you enjoy what we're doing, please take some time to show some love in the form of a review.

Jim Marous (41:11):

Finally, be sure to catch my recent articles on The Financial Brand and check out the research we're doing for the Digital Banking Report. This has been a production of Evergreen Podcasts. A special thank you to our senior producer Leah Haslage and our audio engineer and video producer Will Pritts.

Jim Marous (41:27):

If you're not already done so, please remember, subscribe to Banking Transformed on both your favorite podcast app and on YouTube for more thought-provoking discussions on the intersection of finance, technology, and leadership.

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