Embrace change, take risks, and disrupt yourself

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

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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 www.ibm.com/financial-services.

Jim Marous (00:11):

Hello, and welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous, owner and CEO of the Digital Banking Report and co-publisher of The Financial Brand.

Jim Marous (00:20):

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.

Jim Marous (00:38):

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.

Jim Marous (00:59):

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.

Jim Marous (01:16):

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.

Jim Marous (01:35):

But technologies by themselves will not make banking future ready. Leadership must also, transform their legacy thinking to capture the potential value of modernization.

Jim Marous (01:44):

So, John, before we get started, can you share a little bit about yourself and your role at IBM Technology as well as how IBM works with banks and finance institutions worldwide today?

John Duigenan (01:57):

Thank you so much, Jim, and I'm delighted to be with you.

John Duigenan (02:00):

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.

John Duigenan (02:15):

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.

Jim Marous (02:33):

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.

Jim Marous (02:52):

Within IBM, and you've been with the firm for quite a while, how is that possible? How does IBM stay relevant to the banking industry, especially as you look at the technologies that are involved?

John Duigenan (03:05):

Well, I think we walk in our client's shoes. We have a very long history of partnerships with our clients. Some of them extend over a hundred years.

John Duigenan (03:15):

You'd be amazed to know, we know financial services extremely well. We live and breathe it. That's our mission, selling the best technology that's relevant to our clients.

John Duigenan (03:27):

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.

John Duigenan (03:53):

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.

John Duigenan (04:15):

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.

John Duigenan (04:28):

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.

John Duigenan (04:44):

Rock solid capabilities around data and AI, business automation, integration, network automation, and security. They run anywhere in any cloud service or on-prem, and they're offered as a service.

John Duigenan (04:58):

So, despite an incredibly long heritage of working in the industry, our offerings are some of the most modern and most innovative.

Jim Marous (05:09):

It's interesting because while this sounds kind of like an IBM commercial, the reality is IBM is really unique in the marketplace that they are always on the cutting edge of what's happening.

Jim Marous (05:20):

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.

Jim Marous (05:42):

So, as banks and FinTech firms and large tech firms descend upon Amsterdam, what key topics do you expect will dominate the conversation on the convention floor?

John Duigenan (05:54):

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.

John Duigenan (06:15):

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.

John Duigenan (06:29):

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.

John Duigenan (06:54):

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.

John Duigenan (07:09):

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.

John Duigenan (07:28):

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.

Jim Marous (07:53):

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?

Jim Marous (08:14):

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.

Jim Marous (08:25):

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?

John Duigenan (08:47):

So, I think this is a precursor to a technology conversation. But I'd say that in order to be successful, two things that are important right now.

John Duigenan (08:57):

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?

John Duigenan (09:17):

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.

John Duigenan (09:37):

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.

John Duigenan (09:52):

But it's being laser focused on the why and ensuring that modernization is done, for example, for it to drive a real business outcome rather than some arbitrary outcome.

Jim Marous (10:04):

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.

Jim Marous (10:19):

It's about doing things differently and building new business models that really look at revenue opportunities that may be even outside the organization, which again, takes technology to drive that.

Jim Marous (10:30):

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.

Jim Marous (10:48):

And it's really, as you said, changing the mindset, changing the culture, and changing in some cases the back-office automation to make it so the organization can actually be digitized.

Jim Marous (11:00):

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?

John Duigenan (11:21):

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.

John Duigenan (11:44):

So, we see a ton of regulation, especially in Europe around that. And we can see that breaking out even more around the world.

John Duigenan (11:55):

I think the other issues that I see most of all are that there are so many organizational silos in firms that it makes running any kind of innovation very, very complex.

John Duigenan (12:10):

So, these aren't necessarily technical issues or technology issues, although technology issues clearly help break down silos, but they're more organization and political.

John Duigenan (12:22):

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.

John Duigenan (12:42):

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.

Jim Marous (13:07):

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.

Jim Marous (13:20):

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.

Jim Marous (13:39):

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?

John Duigenan (13:55):

It's very hard to speak about that in general terms, Jim, because wherever you are in the world, the talent marketplace is different.

John Duigenan (14:04):

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.

John Duigenan (14:25):

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.

John Duigenan (14:40):

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.

John Duigenan (15:05):

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.

John Duigenan (15:26):

So, we've worked through some of these skills and talent and culture issues by really bringing people together and helping them be fulfilled both on existing and new skills.

Jim Marous (15:41):

When you look at the bringing together of people, I'm seeing, I don't know if you're seeing, a whole lot more acceptance of collaboration with third party providers.

John Duigenan (15:51):

Oh yeah.

Jim Marous (15:52):

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.

Jim Marous (16:09):

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?

John Duigenan (16:20):

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.

John Duigenan (16:43):

Their chosen partner could be at AWS and Microsoft with Azure as cloud providers. We're all in on those partnerships. It could be with any of the major US based or international services providers.

John Duigenan (16:56):

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.

John Duigenan (17:16):

It also, enables substitutable architectural choices. So, where I could use one component and potentially have other choices around which component I use, if everyone's speaking the same APIs.

John Duigenan (17:30):

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.

John Duigenan (18:00):

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.

Jim Marous (18:23):

It's interesting as I look at these collaborations that are going on right now, and I've visited quite a few financial institutions individually, but also, quite a bit at recent conferences.

Jim Marous (18:34):

And it's really amazing how some relatively small organizations are able to do amazing things now, that everything is scalable, everything is solution-based and organizations are moving forward.

Jim Marous (18:48):

We always talked about the big semi versus the pickup truck as an analogy, but the reality is there's some amazing things being done by some of the smallest organizations.

Jim Marous (18:58):

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.

Jim Marous (19:18):

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.

Jim Marous (19:38):

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?

John Duigenan (19:56):

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.

John Duigenan (20:20):

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.

John Duigenan (20:43):

I think there's another side to this also, Jim, which is that like any technology going through very rapid development, AI can be very hazardous.

Jim Marous (20:55):

We've already seen that in many cases, haven't we?

John Duigenan (20:57):

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.

John Duigenan (21:19):

And so, I'd start by saying there that this just for businesses, while this is incredible consumer level technology and transformative, there are just too few rules of the road.

John Duigenan (21:33):

Now, I see businesses needing AI that's very accurate, predictable, scalable, adaptable. If you can't trust the results of AI, don't do it.

John Duigenan (21:46):

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.

John Duigenan (22:05):

AI needs to be based on models that can be easily adapted to new use cases and scenarios. And the power of the foundational models in particular are going to push us into a new era of AI for business.

John Duigenan (22:23):

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.

John Duigenan (22:41):

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.

Jim Marous (22:59):

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.

Jim Marous (23:22):

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.

Jim Marous (23:39):

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.

Jim Marous (23:53):

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.

Jim Marous (24:12):

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-

John Duigenan (24:29):

I agree.

Jim Marous (24:30):

... that's, I think the organizations that can do that first and best ... I mean, I've seen some of the FinTechs have done it, but it's very much in a small box.

Jim Marous (24:40):

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.

John Duigenan (25:01):

Oh, no question.

Jim Marous (25:02):

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.

Jim Marous (25:19):

Can you tell us a little bit about what watsonx is and put it into perspective as to how it's going to impact global banking?

John Duigenan (25:27):

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.

John Duigenan (25:43):

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.

John Duigenan (26:07):

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.

John Duigenan (26:24):

watsonx.data is a fit for purpose data store because we know that client's data now, exists in many, many places across all sorts of services, but most of those services are using a common standard.

John Duigenan (26:45):

So, watsonx.data will allow access to those standards-based data repositories and do so in a governed way that is specific for driving AI workloads.

John Duigenan (26:56):

And watsonx governance is the end-to-end toolkit that will encompass data governance such as data model description and lineage. And AI governance such as explainability, transparency and bias.

John Duigenan (27:16):

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.

John Duigenan (27:35):

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.

John Duigenan (28:06):

So, those are simple use cases that will be front and center right from the get-go with these new capabilities from watsonx.

Jim Marous (28:16):

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.

Jim Marous (28:33):

And that partnership made it so that organizations didn't have to go through 80% of the stuff they went through that every organization has to go through that the answers are all the same.

Jim Marous (28:44):

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.

Jim Marous (28:58):

Do you see a whole banking component of watsonx being able to be generated, that answers the general questions faster and easier than ever before?

John Duigenan (29:10):

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.

John Duigenan (29:32):

So, I fully expect to see that. I'd love to see that happen in an open-source way so that every institution …

John Duigenan (29:42):

We see the industry reinventing wheels all the time. Why did they do that?

Jim Marous (29:47):

John, when you talk about watsonx, (in my mind, I may be some oversimplifying it) it sounds very much like the collaboration you have with IBM and Bank of America on cloud technology.

Jim Marous (30:00):

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.

Jim Marous (30:18):

Am I making it oversimplified or is this what watsonx eventually could do for the banking industry?

John Duigenan (30:25):

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.

John Duigenan (30:37):

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.

John Duigenan (31:06):

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.

John Duigenan (31:33):

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.

John Duigenan (31:51):

And so, the most likely area where that would happen, Jim, is around building foundational models specifically as it relates to the industry language and vernacular and business processes.

John Duigenan (32:05):

I couldn't be more excited about the possibility that will deliver because that will foster great reuse and it will prevent this notion of everything being reinvented from scratch every single time.

Jim Marous (32:19):

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.

Jim Marous (32:35):

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.

Jim Marous (32:48):

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."

John Duigenan (33:16):

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.

John Duigenan (33:43):

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.

John Duigenan (34:07):

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.

Jim Marous (34:26):

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?

John Duigenan (34:48):

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.

John Duigenan (35:02):

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.

Jim Marous (35:27):

Oh, I know that one. You quickly become irrelevant.

Jim Marous (35:28):

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.

Jim Marous (35:46):

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.

Jim Marous (36:05):

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?

John Duigenan (36:23):

I think the consumer seeing value from this is at the very heart of it. You spoke earlier about your experiences with firms. I won't name and shame anyone here.

John Duigenan (36:34):

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.

John Duigenan (36:52):

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.

John Duigenan (37:19):

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.

Jim Marous (37:41):

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.

Jim Marous (37:59):

I've done that with my business account with PayPal, I've done on my consumer account with different organizations including SoFi, and Acorns, and Robinhood.

Jim Marous (38:09):

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.

Jim Marous (38:22):

So, John, as we try to wrap this up a little bit, what do organizations have to do today, to be prepared for what's going to happen tomorrow?

John Duigenan (38:35):

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.

John Duigenan (38:54):

I think that most firms at this point have realized that on-prem only or a public cloud only approach isn't viable going forward. They need to benefit from both.

John Duigenan (39:07):

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?

John Duigenan (39:24):

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.

John Duigenan (39:46):

So, when I think about why hybrid, it unlocks value, it speeds innovation and it simplifies delivery and the cost of delivery.

John Duigenan (39:54):

When I think about the what of hybrid, it's that combination of open platforms, open standards. It's the combination of fit for purpose workloads that can run anywhere. It's consistent security.

John Duigenan (40:12):

And hybrid applications always include an approach to data and AI. What's an application without data? What will an application be without AI in the future?

John Duigenan (40:23):

So, as we think about the technology building blocks, it's essential to do that thinking in the context of embracing new ways of thinking and new ways of working.

John Duigenan (40:35):

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.

John Duigenan (40:56):

How we run that and how we build applications using application accelerators for automation data and AI security and integration and so on, that's the layer above that.

John Duigenan (41:09):

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.

John Duigenan (41:38):

So, for me, alongside AI, hybrid technologies are the biggest key to unlocking value. They really unlock value in a transformative way.

John Duigenan (41:52):

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.

John Duigenan (42:14):

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 ...

John Duigenan (42:31):

Sometimes firms say to me, "But, John, I don't need 200 times a day." And I say, "I know, but you surely need more than 12 times a year. So, how are you going to unlock that?”

John Duigenan (42:43):

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.

John Duigenan (43:04):

That's so exciting for me as a technologist and a business person working in financial services.

Jim Marous (43:10):

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.

Jim Marous (43:33):

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.

Jim Marous (44:01):

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?

Jim Marous (44:22):

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.

Jim Marous (44:41):

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.

[Music Playing]

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.

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