Money 2020 Europe Preview: A Look into the Future of Banking

Jim Marous (00:00):

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 The Financial Brand.

Jim Marous (00:21):

The future of banking is being driven by advancements in technology, changing customer preferences, new collaborations, and increasing regulatory requirements.

Jim Marous (00:31):

Change is happening every day, and it is more difficult than ever to keep pace. As the industry gets ready for Money20/20 in Amsterdam, it is important to look to where the industry is today and where it might be tomorrow.

Jim Marous (00:46):

And even more so, it's important to look at the opportunities, threats, and challenges we have ahead of us as we embrace the change that's taking place.

Jim Marous (00:57):

I'm excited to have Shanker Ramamurthy, Global Managing Partner for Banking and Financial Markets at IBM on the show today. We are discussing the massive changes occurring in the financial services industry and what can be expected as we go forward.

Jim Marous (01:15):

While financial services institutions cannot control disruption, they can set themselves up to respond rather than react. The key is to lay out a vision for a strategic business response, looking at growth and performance opportunities, cost and efficiency benefits, and risk and compliance requirements.

Jim Marous (01:35):

There is actually no better time to evaluate where we are today and where we'll likely be as an industry tomorrow than as much as the industry prepares to go to Amsterdam for Money20/20 Europe.

Jim Marous (01:48):

So, Shanker, before we get started, can you share a bit about yourself and your role at IBM Consulting, as well as how IBM works with financial institutions to be better positioned to have a future-ready positioning?

Shanker Ramamurthy (02:04):

Sure, Jim, and it's a pleasure talking with you today. IBM as you know, is about a $70 billion revenue organization worldwide. And under Arvind's leadership, we've really organized ourselves around two broad dimensions. One, which is IBM technology, and the other being IBM consulting.

Shanker Ramamurthy (02:27):

So, IBM technology read everything we do in infrastructure, hardware, the hybrid cloud, and such, and then everything we do in software, IBM software portfolio. That's about 50 billion of our revenues annually.

Shanker Ramamurthy (02:43):

And the balance about 20 billion, give or take is IBM consulting, where we leverage technology, whether it be IBM's technology or any other technology that our clients need and want, including range of industry ISV and hyper-scalers and a bunch of other technology to solve problems for our clients.

Shanker Ramamurthy (03:05):

Now, financial services happens to be the largest industry for IBM, it's about 25% of what we do in IBM, and for all sorts of historical reasons, that's been one of our most important industries for IBM.

Shanker Ramamurthy (03:20):

And so, on the consulting side, I lead, I'm the global managing partner for banking and financial markets, which is about a $5 billion consulting practice. With tens of thousands of practitioners around the world working with banks and financial institutions on a day-to-day basis solving some of their most complex problems.

Shanker Ramamurthy (03:40):

And when I say complex problems, if you think about it, well over 90% of core banking processes and payment transactions are touched by IBM around the world. And pretty much all the largest financial institutions in the globe in every part of the globe are users of IBM in some capacity: infrastructure, software, consulting.

Jim Marous (04:03):

It's interesting, we were talking about it before we started the podcast, that really, it's amazing. You look back through the years, and I've been in banking a long time, but IBM's always been part of that solution, both from a technology standpoint and certainly from a consulting standpoint, whether it be in a formal state or informal as part of the technology side.

Jim Marous (04:23):

And as we discuss also, both parts of IBM, the technology side and the consulting side, are both going to be at Money20/20 Europe. So, as banks and FinTechs and large tech firms and solution providers descend upon Amsterdam, what hot topics are you expecting to be top of mind in the industry right now?

Shanker Ramamurthy (04:46):

Hey, Jim, this is a pivotal moment for the industry. And I say that having worked for the last 30 years in the intersection of technology, strategy, financial services, and for my stints pretty much in all the six continents over the last 30 years.

Shanker Ramamurthy (05:02):

We always say this is a pivotal moment, but I can assure you this is genuinely a pivotal moment. And you started this dialogue, this discussion by talking about in my mind, the three things that our clients are dealing with as they go to Money20/20, or as they look at the future.

Shanker Ramamurthy (05:24):

How do I achieve growth and differentiation? How do I manage my cost? My cost income ratios have continued to be stubbornly sticky in an era where growth is a challenge given all the macroeconomic topics that we can kind of talk about.

Shanker Ramamurthy (05:43):

I got to do these two things while simultaneously managing my risk and regulatory posture and exposure. So, it's a trifecta, and there are pressures in each of those three dimensions today, which is rarely the case. Coupled with this extraordinary explosion of exponential technology, which is both an opportunity and a profound threat.

Shanker Ramamurthy (06:12):

A threat in that it enables not just traditional competitors, which financial institutions know how to deal with, but non-traditional competitors. The FinTechs, which again, financial institutions have done a good job over the last 10, 15 years of co-opting the FinTechs.

Shanker Ramamurthy (06:30):

Now, the ones that are emerging, or what I call the TechFins, the large technology providers that are backing into financial services and capabilities like embedded finance, which are actually changing the landscape, going after some of the most profitable aspects of the financial services landscape.

Shanker Ramamurthy (06:50):

So, you've got challenges on growth front, you've got challenges on the cost front. You got challenges on the risk and regulatory compliance front plus non-traditional competitors operating at a scale and size that we've never seen before.

Jim Marous (07:06):

And change has not been linear here. We talk about this, but compared to what it was like in the past, you could predict what the future was going to bring. But now, you talk about that trifecta, the importance of every one of these keeps on shifting as the winds change almost.

Jim Marous (07:23):

And at any moment, let's say November 30 of the ChatGPT or 30 days ago or 40 days ago with Silicon Valley Bank, the whole equation gets shifted again. And so, we have to be thinking and planning ahead or a strategic planning process really has to have a lot built in with regard to flexibility and being agile.

Jim Marous (07:46):

And obviously, on top of all of this, the elephant in the room right now is the economic uncertainty in the marketplace, both from an interest rate perspective as well as regard to perceived stability, the banking industry overall.

Jim Marous (08:01):

How do rates and the recent banking failures change the trajectory of banking and the change that you were talking about as it relates to both the technology and the consulting side of IBM as it works with financial institutions?

Shanker Ramamurthy (08:16):

So, in IBM we tend to think outside. So, let me first talk to what it means for our clients, and then I'll talk to therefore, what are we doing as IBM Consulting and IBM technology to help our clients kind of master this change.

Shanker Ramamurthy (08:29):

And I should preface this by saying our clients tend to be the larger financial institutions, and the main one I talk about consulting. I wouldn't say the same about IBM technology, though there is a decent correlation. IBM technology supports a lot of the smaller financial institutions as well.

Shanker Ramamurthy (08:48):

On the consulting side, we tend to, in the main, work with the large established financial institutions pretty much in every part of the world. So, if you look at what they're grappling with, to your point, not only do they have this trifecta, they've got this exponential technology that's changing the competitive landscape.

Shanker Ramamurthy (09:11):

When it changes the competitive landscape, you got to — and this is back to the innovative dilemma. You've got both sustaining innovation and you've got disruptive innovation, and you got to do both. And interestingly, when I started in consulting and you can see my gray hair.

Shanker Ramamurthy (09:34):

I've been in this industry for about 30 years. I pretty much started in financial services consulting when I started my career, my consulting career. Enterprises would develop a business strategy, which would be generally stable over a three or five-year duration. And then technology would then be brought in to help achieve the business strategy.

Shanker Ramamurthy (10:02):

We've got into a world today where in industries that are digital or can be disrupted by digitization, business and technology are almost becoming co-equal, because clearly you need business strategy to figure out how to leverage technology and exponential technology.

Shanker Ramamurthy (10:20):

But we are also at that point in technology evolution where technology capability is fundamentally driving business models and hence, business strategy, both in terms of what incumbents are doing, but equally, what the disruptors, the disruptive innovators are able to bring to the party that changes the status quo in totally unexpected ways.

Shanker Ramamurthy (10:45):

So, we are, and you talked about ChatGPT, what we think of as large language models, and generative AI — only time will tell, but we are at that early part of the curve where it's not just exponential growth and technology. It could well be quadratic exponential growth and technology capability with a bunch of implications that come from that.

Shanker Ramamurthy (11:13):

And if you think about what that means, and again, in the time that I've been consulting to financial services enterprises, the last three decades; we started from what used to be called data processing. We then said, "Hey, it's about converting data into information." It then became information technology.

Shanker Ramamurthy (11:32):

Then we said, it's not just about information, you want to provide insight. So, it's moving from management information systems to actually providing insights and not just providing insights, but providing insights that enable you to real-time change what happens in a business.

Shanker Ramamurthy (11:52):

Now, we've gotten to the stage, and by the way, every one of these have had a deflationary impact on a lot of things that we've done. Now, you've got into the stage where insight is becoming intelligence. And in fact, we are at the early bend in the curve where intelligence itself is available as a technology deflationary capability.

Shanker Ramamurthy (12:21):

And we are all wrapping our heads around what that means. And we are doing a whole bunch of interesting work with our clients and of course, IBM research is investing materially and substantially in it.

Shanker Ramamurthy (12:32):

We are doing this recording just before the IBM Think event, at which you're going to see a lot of really important announcements being made as we work with our clients to enable them to master this next bend in the knee, which is about intelligence itself being available much more easily and really, available as a deflationary capability that you can use to augment everything we are doing in financial services.

Jim Marous (13:04):

So, it's interesting, Shanker. We talk about all this that can be done, but in the technology side, it's one thing. But in the consulting side, you're really trying to change the way organizations think about what they do. Change is not easy.

Jim Marous (13:23):

Even though we sometimes say we want to change when it comes to actually doing it, it gets difficult. When you are working with finance institutions, what are some of the challenges you find in trying to implement what you believe needs to be done? What stands in the way of financial institutions actually embracing the ideas you bring to the table?

Shanker Ramamurthy (13:47):

That's a great question. So, I'm going to answer it in two parts because I realized I didn't answer your earlier question as completely as I could have. So, on the one hand, let me talk to the kind of things we are doing around the trifecta for our clients. And then on the other hand, we should talk about and why is it taking our clients a lot of time to change.

Shanker Ramamurthy (14:08):

Because complexity is a huge issue in the financial services industry, and we'll come to talk about why that's the case and what what can be done to help address that — can take us in all sorts of interesting tangents. So, I talked about the trifecta, so around growth.

Shanker Ramamurthy (14:29):

Financial institutions, the large ones in our opinion, have an advantage. In fact, in some instances, you could say almost an unfair advantage because they've got an extraordinary amount of this whole thing about going from data to information, to insight, to intelligence. They've got an extraordinary amount of data that they can convert into insight and intelligence to provide superior capabilities to their customers, financial institutions customers.

Shanker Ramamurthy (14:58):

What we've been doing, and I'll give you a good example, a bank called State Bank of India in India, it's the largest bank in India, one of the largest banks in the world in terms of number of customer that it supports. We've been working with them for the last five years on a program called "YONO" You Only Need One which is about providing a mobile capability that enables its customers to interact not just with the products that State Bank of India offers, but become a destination site through which State Bank of India customers can access pretty much all the capabilities in the web.

Shanker Ramamurthy (15:39):

So, if you're booking a hotel, if you're doing travel reservation, if you're buying something in an e-commerce context on the web what State Bank of India have done is they've been able to negotiate on behalf of their customers with these parties on the web that enables State Bank of India customers to have a superior offer in terms of feature function, price point.

Shanker Ramamurthy (16:09):

Compared with if they directly approached an airline or a hotel or an e-commerce, website and such. That's a win-win-win. And it's a massive amount of growth for State Bank of India because it's deepened and strengthened the relationship with its customers.

Shanker Ramamurthy (16:27):

And it's not waiting for a financial transaction to happen before it inserts itself into the value chain. So, we think about it as beyond banking ecosystem, because people don't wake up in the morning saying, "I want to use my credit card." They wake up in the morning saying, "I want to get me a cup of coffee." And then the credit card comes out.

Shanker Ramamurthy (16:50):

If you've embedded yourself in the intent of the customer by changing and extending your value chain, then you're naturally embedded into it as that transaction happens.

Shanker Ramamurthy (17:00):

Think the same thing in the case of mortgage. People don't wake up in the morning, saying, "I want a mortgage." They wake up saying, "I want to buy myself an apartment or a house." So, the first thing they're going to go is go look at listings, talk to some real estate brokers.

Shanker Ramamurthy (17:14):

What if the bank's website becomes a destination for that? So, State Bank of India in the public domain, this program has added over $40 billion to their valuation. Complex programs requires a lot of change because these are large, complex organizations.

Shanker Ramamurthy (17:36):

But that's one example. I could go on. I can give you examples in DBS in Singapore where we've been doing work in helping them not just digitize their capabilities and process, but Piyush Gupta, their CEO, would say, redesign for no operations.

Shanker Ramamurthy (17:55):

In other words, the mindset is it's not, "I'm going to take an existing process and see how much more I can digitize and automate. I want to rethink what's possible. And I start with the premise that I'm designing for no operations, recognizing that my employees and agents will insert themselves to add value where things cannot be digitized, where human intervention is required." That's a fundamental flipping of the paradigm.

Jim Marous (18:23):

Right, definitely.

Shanker Ramamurthy (18:25):

And on the third, just to finish the trifecta, we are working with a large European bank. I mean, when it comes to risk and compliance and fraud, clients don't much care to have their names revealed. But we are doing a lot of interesting work in that space as the world moves more and more towards real-time.

Shanker Ramamurthy (18:41):

A lot of things to worry about from a security, from a fraud, from a privacy, from regulatory exposure standpoint. And that's an area in which IBM shines because that's what we've been doing for our clients.

Shanker Ramamurthy (18:52):

Being genuinely protective from a security and infrastructure and reliability and resiliency and bringing all the capabilities required to address their fraud issues and their compliance issues as you move more and more to an instant payment in a real-time world.

Shanker Ramamurthy (19:12):

They're all the things we are doing for our clients, and these are genuine programs that we are working around the world with our clients on. You ask the question, the second part of your question-

Jim Marous (19:24):

What gets in the way?

Shanker Ramamurthy (19:25):

Yes. And what gets in the way is complexity. If you're a large enterprise, and by the way, this is not just financial services, but financial services is the most digital of all industries because everything we are dealing with in financial services is inherently digital.

Shanker Ramamurthy (19:46):

It's not like you're selling an automobile or you're shipping a finished product or anything. It's pretty much everything is digital. And the amount of automation that this industry has and the amount of spend they've had in technology, the amount of software code that they have, dwarfs that of any other industry by a very, very large magnitude.

Shanker Ramamurthy (20:10):

But the unintended consequence of that is, you've got layer upon layer upon layer of technology that's been built up incrementally over time, requiring an extraordinary amount of effort to untangle that complexity.

Shanker Ramamurthy (20:28):

And so, many of our large clients are dealing with what I'd call the opposite of the network effect. So, if we talk about network effect as driving value, driving revenue, and so on in certain contexts — when you got this complexity of multiple lines of business, multiple products, multiple channels, multiple customer segments in multiple geographies, multiple regulators, multiple risk issues to deal with ...

Shanker Ramamurthy (20:55):

And you got to connect all these things together across the enterprise, every time you make a change, you can just envision the truly N squared exponential growth and complexity when it comes to change and all the testing and the rigor you need to bring to it, that does inherently slow things down.

Shanker Ramamurthy (21:18):

Which is why (I'm sure it's a topic we would talk about) we have been working with the industry to actually minimize that complexity.

Shanker Ramamurthy (21:28):

How can we standardize? How can we componentize? How can we simplify? How can we enable the industry to collaborate around well-understood boundaries? And that's where BIAN, the Banking Industry Architecture Network, the dot org organization that we are actively working with is trying to ensure we bring a certain amount of not regulatory standards, but de facto standards to the way the banks collaborate between themselves.

Shanker Ramamurthy (21:56):

But importantly, as they collaborate with their independent software vendors and systems integrators and other third parties to reduce the complexity for the entire industry. We can bounce into that.

Jim Marous (22:10):

So, much in that context, so much of what we do as an industry is duplicative. We all do 80% of the exact same thing to get to point A. It's that extra 20% that makes a difference. I know that IBM's worked very hard in cloud work and things of this nature where they've standardized so many components of that.

Jim Marous (22:33):

So, you don't have to rethink it every time where it obviously serves IBM well, but it serves your clients well in that you're saying, "This much we don't have to refocus on, we've gotten that solved, it's taken care of." It's that additional innovation that that really makes it work. And that that's key to speed and scale. Because you aren't going to get there with complexity unless you standardize some of the elements.

Jim Marous (22:57):

So, when you're looking at innovations, if you look at what's coming down the road and look at what we'll be talking about in Amsterdam in a short while, what do you see as being some of the breakthrough innovations that you expect to see in the next few years?

Shanker Ramamurthy (23:14):

It's a great question. By the way, again, kind of to my earlier discussion and points in the discussion about kind of business and technology becoming increasingly co-equal or at least ambidextrous where one is kind of driving the other, let's talk about it in both those dimensions as you look at innovation.

Shanker Ramamurthy (23:37):

On the business side, in terms of what banks are doing for their customers, whether it be on the consumer side, the corporate side, or the regulatory side — I mean, there's an extraordinary amount of innovation happening in the payment space. So, everything from contactless payments to products like buy now, pay later, to ISO 20022, to a range of things on the consumer side, and equally, on the corporate side.

Shanker Ramamurthy (24:10):

So, cash management, liquidity management, treasury management, cross border moving towards managing the multiple rails, the disparate rails, bringing them together in a world of instant payments, addressing fraud, addressing real-time.

Shanker Ramamurthy (24:24):

I mean, there's a range of opportunity there — embedded finance, I could go on and on and on. There's a ton of things that our clients are doing, and they got to do many of them again, because of this trifecta. They got to do things in payments to achieve growth, to take costs out, and to address the regulatory exposure and the potential fraud issues and the risk issues. And by the way, looking in the background are things like central bank digital currencies that are in the background.

Shanker Ramamurthy (25:00):

So, that's an extraordinarily rich set of things to go and tackle. So, on the one hand, you need to go and tackle that. On the other hand, when I look at exponential technologies, in IBM, we think in terms of three broad exponential technologies that are game changers for financial services enterprises.

Shanker Ramamurthy (25:25):

One is of course, what we call the hybrid cloud, which brings together multiple disparate clouds, and private data centers and their own data centers for all sorts of regulatory reasons, and practical, pragmatic market reasons. Our clients will have a combination of those. They're going to have multiple service providers and ISVs and providing capability that's running on their cloud, whether it be an SAP or a Salesforce or Adobe or a Microsoft, on and on.

Shanker Ramamurthy (26:02):

They're going to want to leverage the hyper-scalers and clearly, IBM's capabilities. They're going to have their own private data center, their own public data centers, private cloud. You bring it all together putting the workload most optimally where it needs to be. And that's a big area of focus. And of course, that's an area where we made the bet with Red Hat when we put $30 billion plus to work on that space.

Shanker Ramamurthy (26:27):

And we are doing a ton of consulting work around that as you can expect. Because every one of our clients is grappling with this hybrid cloud world. I don't want to say it's early in its innings, but it's not halfway through yet. There's a massive amount of what we think of as deep cloud work to be done.

Shanker Ramamurthy (26:48):

It's not just about taking a piece of technology and moving it into the cloud. It's really, truly refactoring it. When you refactor it and bring the workflows together in a way that maximizes the value of that refactored code, you can unlock amazing things.

Shanker Ramamurthy (27:05):

So, that's one, hybrid cloud is one as an exponential technology. If I look of just a few years into the future, three years, five years quantum, entirely new compute paradigm that's going to having a breathtaking impactful ... It's going to be impactful on every industry, including financial services because the kind of computing capabilities that it brings and the range of new things that you can compute that you can't do using traditional compute capability is very compelling, and IBM is making a huge bet on quantum.

Shanker Ramamurthy (27:47):

And interestingly, quantum cryptography is a subset of that. And quantum safe, you got to ensure your encrypted data is safe before quantum computing becomes a reality. Because you can easily conceive from a security standpoint of bad actors stealing your data that's valuable over an extended period of time.

Shanker Ramamurthy (28:13):

And there's a lot of PII (Personally Important Information) that has got longitudinal value, and they can sit on it for two or three or four years, wait for quantum cryptography, quantum computing and decrypt the data. So, that's a genuine problem.

Shanker Ramamurthy (28:29):

So, we are doing all sorts of things around quantum safe to proactively, preemptively ensure your data is safe from quantum computing, and that actually precedes the availability of quantum computing. But that's all, let's say, just a bit in the future.

Shanker Ramamurthy (28:45):

And today, the one that's exercising all our minds is the combination of AI, the broadest range AI and analytics, but including large language models and ChatGPT and all its variants that are really language models and large language foundation models.

Shanker Ramamurthy (29:06):

Which by the way, the amount of work that we are doing with our clients in this space is really very, very rich. Because every one of our clients is either doing something or thinking about doing something, talking to us about it.

Shanker Ramamurthy (29:22):

I'm just looking at my notes because this is moving at absolute warp speed. And it's a topic that will be top of mind, is top of mind in almost every client discussion that I'm having today.

Jim Marous (29:39):

Well, and it's interesting because unlike anything that I've experienced in the past — and I'm not a technology wiz at all, but when you look at the difference between what was introduced in November and what came out in March, and the changes that were that quick, that big, that exponential, what you're talking to clients today about may sound very rudimentary in November of this year, three or four months from now.

Jim Marous (30:06):

And it really boggles the mind because it's one of the few technology advancements or innovative advancements that has hit both businesses and consumers dead center. I mean, there's very few people on the street that doesn't know something about what can happen here and has an opinion toward it.

Jim Marous (30:26):

I mean, it's amazing how the consumerization of ChatGPT and conversational AI has taken over the marketplace as far as what's possible. Now, lots to be done there. And it's a big thing to tackle. And as you said, it is probably part of almost every conversation both from a conversational and content standpoint, but all from a programming standpoint.

Shanker Ramamurthy (30:51):

It is.

Jim Marous (30:53):

When you look at innovation from IBM's perspective, do you think banks are going to stop looking for that next big thing and really embrace more the constant iterative innovation process that other industries have done forever?

Shanker Ramamurthy (31:10):

Yeah. Hey by the way, so that we dive back to this notion of disruptive and sustaining innovation because I think they need to do both. And a good example — and by the way, our clients recognize that and they're onto it.

Shanker Ramamurthy (31:24):

So, if you think about this large language model, I mean, every aspect of banking is getting rethought in the context of AI, generative AI, large language models.

Shanker Ramamurthy (31:35):

So, whether it be how we are back to those three dimensions of growth, risk and cost, everything to do with customer interaction and empowering agents and the employees of banks to be more impactful when interacting with the customers around call handling, around making agents smarter, around everything that you're doing around cost and operations.

Shanker Ramamurthy (32:03):

So, think about everything from how you handle complaints and how you dissect it to figure out what I need to do with my processes, everything from providing smarter credit, everything to do with looking at processes. I'll give you one example. So, for a client, we are looking at the KYC (Know Your Customer) and account opening processes. And if there are 23 steps in the process, 16 of those are now going to be infused with large language models.

Shanker Ramamurthy (32:30):

So, it's incrementally working your way through it. Why? Because this capability, when added to all the other capabilities we have, enables a lot of cool things, summarization in ways never possible before when you got large coppers of structure and unstructured data, context-based search. Not just search, but context-based search with an understanding of the context, and the language, content creation.

Shanker Ramamurthy (33:04):

And doing content creation without hallucination, it's a whole new ballgame. And we'll talk about how we are doing that in real client projects. Code creation, and again, you got to constrain how we do that. There is this whole area of what we call prompt engineering, prompting these models to enable them to do the right thing.

Shanker Ramamurthy (33:25):

And then train of thought engineering. How do you train these large language models to think step by step, not make giant leaps and make mistakes. And how do you minimize hallucination so that you constrain the output it provides?

Shanker Ramamurthy (33:43):

There's a lot of work happening here, real-time with clients around the world and we're creating centers of excellence for our clients to accelerate their learning — very, very rich area.

Shanker Ramamurthy (33:55):

So, back to your point about one thing, I don't think it's going to be one thing. Our clients are going to do both sustaining innovation, looking at infusing every aspect of what they're doing with exponential technology, while also doing disruptive innovation. And a lot of the disruptive innovation I expect is going to be around ecosystems and things that are touching the customer on the one hand.

Shanker Ramamurthy (34:23):

You're going to see powerful models, and we are seeing these models emerge around the world. We are doing work for a client in Latin America, helping them. And there's one in India that's in the public domain, there are others around the world — agri ecosystem. If you're a small farmer or a large farmer beyond financial services, think about all the inputs that a farmer needs.

Shanker Ramamurthy (34:47):

What is my weather going to look like? When do I need to sell my crop? Fertilizers, at what point? Where is the cheapest way where I can get farm implements, tractors and such? When do I sell my crop? Where do I go and sell my crop? Imagine if a financial institution is able to bring all those capabilities together for the Agri ecosystem.

Jim Marous (35:14):

Yeah, I think I saw that in Turkey with Deniz Bank. I think they have brought together as you said, different components. Not just financial services, but everything from the meteorological to the agricultural, to the rotation of the crops to the financing of equipment, and to go outside of banking and we'll call a big super app for agriculture, which wasn't possible before as you've mentioned.

Shanker Ramamurthy (35:43):

Jim, that's an excellent example. So, a lot of the disruptive innovation in financial services is going to happen as banks do the mirror image of what some of these other enterprises have been doing, where they've been backing into financial services. And trying to commoditize a lot of the financial services ecosystem by getting more and more into the financial services value chain by owning the customer relationship and the brand.

Shanker Ramamurthy (36:12):

Now, the good news of financial institutions is pretty much in every part of the world, banks and the larger ones are incredibly trusted, not just by the consumers and enterprises, but frankly by the regulators and governments as well.

Shanker Ramamurthy (36:30):

And therefore, as they rethink their disruptive innovation and move into this beyond banking ecosystem model, you're going to see an amazing amount of similar examples, whether it be the agri ecosystem, or whether it be how the mortgage ecosystem changes or the auto finance and the car ecosystem, you can go on and on and on.

Shanker Ramamurthy (36:54):

There's a lot of innovation that we are going to see over the coming years in that space beyond, of course, managing risk and cost in the growth area. And we do think that the banking pyramid is going to get inverted. What do I mean by that?

Shanker Ramamurthy (37:12):

Because of all the complexity that we've talked about; today, about two thirds of all the banking people, process and technology and spend is in the middle and back office. Maybe about a third, around customers and channels and ecosystems and partners.

Shanker Ramamurthy (37:27):

Tomorrow's model, that's going to get inverted, the inverted pyramid, where two-thirds of the focus is not going to be on run the bank, but change the bank and disruptive innovation and new ways of engaging with customers, new ecosystems, new value chains, new paradigm for value creation for their customers.

Shanker Ramamurthy (37:46):

With the middle and back office using exponential technology and extreme digitization and automation, and things like large language models and such to empower their employees to really be doing things that are customer value-adding as opposed to processes that are required to be done, but are not necessarily customer value-adding.

Jim Marous (38:12):

So, finally, Shanker, when we look at everything you've just said, when we look at the transformation of banking and banking services, and we're looking at the confluence of emerging business models, the proliferation of traditional, non-traditional competitors, the growth of technologies, the entrance of new tech companies doing a lot of the banking services ...

Jim Marous (38:34):

What does the future of banking look like from a perspective competition and competitors? Who wins in this game? Who will come away with the lion share of what we today view as banking, but are going to more and more likely to view in a much bigger sense?

Jim Marous (38:54):

Is it going to be the tech companies? Is it going to be the very large banks? Do community banks even have a place in this environment? Or is it the FinTech firms? Or do they each have a role that will play into a bigger pie?

Shanker Ramamurthy (39:09):

I mean, everyone has a role here, but from my vantage point given the clients that I work with, my view is sharper when it comes to the financial institutions in terms of what they're doing and what they can do to win.

Shanker Ramamurthy (39:27):

Because financial institutions are, can, and will be forced to rethink their business model and figure out how to add incremental value to their customers, taking advantage of exponential technology and new business capabilities around platforms and ecosystems that drive value for their customers. We are seeing that happen. There's going to be a lot more of that.

Shanker Ramamurthy (39:54):

The good news is that while regulations in financial services are onerous, because particularly when it comes to the larger financial institutions, and even with the smaller ones in countries like the U.S. The regulators and the government tends to backstop the industry. And therefore, they put a lot of regulations on the industry. Now, that's both a friend and a foe.

Shanker Ramamurthy (40:26):

A foe that it creates complexity and oversight. A friend in that it creates genuine barriers for non-traditional competitors to jump over the barrier. But those barriers are not insurmountable, they're getting breached.

Shanker Ramamurthy (40:46):

So, the question for financial institutions is going to be given all of this and given where the world is going. Given that cost ratios have been sticky and return on inequity have in many instances not been achieving their cost of capital. Given all the uncertainty of the global economy, it's both an opportunity and a threat.

Shanker Ramamurthy (41:10):

And the question I'd have, this is the way I would kind of respond to your question. So, when I talk with senior executives of banks, I really ask them three questions and get them thinking about and therefore, what.

Shanker Ramamurthy (41:25):

The first question is, given all of this and everything we've talked about, is your strategy ambitious enough as you take a three to five-year view? Do you believe you're executing fast enough? And do you have the people and capabilities to actually convert your vision into reality?

Shanker Ramamurthy (41:45):

And the answer to those three questions is going to determine whether a particular institution is going to win or it's going to tread water, or whether it's going to fall behind. Is your strategy ambitious enough? Are you executing fast enough? Do you have the people and capabilities to execute and win? And those are the questions, they ought to be top of mind, and they are for most of the clients we are working with.

Jim Marous (42:11):

Boy, that is an amazing set of questions because when you get down to it in the research we've done, in the conversation we've had on the podcast, one thing becomes clear. There's no lack of understanding as to what's needed.

Jim Marous (42:26):

There's no lack of understanding that payments modernization has to take place. There's no lack of understanding that technology has to be upgraded. There's no lack of understanding that people have to be taught and brought on quicker to be able to fill the needs that the technologies are providing. And there's no lack of understanding that competitions chomping at the heels of everybody in the industry.

Jim Marous (42:50):

That said, to your questions, who's willing to do it? Who's willing to invest in it? Who's willing to push the needle and have a challenger mindset far enough in the future? And then who's going to actually do it? Through your industry knowledge and your tenure, I'm sure you've seen this in the past. You can bring a great solution to a financial institution.

Jim Marous (43:15):

Yeah.

Jim Marous (43:15):

But if they don't implement it, you aren't going to see it happen. And again, we talk a good game sometime, as a matter of, to your point, who's willing to embrace change, take risks, and disrupt their organizations from what was the legacy format that they used before?

Shanker Ramamurthy (43:35):

Hey, I'll kind of wrap up our discussion with a vignette from a discussion that I had with a client many, many moons ago, which is still crystal clear in my mind. I was a young rookie partner when I was doing this piece of transformation work for this regional bank out in Australia.

Shanker Ramamurthy (43:55):

And I was telling this grizzle veteran CEO, how he's got to change everything. And these are the days in which I'm helping them figure out how to move ... Think about the days when you had to move transactions from branches into ATMs and call centers. I'm talking that year.

Jim Marous (44:15):

I know those years.

Shanker Ramamurthy (44:18):

The CEO asked me to join him for dinner that evening, and he sits me down and he says, "Shanker, one thing you should not forget in your enthusiasm, in banking, you should never confuse a clear view for a short distance." But I tell you in today's world, the distance is genuinely getting shorter. And I can say that over two decades after my dinner with the CEO over 20 years ago as a young rookie partner. There you go.

Shanker Ramamurthy (44:47):

That is a great point to leave us on because that is very true. We've got to go beyond the talking to doing, and we also, I think have to look around. We talk about the focus view, but what Money20/20 gives us is the opportunity to interact with banks from across the globe, and to understand how others are viewing the exact same challenges and opportunities and what they're doing about it.

Jim Marous (45:16):

You brought some great examples from India, from Singapore. I know some from China and from Egypt and it's really interesting what's being done elsewhere. So, while you have to narrow your view, you've got to keep your perspective broad as to what is possible in the industry.

[Music Playing]

Jim Marous (45:31):

Shanker, I really appreciate the time with you. We are going to get together again, and I appreciate you sharing your insights.

Shanker Ramamurthy (45:38):

Thank you very much, Jim. It was my pleasure.

Jim Marous (45:42):

Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. If you enjoy what we're doing, please take 30 to 45 seconds to show some love in the form of a positive review.

Jim Marous (45:53):

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.

Jim Marous (46:01):

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. I'm your host, Jim Marous.

Jim Marous (46:12):

Until next time, remember, the banking battlefield is evolving daily. Every banker must be prepared for the unexpected.

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