How Will AI Affect The Financial Industry?

hi everybody we're super excited to be here today uh so this is a a panel on the impact that AI is having on the financial industry and one of the things that's interesting with Finance is that it's an industry that has really embraced artificial neural nets for quite a long time I think Yan laon's seminal work on optical character recognition was in 1989 by the end of the 1990s 10 to 20% of checks um were processed using artificial neural Nets um in the 9s the industry embraced uh using neural Nets to ident uh to identify

credit card fraud and so this is a a technology that the industry is very familiar with um that said obviously what we've seen in the past couple of years is completely new this is has really change the game we're fortunate here to have a panel that has a lot of experience um particularly in the consumer facing side of Finance which has um uh really embraced this technology um perhaps more than the the other sides of it so I will uh let the the team here introduce themselves go first karun um I'm Kieran Vu I'm the

chief product officer for Commercial Banking in Wells Fargo so I guess I'm the art personel the rest of them are retail banking uh I'm Karen St uh Chief digital officer for wax which is a B2B um fintech focused and serves 800,000 customers globally hi everyone Mike Henry I'm responsible for uh product and channel and digital and data at a Canadian financial institution called Home Trust well great so when we we think about this industry um we have this this huge amount of experience using the technology but things really have changed and so I guess my

my first question for you is for your teams in particular what's stayed the same and and what's what's different now I can start yeah I I think you know one thing about banking industry is uh we are very heavily regulated for all the right reasons industry and that factors into everything that we do particularly when we have to embrace a new technology or um new models and new quantitative techniques Etc so you know what has not changed is that governance the um the accountability to be able to explain how we make decisions uh to be

able to prove that the decisions we make are repeatable and providing transparency into um how the whole decision making structure within a given model works right so AI is no different we treat everything AI as a model and you know so we'll have to put everything that we do leveraging this technology through the same governance and same same rigor as well right so that hasn't changed um what also has not changed is um we are manically focused on um improving our customers experience particularly at Wells Fargo so we're looking at AI um and leveraging AI

very aggressive again within the bounds of that whole governance and um risk management to be able to improve sort of the customer experience right so that continues to stay and we're always looking at efficiency opportunities we are a bank right it's all about efficiency ratios that's how we are judged um so we are looking aggressively at leveraging the technology to continue to drive uh efficiencies as well thanks Karen uh totally agree I'll build on that so two things that have not changed we have used AI in our industry for years uh particularly in Risk Management

when you think about credit adjudication or fraud uh detection and prevention um personalization and marketing um the other thing that hasn't changed is the customer problems that we need to solve and so whether they be businesses or or the end users for us customers and the financial services industry want to save time they want to make more money more money in their pockets they need confidence in their their decisions so those problems stay the same the two things for me that have changed are one the tools available to solve the problems like exponentially more powerful

and it opens up these new avenues to solve problems you know I look at parallels and analoges and other Industries and think that our customers what what they Define as great is set by others so think about Amazon and the return process like incredibly easy it needs to be that easy in the financial services industry I think the second thing that's changed is um from an executive and a board perspective uh AI is not an option anymore it's an imperative and so I no longer have to advocate for it I'm actually asked to be bolder

which I think is awesome and Mike uh thanks I you know what I'm going to start we we negotiated as a panel before and said it didn't matter what order we go in but I want to revisit that what they said um no segueing off what Karen said I mean look boards are all over this I'm here today because one of our board members is an associate professor here at MIT and and a contributor Hussein Romana so um super happy he invited me I'll try and say something a little bit different so what what hasn't

changed is the importance of trust uh so we can do all this cool stuff now but if any of it any of it gets in the way of customer trust You're Dead on Arrival right so um that something we always have to be mindful of uh the the big thing is different so forget about the the technology itself whether it's geni or something like that you know AI has existed in banks for decades now um but tended to be incredibly specialized incredibly Niche and I I don't like the word democratized here but now it really

is accessible to everyone it's usable by everyone and that's a big change so maybe to follow up on that Mike um where do you see opportunities for gaining a sustainable or at least a temporarily sustainable competitive advantage and where do you see things that will just erode to be the table Stakes that you really need to have uh without falling behind your peers well thanks for sending it back to me Brian um the so look I I guess I would um I'd put it into two categories a little bit differently I think about everyday Ai

and gamechanging Ai and and I'd say you know to be completely truthful I think the majority of what I see from Al almost everyone goes in the a the everyday bucket right now it's the the productivity stuff the optimization stuff so we have lots of that going on it's just kind of marginal improvements it's super cool um but it doesn't sort of changed the nature of the business I I think I so I haven't actually really seen a lot of good examples of what I'd characterize as game changing AI for financial services yet I'm hopeful

we get there um and look unlike other Industries No One banks for the sake of banking right you you know you go shopping you get some gratification no one gets a dopamine hit off doing a deposit like Oh yay great um so there's friction by definition in banking I think when we can take this stuff and we can start to make experiences more contextual more compelling get the friction out um that's where I think we'll see the business model evolve just you know we're still looking for what that is that's a great answer love it

um so building on that as well you know I start from a p a perspective that I'm I would say constructively paranoid I assume that people are out to disrupt us um and I think that AI um will provide interim uh competitive Advantage but not durable because people will catch up and those who don't get on board I think will be disrupted and so for me it's not about specific opportunities but it's about three things one is creating a repeatable process and so that idea of how do you understand the customer problems how do you

innovate and how do you have the enabling capabilities whether it be data or the platforms you know you have to have that process to continue to Su sustain yourself and differentiate two is actually for me about trust and so you have to prove that you can you earn and keep customers trust if you provide advice it's good advice and then the third for me is really about a willingness to disrupt yourself because if you don't someone else will be looking to and so I think those three things uh perpetuate durable Advantage um you guys have

not left anything for me but um I think I I'll take a slightly different slant on the answers right so I agree with everything that Mike and Karen said but if you if you think about banking industry um Beyond sort of going to a digital sort of a do of a given bank and doing your basic transactions um particularly in the sort of the institutional side of the banking a majority of the interactions are still sort of um relationship based and it is somebody picking up the phone and calling a relationship manager so there's been

a lot of friction in terms of pushing more digital interactions and we obviously want to push more digital interactions you know for the reason that Mike mentioned nobody gets a dopamine head out of going to a bank branch or calling a relationship manager whatever um so I think what generative AI is going to do especially with sort of um capabilities like conversational interfaces it's going to really sort of um disrupt that relationship based Banking and it's also going to help us take banking to the customer as oppos to the customer coming to a bank we

call it I mean the technical term we use in the banking is embedded Finance right I mean it institutional Banking and for that matter any banking should be just like apple cash I love that right I mean you don't even think about a bank at the end you don't think about a you don't think about wire you're just having a conversation and you want to send be able to send money and it is it should be that easy right I think that's um that is where it's going to be sort of gamechanging in my in

my view it's going to take a few years again we have to work through all of the regulations and make sure that you know when we expose conversational interfaces um you know one of the speakers said right now generative AI is like a wild animal it is truly a wild animal so we need to sort of tame it to banking industry to follow the regulations but I think that's what is going to be gamechanging there's so much excitement about this technology and and different things that um that we'll be able to to do but there

also concerns and so this is if you think of large language models these are things that hallucinate there are this is a heavily regulated industry um there's the potential for U for new legal requirements always burdens of internal um restrictions on things access to um to a talent base that have these skills is challenging and even getting access uh obviously to the Computing Hardware um is very challenging so I'd love to know what are the concerns that keep you up at night Karen very close Karen um so maybe I'm an optimist but I assume the

enablers will work themselves out whether it be Computing capacity the regulatory environment you think about mainframe computers that took up huge rooms decades ago like I assume that that's going to get fixed uh my concerns are or where I spend time thinking are are on two fronts the first is around the idea of with great power comes great responsibility and so we are using people's data you know both our data third party data and I think there's a lot of responsibility and we take that responsibility really seriously um the second for me is really on

The Human Side and so as we look at the evolution I think that Ai and all forms of it will augment jobs but that's not a foregone conclusion and we also have a responsibility to help train employees retrain them teach them to use this show them how uh gen can augment and not disrupt their job and and I think that there's a societal obligation to that that I think a lot about Kieran well I I think um the good news is um we have been a regulat industry for a long time with and operated in

these constraints before um and the industry also sort of uh adopted you know I mean I remember you know back uh when I started in this industry um it was very difficult to get a financial engineering grad so we figured out a way to get physicists and train them in financial engineering right and Sol for the sort of the the talent crunch so we have got the muzzle in terms of figuring out how to solve for the talent problem um that's the good news right but we'll have to execute on this new wave of fed

um similarly uh working under regulation and in fact contribu to and shaping the regulation to some extent right we have done that and we continue to do that as well um you know for example at Wells Fargo we are one of the first banks that signed the Bill of Rights um that Biden Administration put out there in terms of pushing for that sort of responsible usage of AI um you know and data privacy um is also something that we have dealt with so I don't feel like these are newer problems right uh they are definitely

challenges that we'll have to there may be some new challenges too right um as the technology evolves and we start more aggressively leveraging it but we have done this before we can do it again it's interesting hearing you talk about privacy I was talking to uh one of the professors here um out in the the foyer and he mentioned that the um people need to stop thinking of owning data and buying data but instead being entrusted with data and I thought that that that's a a great way to think of it now we only have

a few minutes left and love to uh love to get your thoughts on what you think this panel will be talking about at next year's conference yeah well I what it's hockey playoff season so I'm going to say we're hoping I hope we're talking about the mayel Le winning for the first time in half a century um but you know what I think um I'm going to bridge off your last question too Brian and say you know I hope we're talking about success in getting this stuff to kind of embed in our organizations um because

I think it's for me it's not about a talent crunch we can at the margin go hire new people that come in and their conversant in new technologies but what about the other 99% of the population that are already there that aren't necessarily starting off conversent and fluent in this stuff and we've got to do something Karen touched on this a little bit we've got to do something to get those people there um and so I I hope that I hear us talking more about how we're doing that and even more optimistically how we're being

successful doing that Karen um you know I was going to say something similar um so I think right now like if you think about this population who's here today I don't know if it's the 1% or the 5% of people who are AI Believers like we're all in here but the majority of the population I think is an a wait and see and so I think like last year was a year of experimentation this is a year of okay let's figure it out and make it make it real I think next year there's going to

be an urgency because you see people starting to separate themselves from the rest of the pack and so those who are in the wait and see are going to really be trying to figure out how we make it successful how we scale it in the organizations yeah I think we'll talk about AI like we talked about digital a few years ago right this is the year where everybody sort of Dipping their toes in especially large Banks but next year and the year year after is going to be about sort of industrial usage of AI um

and like I said a minute ago you know things like conversational interface face things like embedded Finance expanded credit offerings to customers that we don't usually do business with today because we don't understand the the risk um that a customer brings which is such an important thing for us to make a decision to lend to somebody um those are the types of things we'll be talking about how how can we expand it more and more you know so it's interesting that one of the themes is senior leadership um has become much more interested in this

I'm curious how do you balance the excitement for Innovation and the drive to move forward um wellbeing in a heavily regulated industry I think I'm going to have to pick on someone for that one carefully Mike let's start with you I think it's classic change management I think you've got to find small quick wins um and so we I I did a lightning talk earlier today and one of the things I talked about There Was You just you need this portfolio of experiments some where you have very high confidence that you're going to get some

impact even if that impact is small and some that might flame out and that's okay but you you know with that that first group that you're showing some Vis business value and some traction that's how you just sort of get the flywheel turning and and convert people over time yeah I have a board member um who's a HBS Professor uh who really encouraged us to set bold targets which I personally love what was fantastic about that is it changed the mindset not only of me and my team but of the organization holistically so we think

and work differently but we have a a governance committee we have a whole team behind us that's figuring out how can we not should we yeah I would say you know governance um but I think we'll have a a problem a different problem which is there will be more pushed to go more aggressive than less aggressive um because every time I sit in a meeting and there is a problem to be solved now the question I get is why can't we AI that right you know kind of like there is an app for everything right

so I think that's that's really the the thing and it will be prioritizing and governance is how we going to get through this got it well as we uh as we wait for for John to pull us off the stage I'd love to know what are you most excited about I'm I can I start yeah I mean I'm really excited about the ambed finance and uh expanding credit um cuz there's a lot of folks that we don't bank with today for various reasons because there's not enough data associated with them or the more traditional means

are not enough for us to get comfortable as a bank to lend to those folks like you know uh um credit rating is not enough or for some people credit rating is not good or what not but that does not mean they're not uh credit worthy I'm really excited about that opportunity where we are able to reach uh more of the community um with a and leveraging other means other data points about those those folks to understand their credit worthiness right and as I said embedded Finance I'm super excited about it I think it's going

to really um transform I'm I'm sure we'll get to a point where we'll give a dopamine head for people to use banking but I'm really excited about that as well go well I so you know what I'll I'll uh I'll sound very similar to Karan so I'm I'm a banker by background I've done it for three decades I love it and I've done it for as long as I have because I think it's really important to society um Banks if if I geek out on banking for a second Banks exist to be a transmitter of

monetary policy in the economies we serve so if you can do what Karan just said and expand the credit box and expand the supply of credit uh you end up having a positive multiplier effect for the economies of those whole societies so that that to me is why I do what I do super exciting yeah so I'll answer it in two ways and the first is is you know I work with a lot of small businesses over my career and there is so much fear and uncertainty and paycheck to paycheck and so I think there

is a tremendous power to help people make better decisions and actually improve their livelihoods and prosper from a personal perspective I am thrilled to have a partner that helps me thank you everyone and thanks for having us all right thank you for