Seize the ‘cognitive business model’ to win the digital race
An era of “unprecedented change” is happening, driven by new regulation and technology, Ginni Rometty, chief executive of IBM, said during a plenary address, Cognitive Business and the Future of Financial Services.
“There is a moment of opportunity if you choose to seize it,” she said, referencing artificial intelligence (AI), machine learning, big data and blockchain technology as a “cognitive business and technology model”. This can offer real business benefits in terms of reducing cost via automation, she said, improving opportunity spotting, compliance and helping anti-fraud measures and so on.
Rometty spoke of the “digital foundation” of banks, which are being overhauled to eliminate legacy, enable the cloud and improve digital security, while arguing that “the transformation won’t stop there”. It will get stronger as AI technology, the blockchain and other new cognitive technologies are added to this foundation.
“I’m not talking about bitcoin, but the underlying distributed ledger technology [DLT], which allows you to have trust in the exchange of anything. The blockchain will do for transactions what the internet did for information,” she said, while stressing there will have to be governance, standards and immutable certainty about the irreversibility of transactions for it to progress. “Regulators have to be comfortable with it too,” she later added. The Hyperledger Project should help in this regard as well.
“When everyone is digital who wins?” she asked. The winners, in her opinion, will be those businesses that are cognitive and able to use AI, DLT and other advanced technologies effectively. “You will need some new technology to deal with all of the data that is out there in order to gain insights, comply and operate efficiently,” she said. “We are entering an era of systems that can understand, reason and learn, that is why I call it cognitive technology.”
Cognitive technology is far more than AI and machine learning, she said, predicting that in five years most decisions will involve cognitive technology and that “FS would lead the way”.
IBM released a study on 21 September from its Institute for Business Value backing up this assertion. The study questioned 2000 executives worldwide and found that close to 30 per cent of banks are already exploring cognitive initiatives. This is expected to become prevalent across the industry by 2018, claims the vendor, with almost two-thirds of banks in developed markets expected to deploy cognitive technology in the next two years.
Sergio Ermotti, group chief executive of UBS, joined a subsequent panel debate on this topic, which was moderated by Dean Garfield, president of the US Information Technology Industry Council lobby group. Ermotti urged delegates to embrace cognitive technology. “We shouldn’t be afraid of it,” he said, pointing out that the threat from new fintech entrants and regulations are key drivers. He advocated the creation of “super back offices”.
“We, as an industry, have legacy systems that cannot keep up with the rising amount of transactions and new regulations,” said Ermotti, who estimated there were 40,000 alerts or changes of regulation a year at present. “No matter how good you are, you cannot catch up with that demand – you need help.” AI automation and other such cognitive technology should help and also reduce errors as volumes grow. “Without AI you won’t be able to keep up.”
The biggest risk is no longer market or credit risk, he said, but operational risk, which includes cyber risk. Again, AI can help with battling hackers; it’s not just helpdesk chat bots and automated customer service assistance that will be the typical banking end uses.
Cost reduction is a crucial driver for Ermotti. “We all know there are few banks at the moment that can pay for their cost of capital,” he said, in anticipation that cognitive solutions can help with this by increasing automation and efficiency.
The changing workplace and increasing adoption of these technologies will inevitably mean job losses, but IBM’s Rometty argued it wasn’t a case of “man vs machine”, but rather “man and machine”, adding that new jobs will be created “that we’ve never even thought of yet”.
Ermotti admitted “some jobs will be eliminated” and that “there will be a transition phase” but he argued that it “was critical for us to embrace these new technologies to create a decent return for shareholders. Lastly, but not least of course, it will also create more interesting jobs.”
By Neil Ainger, Daily News at Sibos reporter