New Business Models and Growth Opportunities in Banking

Jim Marous (00:12):

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 (00:22):

Financial institutions of all sizes are reinventing themselves by digitally transforming every part of their business with technology, data, automation, and AI. They're breaking down internal silos and connecting functions and data across the value chain, creating new ways of operating and serving customers and their own people.

Jim Marous (00:44):

Leading banks recognize the need to accelerate change, not only to compete, but to find new paths for growth.

Jim Marous (00:49):

I'm excited to have Michael Abbott, senior managing director and global banking lead for Accenture, on the show today. We'll be discussing how banks and credit unions are disrupting existing paradigms and rethinking their paths going forward.

Jim Marous (01:03):

According to Accenture's 2023 top trends in banking report, most of the trends shaping banking in 2023 are affected, if not caused by the return of steep rising interest rates, something that the banking industry hasn't seen since before the introduction of the iPhone.

Jim Marous (01:20):

While the interest rate environment may feel more traditional, actually, this period does not equate to a time of business as usual. Instead, it requires accelerated change and a rethinking of business models.

Jim Marous (01:33):

So, welcome back to the show, Michael. You were a guest about a year ago discussing the trends from 2022. So, what did we get right last year and what surprised us from last year's trends report?

Michael Abbott (01:46):

Yeah, Jim, and thank you for having me back. It's great to be here with you again. And if you look back on the '22 trends, I would say one of the things that we got right, I think in a big way, but we were probably a little bit early, was we talked about zero operations.

Michael Abbott (02:00):

And we talked about this cloud-based AI, the democratization of AI technology to these cloud-based capabilities, was going to eventually seep into banking and fundamentally, start to alter the operations. Now, I think we're still in the early stages of that.

Michael Abbott (02:18):

But what I think is really quite interesting over the last few weeks is if you look at all the interest around ChatGPT, I think what's happened here is, finally now, that every bank executive's son or daughter can cheat on their test using cloud-based AI, has opened up their eyes to the fact that this technology is going to fundamentally bleed its way into the core of banking and start the transformers.

Michael Abbott (02:43):

I think that's one of the big things we got right last year, at least in terms of trends in the direction of travel. I think this year is going to be the year where it starts to really become part of the core banking and part of the banking ecosystem. You're going to see a big movement this year on that front.

Jim Marous (02:59):

It's interesting, when we look at these trends reports, we do one as well, and it's sometimes a dream report, what we hope happens. And banking as an industry still works slower than what we'd like, but in some cases it doubles down. And I think the investments here, the good news is what we see is organizations are not trending backwards with investments despite an economy that's very uncertain at best.

Jim Marous (03:26):

One of the things you mentioned, the 2023 trends report is that the industry as a whole is really starting to respond to the increase in interest rates. How do rates change the trajectory of banking and the mission most organizations are on as they try to become more future ready?

Michael Abbott (03:46):

Yeah. And Jim, before I go forward, let me step backwards and just kind of lay the foundation because when you think about it, it's just been an unprecedented period. It's been 17 years of almost flat zero rates. And what's happened preceding those 17 years, it's distorted our view of how banking works. In many ways, those zero rates drove banks into product silos.

Michael Abbott (04:10):

And I'll give you one very direct example. You know this as well as I do. Traditionally, deposits have been the rocket fuel of banking. That is what you want, it's what you fought over, that's what you looked for. But in a zero-rate environment, you looked at a deposit account as just simply an anchor that you wanted to get rid of.

Michael Abbott (04:28):

In fact, in many scenarios, banks were trying to get rid of deposit accounts on one side of it. If you can imagine that. When rates rise, all of a sudden those deposits become rocket fuel again, and you start getting this distortion that was out there, the crazy valuation in FinTechs that we're valuing just simply by the number of people that you had, rather than the deposits that you had.

Michael Abbott (04:47):

And what you're seeing now, the private equity has been pushed out on that front. The disaggregation of banking into all these individual segments that were attacked by the FinTechs.

Michael Abbott (04:58):

Now, I think what's happened here, if you roll the tape forward, is you want to look at all the great things that came out of that period of innovation. And what you're going to see is you're going to see what I would describe as a neo normal.

Michael Abbott (05:08):

Which is that you're going to see the best of the neo banks and what we learned through the FinTech, the revolution that's occurred in the preceding 15, 17 years of zero rates, brought in with the power of the balance sheet. And the banks that can bring those two things together is what's going to really matter. And that's where it's going to go.

Michael Abbott (05:26):

And we can talk a little bit more about the product innovation side of what rising rates I think are going to unleash at this point.

Jim Marous (05:31):

Now, what's going to be interesting though is, over these 17 years, the efficiency of the marketplace has become extraordinarily powerful, where the old spread of 3, 4% probably is not going to come back. How do you see that impacting the trajectory?

Jim Marous (05:48):

Because gosh, as you said, it's really hard to imagine 17 years ago. But at that time, there was a lot of inefficiency in the marketplace, and a shift here did not necessarily make a shift here, but now, they run in tandem pretty closely. Are we going to see the ability to make revenue on that spread? Or is banking as usual really not coming back?

Michael Abbott (06:13):

No, I think you are going to be able to make revenue on that spread. And I do think you will be able to do that, but I think it's going to require a different type of product innovation. So, if you looked back, to your point, around the inefficiency, there was inefficiency of information prior to the 2005, 7.

Michael Abbott (06:30):

I mean, we did have online and we had the ability to do a little bit of checking rates. But let's face it now, it's clearly obvious where you can move your money around and get a better rate.

Michael Abbott (06:38):

But still, if you look at that, the deposit beta, even though we are over 4% now, is still not that high for the core branch deposit banks, for those that have that direct relationship.

Michael Abbott (06:52):

So, in many ways, I believe what's going to happen, I think we're already seeing it, is you're going to see an innovation around product, in particular, the movement away from these product silos that banks have been in to integrated customer experiences.

Michael Abbott (07:04):

So, products that reward the customer like Amazon Prime. And what I mean by that is you'll add up how much do you have with deposits, how much do you have in your credit card, your mortgage, your auto loan perhaps. And the more you do with that bank, the better rates you'll get across all of those segments.

Michael Abbott (07:24):

Now, we used to have this in before, we certainly had it the concept of cross-sell. But this will move beyond the idea of just cross-selling your customers to actually designing products that are customer centric around banking products.

Michael Abbott (07:38):

And everyone talks about being customer centric, and banks have done a great job, I think digitally becoming customer centric. But very few and far between have actually reward or reward you for the total value you bring to that bank. I think you're about to see that change, Jim. And when you do, I think it takes rate off the table a little bit more.

Jim Marous (07:57):

Well, it can be interesting too because we talk quite a bit about the fact that there's been a lot of silent attrition. And that's because the customer hasn't been totally taken care of.

Jim Marous (08:05):

Where, for instance, in my situation, I haven't closed any accounts. But my relationship has certainly become diversified. I have Acorns, I have Robinhood, I have other relationships out there that may not have happened if I was being served in a totality of the relationship. On the business side, I have PayPal that probably is my business account, even though I held my account someplace else.

Jim Marous (08:27):

In your report this year, you talk about five key forces of change that really are impacting all the trends. And you talk about the reinvention of the organization through innovation. You had talked about the quest for talent, the focus on sustainability, the potential of the metaverse, and the impact of modern technology.

Jim Marous (08:50):

If you were to prioritize those, what would probably be the most important to the whole dynamic of what we're going to see in 2023?

Michael Abbott (08:59):

For banking, it's crystal clear to me, it's going to be the impact of modern technology, and in particular, it's going to be the impact of cloud-based AI capabilities that's emerging out there. Again, ChatGPT is kind of popularized this notion.

Michael Abbott (09:12):

But if you look deeper than just the ChatGPT trend, you look at what's called generative AI trends. You look at the fact that many of these cloud-based AI capabilities are surpassing human capabilities on individual tasks like doc congestion, reading things and stuff like that. The ability to put that into the banking architecture and buy it by the drinks.

Michael Abbott (09:33):

So, it's not like you need to hire a hundred PhDs in machine learning and AI anymore. This is about AI engineering. So, it's something that not just the largest banks can do, but even the mid-market banks can take advantage of this trend.

Michael Abbott (09:47):

Now, that I think is going to be the most transformative thing, probably not just this year, but over the next, I'd say two to three years trend. And then right behind that's going to be of course the talent to be able to make that happen. So, you're going to have to match.

Michael Abbott (09:59):

So, Jim, I think this is very much going to be a rotation in thinking for many of these banks beyond, "I need to own everything," to, "I need to be able to engineer these solutions."

Jim Marous (10:10):

Speaking of engineering the technology and the talent, it all gets down to innovation. Accenture's done a couple reports recently on the need for breakthrough innovation and the speed of innovation, the iterative innovation. What innovations do you see (and maybe you've already talked about it) in banking in the next few years?

Michael Abbott (10:30):

Yeah. Well, one, I think you're going to see this move (like we talked about before) from product silos to Amazon Prime-like solutions across banking and in particular the rising rate environment. Right now, the betas are still very low, but I think for all of us that have been around the banking long enough, it's not the rise that gets you in the banking world, it's the decline and trying to grab those deposits back.

Michael Abbott (10:52):

So, the innovation, the banks are thinking forward right now, 12 to 24 months are going to be thinking, "How am I developing the products and solutions, not for the rising rate environment, but for the declining rate environment, so I can hold on and gather those deposits?" I think you're going to see a lot of innovation on that front.

Michael Abbott (11:09):

And I also think you're going to see a lot of innovation around what I would describe as mid to back office and moving from a big part of, and we talked about this a little bit about trends this year too, moving from journey thinking to intent thinking.

Michael Abbott (11:22):

And what I mean by that is, right now, we've done ... if you look at the digital world, banks have used this concept of journey mapping. So, that's laying out how should a customer go through this mortgage process. So, it's our imagination of exactly what the customer should do.

Michael Abbott (11:38):

But no customer comes to a bank and says, "Hey, give me your journey." Yeah, they're not waiting for that. Instead, they come to you with an intent.

Michael Abbott (11:45):

So, one of the major innovations I think you're going to see in thinking is moving away from thinking about journeys to thinking about the intent of the customer, using the data organized around the customer to listen to them and then meet that customer with the intent, where they need almost in many scenarios before they even are aware that they need it.

Michael Abbott (12:06):

So, it's going to be sensing, listening and doing that. It's much like when you go into search today and it feels like, "Wow, that's exactly what I wanted to know. It has context." Banks are going to be putting context in everything they do.

Michael Abbott (12:19):

So, I think there's going to be a huge innovation in how we interact with the banks, and I think there's going to be a huge innovation in product.

Jim Marous (12:25):

Well, it's interesting, is journey mapping by its own concept takes longer. Banks love to do the journey map because they can spread out the whole process a lot longer. When really it's almost an instantaneous need.

Jim Marous (12:38):

We look at just the opening of new accounts, opening of lending relationships and they still take way too long at most financial institutions. It's because they take each part as a single part and they don't want to let go. As you mentioned about the back office with some of the concepts that are out there.

Jim Marous (12:56):

Can an innovation actually give you a sustainable differentiation? Or are we really looking at instead of the big breakthrough, looking at iterative innovation where everything becomes an ongoing process of improvement that is much more short term as opposed to the longer-term innovation.

Michael Abbott (13:15):

Yeah. It's a great question, Jim. Because having been a banker most of my life too, everyone's in search of that pan ultimate, "I can make this innovation, and I'll run the market, and I'll own this segment completely outright in that." And as you and I know, that never happens. That never happens, right?

Jim Marous (13:31):

No.

Michael Abbott (13:31):

But because you can replicate what's out there. So, in many senses, the innovation has to be ones that are committed and sustainable.

Michael Abbott (13:38):

And I want to go back to what you were talking about with the account opening, if I may for a second, and dive one step deeper in that. Because one of the other things we've put out this year is treating data as a product. And it sounds ephemeral, but what it really means is it means looking at your data around particular customer needs.

Michael Abbott (14:01):

So, the example you just gave of an individual customer trying to open an account, why is it so hard? Because if you open an account inside of a DDA, it might be sitting in one part of the bank. You open a credit card, it's sitting in another part of the bank.

Michael Abbott (14:13):

So just imagine a simple innovation, which is, I'm going to start organizing my data around that customer and treat that data as a product, that customer. And I'm going to have a database of one around that customer, and then I'm going to strangle systematically all my systems across the board. That every time they come in and they want information about you, Jim, they're going to come to one database, which is data as a product.

Michael Abbott (14:37):

That's a very simple innovation, but it's transformational in the experience. And if you look out there, you can see banks have not just done this on the consumer side, they're doing it on the corporate side and commercial. And when you organize all your data around the entity and the corporation, all of a sudden you can go from taking weeks to do an underwriting to being able to do it in hours.

Michael Abbott (14:57):

So, the potential transformation of some of these ideas that sit behind underneath the digital veneer are really what I think the transformation's going to occur. And I think that's also a big theme for this year, which is that for the most part, banks have solved digital, the pandemic helped us pull forward a lot. Now, the innovation has to go to the core.

Jim Marous (15:16):

Well, it's also using outside information. I get frustrated where somebody says they can open an account in three to five minutes, and yet as I try to open the account, the first thing they ask for is my driver's license number. And I know right off the start, that's going to take too long. It just isn't the way to do it.

Jim Marous (15:34):

But there's information out there on the phone and elsewhere that you can access that gives you really good information, at least for 90% of the customers, therefore making it so again, the data is the product and it makes it so you can deliver better solutions.

Jim Marous (15:48):

When you look at, we talked about a little bit at the beginning around the integration of FinTech firms versus traditional banks. Do you think FinTech firms now, are going to be moving from a competitor to actually an access point where innovation gets spurred on by what the FinTech firms have done?

Jim Marous (16:06):

In other words, do you see the partnerships growing exponentially between traditional banks and FinTech firms as they try to innovate at speed and scale?

Michael Abbott (16:17):

Yeah. We're seeing it right now, live, which is a shift from what I would describe as disruptive FinTechs, FinTechs that say, "I'm going to completely rewire the banking world." To ones that say, "Look, I've got this great capability, I'm going to enable and push the banking world forward."

Michael Abbott (16:31):

So, for banks out there, I think this is going to be going to be a great a great time to look at. The question for everyone will be is, which FinTechs are you going to partner with? Are they going to get scale, are they going to hit escape velocity? What's the sustainability factor? Et cetera, especially in this marketplace is the questions we're being asked.

Michael Abbott (16:50):

But I think you're going to see a lot of innovation on that front. I mean, I can give you all kinds of things like great examples of mortgage space, Intuit spent hundreds of millions, maybe even a billion developing a phenomenal experience with Rocket Mortgage. You can now buy that by the drink from various FinTechs.

Michael Abbott (17:09):

You look at things like true name fraud, there's databases outside of the credit bureaus that are available that can make that happen now, that are sharing information. So, I think you're going to see a whole host of FinTech innovations across the entire banking spectrum on that front.

Jim Marous (17:23):

Does this play out where it kind of helps along the line of trying to find the talent. In other words, the talent isn't the person, but it's the solution. And that as organizations are trying to improve what they're doing, both back office and front top of glass, that this helps some of the talent shortage that's out there right now, the people that don't quite see banking the way it's going to have to be seen going forward.

Michael Abbott (17:48):

Yeah. I think certainly, as you have the impression in the FinTech world, it's going to create a lot of opportunities. You've already seen some banks out there acquire a few of them, we call it acqui-hires in terms of bringing the talent. And so, I think you will see that talent come in there.

Michael Abbott (18:02):

But if you bring that talent into the bank, the big question for banks is going to be culture. Because the culture of the FinTechs is one, that's getting out there and being able to do things fast at speed, et cetera. And the one, whether we like it or not, banks are still heavily regulated environments and they're going to have to figure out how do you merge those two cultures together.

Michael Abbott (18:20):

The other thing I would add with that, Jim, is I think in terms of a rotation and thinking about talent, if you looked at it five years ago, people were in a battle for AI/ML experts that had PhDs in machine learning. We are going to move from this environment where everything has to be built, to it's going to be one of engineering.

Michael Abbott (18:41):

So, the talent profile of what you're going to be looking for are going to be looking for leaders that can bring things together like FinTechs, like APIs from outside and basically, engineer the solutions and products rather than build the next word processor. So, it's going to be also a very different profile of person you're looking for.

Jim Marous (19:00):

So, when you're working with financial institutions, almost every financial institution right now, has employees that are not scaled to the future. They're not ready for the future. And how do you see organizations trying to train, trying to retool the employees they have for what is going to be a very different future with regard to what they do within the bank?

Michael Abbott (19:24):

Yeah, there's some banks out there have done, I think a great job on this. And what they do is they take a page a little bit out of the Google playbook where they create time and space. So, if you can sit there and say, "Look, I'm going to take my place and I want a hundred percent of your time." Let's say you're doing cobalt programming. “And I want you to just do a hundred percent cobalt programming.”

Michael Abbott (19:43):

Or you can look at that and say, "Look, I want you to do 80% cobalt programming, but 20%, I'm going to give you time to think about how to do DevOps, DevSecOps, how to do CICD, how to basically build these modern tool change and start looking at things in a very different direction. Or I'm going to let you work on the next generation of core."

Michael Abbott (20:04):

So, we have a couple core transformations we're working on right now, and I would say one of the very interesting organizational models is rather than having two competing areas and saying, "I'll do this and you'll do that," they're actually starting to merge them together and give the groups that are out there doing the existing work today, the opportunity to do this stuff in the future.

Michael Abbott (20:22):

And what you find, I think, contrary to what most people believe is about 80% of the people will make that ship, make that transition. Now, 20% are going to say, "Look, I just want to keep running my cobalt."

Michael Abbott (20:34):

But the vast majority of people want to do something new. You have to give them the time and space and design your organizational models in such a way that you allow that to happen. And that's what I think the best banks are doing right now.

Jim Marous (20:46):

I think that's a great point. We've had a couple interviews with people that truly have engaged the teams to be part of the future as opposed to it's us versus them because that creates a situation that's untenable. I mean, it just can't, we're going forward.

Jim Marous (20:59):

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

Jim Marous (21:03):

So, welcome back. I'm joined today by Michael Abbott, senior managing director and global banking lead for Accenture.

Jim Marous (21:11):

We've been discussing the banking trends for 2023 and the importance of the innovation process as well as the investment of technology.

Jim Marous (21:19):

So, Michael, the Accenture Trends report for 2023 talks about the viability of branches. A branch is truly a viable differentiator for most traditional banks, or a costly extension of the digital future.

Michael Abbott (21:34):

Jim, I know I'm going to get a lot of hate mail from the digital only fans out there, but I do believe that branches have a place out there. And we'll release a report a little bit later about some recent data we've seen on a globally basis. And you'll be shocked to see up and down the line that people actually want to have a conversation again.

Michael Abbott (21:56):

And here's what I think has happened. I think as we become more and more digital in the banking world, we become functionally correct and emotionally devoid. And our customers, just like we have after the pandemic and being locked down, they're craving interaction again.

Michael Abbott (22:14):

And when they have a complex problem or a complex buy, like buying a mortgage for the first time, they want to be able to sit down and talk to somebody.

Michael Abbott (22:23):

The other thing too is branches, we all know act as incredible asset gathering places. So, think of the branch of the future as not necessarily the vault, but think of it more like an Apple store. I mean, fundamentally, Apple doesn't need stores out there, but customers crave that interaction.

Michael Abbott (22:39):

So, I think what you're going to see is you'll see banks continue to open and close branches. You may not see the net numbers increase, but you're going to see the space, the type turn into more popup branches, different types of places where you can interact with a branch at the right point and the right time. But I do not think branches are dead.

Jim Marous (23:00):

It's interesting because in your report, you bring up the whole dynamic of Chase. And Chase, their decision to expand the branch has been more in support of their credit card market, where they're putting branches where their credit card customers are, but they didn't have branches.

Jim Marous (23:16):

Capital One is another example of a really unique branching model, but they're also, supporting other products that did not have the branch access, they didn't need the branch access before.

Jim Marous (23:28):

It's going to be interesting because I think when you look at ChatGPT and you look at the humanized version of conversational AI, it's going to be interesting to see how we define that need to interact. I think the jury's still out. I'm not a big fan of branches, but I'm not a detractors of branches and that that kind of plays the middle ground, which is always a safe place to play.

Jim Marous (23:52):

But it's interesting because I don't want to go to the branch and yet I can get my interactions elsewhere. I get a call from the branch regularly, I call the branch every once in a while, there's other technologies available. It's going to be interesting because I think you're right about the fact that people want the interaction. I'm just wondering if they want it from their bank.

Jim Marous (24:12):

And again, I look at the mortgage as a great example. I want the mortgage process to be simplified, so I don't need a branch. Good example is Rocket Mortgage has done a great job without any branches in developing a great mortgage business. So, it's going to be interesting to see how that plays out.

Michael Abbott (24:32):

It will be. But I'm going to go back to one of the examples you gave, and I think it was probably one of the most brilliant moves at the point in time is if you roll the tape back to the early 2000s, the equivalent of the FinTechs back then were the monoline issuers. You and I remember all these, the MBNAs, the First USAs, and Capital One was one of the major ones, right?

Jim Marous (24:51):

Yep.

Michael Abbott (24:51):

What happened to all of them in a rising rate environment? They had to get deposits on the other side. Obviously, First USA became part of Chase. Chase is a big credit card business now. MBNA became part of Bank America, it's the point of their card business now.

Michael Abbott (25:06):

But Capital One perhaps made the most genius move of all. They did the contra thing, they acquired branches and they acquired deposits. And still to this day, they're opening branches. So, I think, again, looking back on the rising rate, the zero rates, I think they've distorted our view of the world.

Michael Abbott (25:23):

At some level, Jim, and I don't know if we've statistically proven this out yet, branches, we estimate cost, I think it's around 83, 84 basis points across the world in terms of deposits. At zero rates, you say, "Why would I need them?"

Michael Abbott (25:36):

But if rates are 4% and branch base deposits maybe only have a beta of 30% versus having to go a hundred percent at the top of bankrate.com, all of a sudden branches become an incredibly valuable marketing tool beyond any of the interactions.

Michael Abbott (25:52):

So, this idea of deposit beta and the net interest margin and spread that might be able to be brought through to the branching network, I don't think we should underestimate this, despite all the digital innovation.

Jim Marous (26:03):

Oh, it's going to be interesting. Then we're making assumptions what the interest rate environments can be long term. And it's what is normal now. It's a tough decision and one that's going to impact all of banking. And we're looking at branches, we're looking at the spread, we're looking at rising rates.

Jim Marous (26:22):

Do you see the actual revenue models of traditional banks changings dramatically with open banking and things of this nature?

Jim Marous (26:32):

We see some examples overseas of organizations that have built relationships without needing the relationship actually to generate revenue in a banking way, but outside the banking environment. Do you see revenue models changing dramatically in the banking industry?

Michael Abbott (26:47):

Yeah, I see them evolving. I mean, look, banking's been around for, as you know, hundreds and hundreds of years. And the models fundamentally acquire deposits, lend out to both consumers and small businesses and corporations. So, I don't foresee that that model is going to change all that dramatically.

Michael Abbott (27:04):

And I don't want to be the skunk at the picnic on the open banking thing, but open banking has I think certainly offered a lot of opportunities for people. But when you look at the actual revenue that's been generated from it, it's still not that substantial.

Michael Abbott (27:19):

I mean, it goes back to what we were talking about earlier, Jim, around neo normal, which is in the banking world, you need to have great customer experience, but you need to have a balance sheet to back it up and lend against on that side. So, you still need to have that in the banking world. A balance sheet is ultimately, where you're going to make your money off of on that front.

Michael Abbott (27:40):

And you'll have all kinds of opportunities, certainly around payments, experiences and aggregators and so on and so forth. But the fundamental side of it's a capital driven business.

Jim Marous (27:50):

So, Michael, if you look at all the trends that you looked at from this year, what are you the most assured of? What's the one that you think that, "You know what, I got a lot of money on this one."

Michael Abbott (28:01):

Yeah. Of all the trends in there, what we're seeing ... and I will tell you, I think we're early on this one, but I see it coming cause I see what's happening out there, is the last one, which we called it a change of heart, which is the core transformation.

Michael Abbott (28:17):

Because when we look at this, Jim, what we've seen is, again, I think banks have done a phenomenal job on the digital piece of it. In fact, if you look at the operatings for most banks around the world, they're all 4.8, 4.9. Consumers are getting what they need out of their digital experiences these days. They've really done a good job on that.

Michael Abbott (28:35):

But now, the innovation has to occur at the product level and inside of it. And many of these banks are looking at those core engines and how they're going to modernize those to be real time, move off of the cobalt infrastructure, reduce their cost structures, be able to innovate products that are at the customer level versus individual products and be able to move a lot faster on that front.

Michael Abbott (28:56):

So, if there's one thing I think I'm pretty assured about this year is that you are going to see many and many more banks start to look at how they're going to address their core and how they're going to move these learnings from digital back into the core engine of the bank.

Michael Abbott (29:09):

And I don't mean core just in terms of core banking and where we keep the GLs and the debits and credits for the accounts, but I also mean how it's going to eat into also, like we talked about with zero operations, modernization of all those experiences and simplification of the entire backend of the bank. That will dramatically reduce their cost structures and improve the customer experiences.

Michael Abbott (29:31):

So, I don't think you're going to see it as a big bang, but as you talked about earlier, I think you're going to see this as a article, kind of Six Sigma meets cloud-based AI, meets next generation core technology, transforming the bank over the next five years.

Jim Marous (29:47):

It's interesting because over the last 10 years, we've been talking about core transformation forever, is that you now, have the ability to transform your core in pieces and parts, which you weren't able to do before. You had to buy it or sell it. You couldn't do it in pieces.

Jim Marous (30:04):

And we see organizations now, doing their lending platform, doing their deposit platform, doing their back office, whatever it may be. And that gives a lot of opportunity out there.

Jim Marous (30:13):

So, Michael, finally, and this is an interesting one, in that in developing these trends and predictions, there's always one or two that are left on the cutting room floor. So, what's number 11? What's the one that you think personally, it's got a pretty good chance, but it didn't quite make the cut?

Michael Abbott (30:31):

I would actually believe or not go back to the 2022 one, which I wasn't probably as aggressive as I should have been. I would say zero operations. The transformative nature of these cloud-based AI capabilities, Jim, to truly basically, drive out expense is unbelievable. It's unbelievable.

Michael Abbott (30:57):

And I would add to that, the other one that I wanted to put in there was around the digital moves from being a service channel to a revenue generator.

Michael Abbott (31:06):

So, if you look at this right now, 99% of the touch points that consumers have, by our estimation, are remote. Meaning they're either in an IVR or they're in a mobile app, or they're online. Banks treat those as service points right now.

Michael Abbott (31:18):

If they start treating those as opportunities to cross-sell, upsell, deepen the relationships, have a conversation again, that could unleash a torrent of growth for them within their own backyards. And I'm already seeing that there's a couple banks around the world that will be announcing some changes in how they're looking at their mobile experiences, but I'm already starting to see that happen out there right now.

Michael Abbott (31:39):

So, those would be the two things. One is this transformation of zero ops mindset, and at the same time, is moving the digital and these remote channels from thought of the service channels to thinking on like the next generation of branches to have conversations with the customer.

Jim Marous (31:54):

Again, you get in that whole proactive engagement. And moving from transactional to engagement based, it really gives you a lot of revenue opportunities. And I would agree with you, that it's interesting that you look at ChatGPT, which I don't think I can get a newscast anymore without somebody discussing either the risk or rewards of that.

Jim Marous (32:13):

But you look at the potential for that to actually build much deeper and better engagement with a customer that they would pay for. It's going to be financial institutions get on their own way though on that.

Jim Marous (32:26):

We looked at the ability to take pictures of checks and deposit them. I believe only two financial institutions in the US actually put a revenue model together that said, "Okay, if you want immediately, you're going to pay x. If you wanted in a day, you're going to pay y. And if you want in three days, you won't pay anything."

Jim Marous (32:44):

And that was a great revenue opportunity that nobody bunked at within those organizations. Initially, the branches, as we always do, as branch employees, we would say, "Oh my God, we're going to lose all this business." But the reality is there are opportunities out here that we continue to give things away for free that as a banking industry, we can do better than that.

Jim Marous (33:03):

So, Michael, thank you so much for being on the show today, and again this year to share your trends prediction, but I also appreciate your forethought on what else could happen.

Jim Marous (33:14):

Because I think ChatGPT, I bring it up again, that on November 29th, we did not know this was out there on November 30th, everybody knew it, was playing with it and is excited about it. And from the way things look, the marketplace is going to change dramatically because of things such as that with the AI world.

Michael Abbott (33:35):

I agree, Jim. You know what, and it's like I said, sometimes once your kids can cheat on their test with a technology, it opens your eyes to art of the possible. But it's been there all long.

Jim Marous (33:46):

Thanks for listening to Banking Transformed, winner of three international awards for podcast excellence. If you enjoy what we're doing, please take some time to show some love in the form of a review. It helps us to continue to get great guests.

Jim Marous (33:58):

Finally, be sure to catch my recent articles on The Financial Brand and the research we're doing for the Digital Banking Report.

Jim Marous (34:05):

We've 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 (34:15):

I'm your host, Jim Marous. Until next time, remember, unfortunately, we don't have a crystal ball about what's going to happen in banking. What we can do is invest in the technology and thought that will take us forward.