Hello and welcome to the bots, a bank automation news podcast. My name is Whitney McDonald and I’m the deputy editor of bank automation news. Joining me today is chief executive and head of Infosys Finacle, Sanat Rao. He is here to discuss implications of chat GPT in the banking industry, the evolution of AI, and what it’s bringing to FIS in terms of customer engagement, efficiency and security.Sanat Rao 0:31
Sure, with me, thanks. Thanks for the opportunity and looking forward to the conversation. So yeah, ChatGPT really has cornered everyone’s imagination, isn’t it in the last few months, and I think the discussions around ChatGPT have not just been on the technology side, but it’s even, you know, gone to a larger conversation about this whole battle between Microsoft and Google, so to speak, right in the battle for the search engine. But be that as it may, I mean, as a technology itself, of course, GPT is is, you know, expected to be revolutionary. And I think it’s still early days in terms of how it’ll eventually unfold. And as we’ve seen, organizations like Microsoft are in the process of announcing how they will leverage that, you know, the integration to office and, and so on. And obviously, industry is also at the moment, you know, exploring ways in which chat GBT can be leveraged, and the banking industry is looking at ways in which it can use this tool, even as conversational AI and AI in general, gets more pervasive across the industry. I think, I’d like to sort of point to a few things. One is, as the name suggests, it is generative, right, and therefore, you know, it’s going to evolve, it’s going to depend on the inputs that receives, if I remember correctly, as of now, GPT is, you know, based on data that they’ve got till 2021, I think that’ll obviously get updated. I think one of the conversations in the banking industry, of course, is how’s the banking industry moving to becoming more and more real time? And I think, you know, the question, therefore, is that can catch up really become a real time tool. And, of course, there are opinions there, there are implications there. I think that’s that’s one element, which will hopefully get answered in future, I think the when I look at the potential implications of Jack Beecher GPT, and what it can offer, I think the real power of that technology will come when it combines the power of generative models with a variety of knowledge systems that already exist in banks. Right. So I think that’s really where it’ll start making a big difference, when you start combining the generative models of conversational tools like church EPD, with the host of knowledge systems. And as we know, the banking industry, outside of the government is probably the industry which has the largest amount of data, some would say it’s Telecom, but I think banking industry probably have the largest amount of data, both customer data and otherwise. And therefore, a whole host of knowledge systems already reside within the banking industry. And I think, as provenance and uses of GPT, find ways to combine the powerful generative models that come with such a conversational AI tool, along with the knowledge systems that exist there, I think that’s really where it will get even more powerful than it’s presently expected. Now, mind you, we have to see the evolution of GPT, even though it sort of took the world by surprise in the last two or three months, and maybe some of that had to do with the announcement that Microsoft has made towards their alliance with open AI as with the open AI organization, I think the the the explosion of this tool has to be seen in the context of a variety of other changes that are presently already happening in the industry, right. So AI itself is obviously developing very rapidly and maturing quite a bit. There’s a lot of speculation right now about how the Internet of Things will change the way we you know, the way we live, work and operate. And of course, there are different data points about the number of billions of different devices that will eventually get connected through the IoT framework. There is of course, 5g, and you know, 5g is expected to be even more revolutionary, and it’s going to change fundamentally the way we you know, the way we do business. So there are a whole host of other technologies as well that are sort of coming along the way. I mean, talk about Metaverse, six months ago, the whole world was talking about the metaverse. That’s now seated way to chat GBT, but Metaverse itself has raised a lot of speculation. I think the learning if you would like from many of these Is that what’s happening is that as new, powerful technologies come along, the world obviously gets excited. We quickly find ways of using them. But the technology itself takes a bit of time to mature. And I think that’s exactly what’s happening right now with Jack GPT and conversational AI tools, which is that it’s it’s made an immediate impact, and there’s no doubt it’s going to have a very big role to play in the way we, you know, operate. But I think there’s still some way to go before we eventually, you know, determine in what what way, would we sort of use it in the most effective manner? And what way would we sort of eventually monetize that? But ultimately, mind you, when we start deploying it in our business, we have to find ways of monetizing, you know, the usage of this new technology. So I think there’s probably still a bit of work to be done there. In terms of how we will have you will go about that. But you know, clearly it has, it has all the potential that can hopefully make a difference. The other reason to sort of get excited about new technology is that when we look at a fairly conservative industry, like the banking industry has been, clearly they’ve seen new competition come where the incumbent come their way. And that new competition has been born on the on the on the basis of new technology, right? So when you look at a lot of the non banking players have come into the market unexpectedly, whether it’s grabbed the middle, the digital wallet in Southeast Asia, which was sort of incubated by grab the taxi hailing company, that immediately as once they got into the mobile financial services space, it had a huge impact, I think they had something like close to 200 million users, and, you know, very, very wide uptake in parts of Southeast Asia, which is a very transaction heavy part of the world, even in terms of the payment volumes, right. So the massive payment volumes, something like I think 4 billion if I remember correctly, sometime last year, and that had seen exponential growth from the previous year. So I think the new technology has to be seen in the context of some of these changes that are happening in the industry and in the environment around us. But I’m, I’m extremely bullish. I think, you know, the world is, in a state where we have hunger and appetite for embracing these new technologies, I think we are increasingly getting conscious about the risks that some of them bring to the table. But I think there is a real realization, particularly post COVID, that technology is going to be the big differentiator in the world in the way we live and operate.Whitney McDonald 7:43
Yeah, I mean, you talk through a lot of examples, use cases. And with AI in chat GPT in mind, I mean, I’m wondering if you can talk a little bit about how these innovations and where they’re headed could really change banking, maybe both on the client side and for the operation side?Sanat Rao 8:02
Sure. And I think, you know, one is going to be I’m going to be a little generalistic. Here, obviously, different institutions are at different degrees of maturity in terms of how they’re using it. But generally speaking, I think when one looks at the way, it’s going to have an impact, I sort of point to fundamentally, you know, four areas. First is, you know, it will certainly have a massive impact in the way engagements with customers can get scattered on. And as we know, that’s going to be the big differentiator, because good customer engagement, good customer experience, ultimately is going to allow the bank to win a larger share of the customer wallet. The second is increased efficiency. And I think it’s pertinent to point that out given that we are early in 2023, and there are some dark clouds on the horizon, and there are headwinds coming along the way in terms of you know, possible possible recession and some of the macroeconomic environment outlook have not been particularly encouraging. And therefore, I think we are going to go through a phase where organizations not just the banks, but indeed in other industries as well, organizations are going to find the pressure to get more efficient and to be operating in a completely different way. The third element and one which, you know, is relevant both in good times and not so good times is the need to have improved and better risk management systems around us. As we all know, from the examples, both in the banking industry and in industries, outside of the banking industry, that the cost of failure is only increasing, right? So the cost of failure can be catastrophic for an organization it can be catastrophic for, even for people’s careers. So I think improved risk management is going to be certainly one area where we’re going to see an impact. And last but not the least, you know, enhance security because each of these new technologies is going to present some form of you know, other, you know, something like technology, security risk, if you like, and therefore there is going to be compulsion around enhance security. And each of these, I think are areas where banks will, will need to find a way to deploy the technology in the right manner. And to make a difference. I think the generative AI tools itself, as I mentioned in the previous question, I think they will evolve. And they will, they will obviously go a very long way enhancing customer service, right. And that’s really where I think when you combine that with the chatbots, are already being used in organizations, I think you’ll find that the whole customer experience is going to substantially increase that because yeah, I think you want to ask question,

Whitney McDonald 10:36
I was just gonna say exactly what you were mentioning that each bank will deploy this technology so differently, and it’ll be interesting to see what everybody comes up with. And the security is a great point, the customer experience is a great point, but the deployment of this technology, and we see how quickly that AI advances and changes. So watching each use case develop as they come through different institutions will be something to watch.

Sanat Rao 11:03
No, absolutely. I agree with you. I think the other element, which is not yet probably spoken about quite so widely, but I think it will come to the table very quickly, is how do you measure success? Right? Will you will you sort of use the same metrics, as we were using earlier with, with, you know, before he became on? Or will you start looking at different measures of success? And will there be new metrics that come in, and I think this becomes relevant, because mind you with new technology, the implications, and the expectations are only heightened. Right. And the expectation is, that moment, something new and revolutionary comes along, that, you know, you’ll be able to increase your revenue, you’ll be able to, you know, substantially improve customer service, you’ll get more efficient, and so on. So I think the expectations are obviously heightened, and therefore, a responsible management team will not just look at the way they can deploy it. But I think they will equally pay attention to the way they can measure success, and look at what are the new kinds of metrics that they need to bring to the table, so that the investments are seen to be appropriate.

Whitney McDonald 12:04
Now, I wanted to open up the conversation a little bit beyond AI as well, with some of the recent research and developments, that you’ve focused on a few being business model innovation and embedded banking. Can you share a little bit about where do you where do you think these areas are headed?

Sanat Rao 12:22
Absolutely. And I think, you know, if you look at the banking industry, the banking industry has been through some challenging times. I mean, the industry was absolutely at the forefront, through COVID. Because a lot of the, you know, the cash benefits that were given to individuals to small businesses, when the government stepped in the banking industry was, you know, front and center of the way the money reached the people. So I think the banking industry had played a particularly stellar role, if you like, despite, you know, a lot of challenges through COVID. Now that we are in a post COVID area, and hopefully COVID is behind us. Clearly, the focus is on, you know, leveraging technology to embrace this new way of working, that we discovered through COVID. I pointed to grab pay, and I gave that as an example of unexpected competition that is coming. And I think what’s pushing the bank towards business model innovation is that today, not just as powerful technology available to them, but because of the unprecedented challenge from, you know, competitive competition coming from different places. They are forced to, I think, rethink the way that they’re working today. And that’s really why business model innovation becomes relevant. So we did a study in the not too distant past. And I think we focused on business model innovation, because not just is it not just is it going to be relevant, but I think it’s throwing out some really exciting and cool propositions which, you know, banks, certain banks are already beginning to embrace. So as they, as they sort of drive towards remaining relevant and to stay ahead of nimble competitors, particularly competition that’s coming from outside the industry. And given that they are sort of tasked with finding a way to recompose some of their legacy business models, you know, the new business model development and innovation is, is something that is capturing a lot of attention. Now, there were finding, I think, a new way of leveraging technology and doing business now, some things are already there. If you look at Embedded finance, for example, I’m sure all of us have already experienced that, you know, when we use Amazon to buy, you know, whatever we want to buy on Amazon or we take an Uber cab, right finance is already embedded in that end to end transaction. So embedded finance is I think, here to stay in, it’ll only get more pervasive in different walks of life. COVID has clearly shown that the industry is moving more rapidly towards a digital first banking model. And that very fundamentally is going to be on the basis of technology getting easier and cheaper and more easily accessible to people. The other places, of course, marketplace banking, because I think banks are finding that they are at a focal point where a lot of other services sort of get converged into the banking model, simply because no matter what other services you might do, you know, it could be going on a holiday, it could be, you know, shopping online, eventually there is the fulfillment of that transaction, right. And therefore, a bank or a financial services company always comes into the picture, towards the closure of the transaction through a, you know, through the fulfillment of the payment, if you like, and that’s where the marketplace banking model, you know, becomes very relevant, because banks are finding that they can become a platform, where they offer a whole host of other services beyond just traditional banking services to their customers. And I think customers like you, and I would like that, because if you go to a single portal, and we can carry out our banking transactions there, but also go to other adjacent services that we are looking for, whether it’s shopping, or booking for a holiday, or anything else, you know, it becomes a lot easier. And I think the experience has the opportunity, sorry, there’s an opportunity for the experience, to be, you know, substantially better. And last, but not the least, I think the one that’s again, you know, proving to be very interesting is banking as a service. Right. So use a banking model, but, you know, allow a host of other services to be made available on the back of technology. So I think all of this is creating a lot of interest. I think it’s important to point out that business model, innovation is not something that everyone is ready for. So it’s not as though it’s a compulsion or requirement for each and every financial institution, it shouldn’t be seen that way. And indeed, you might find, you know, large banks, tier one banks, where there’s a lot of business model innovation in one part of the bank, but the other part of the bank may not be doing anything in that direction, which is perfectly fine. So I think business model innovation shouldn’t be done for the sake of embracing something new, clearly, the bank needs to integrate that with with its strategy, you know, going forward, and therefore, you know, you will find that banks will pick and choose what they want to do. And mind you through the, through the different options that are talked about, you know, when I said embedded finance and digital first banking, and banking services, and so on, you may find that, you know, really technologically progressive banks will embrace more than one of them. And we’ll have clear cut strategies of which model is deployed and what kind of a scenario and how do they sort of leverage that. So I think all of this is is, you know, proving to be hugely exciting. And certainly, as we are in the early part of 2023, we anticipate many more banks, exploring the potential of some of these, like making a service and embedded finance. I think the other element in this is the fact that banks have realized that they can’t do everything on their own. So if you look at the way the bank banking industry has changed, right, in the past, in a very traditional model, the banking industry used to be one which used to manufacture the products and also distribute their own products. Today, I think there’s a realization that you can play a much larger role, you, of course, will have your own products, you could potentially bring third party products, third party banking products to be made available to your own customers. And the distribution happens not just through your own channels, but through other channels as well. So I think all of this is sort of laying the ground for the fact that collaboration between large banks, between brands between FinTech companies, and indeed the expansion of the ecosystem, by, you know, creating new layers of other contextual services on top of the traditional banking product, I think this is the way that, you know, the the industry will evolve. And certainly banks that are open to doing this will, will, you know, steal a lead if you like, because I think one of the things that we’ve learned is that the West pay the world is large enough for banks to compete in one area and collaborate in the other area. So I think you’ll find some interesting collaborations coming along the way and indeed, we’ve already seen some of that in in different parts of the world. I just end this with with this point was one, one comment with me, which is around embedded finance. And, you know, today, whether it’s the usage of Amazon or whether we order food online, you know, as we did during COVID whether it’s, you know, doing everything online, really, I think the potential of embedded finance, really, as one of the elements of business model innovation is massive. It’s already you know, taken huge leaps and bounds in the last few years, but I think there’s still a long Way to go. And you know, if I remember correctly, it was a survey or it was a research that McKinsey did, which estimated that just this this aspect of business model innovation and finance, could create revenues in the United States alone of something like 20 billion plus, right in this market could easily double in the next three to five years. So I think the headroom for something like this is massive, I think customers are very open to embracing this, technology certainly is not a deterrent. And therefore, you know, the, the recipe seems to be, you know, perfect at the moment for banks to, you know, put all this together and create a difference for their customer base. Well, talking about new technology, of course, you know, it can be an endless conversation, because there’s simply so much happening in the technology space. And I think we’ve already touched upon quite a few of these efforts to 5g era for to IoT, conversational AI, of course, and GPT, and so on. I think there’s one element I just want to end with, which is looking at a dimension of technology deployment, which is adjacent to the technology itself. Now, I must point out that, you know, when new technologies come along the way and every year, there’ll be something new, we should not fear the introduction of technologies. At the same time, I think the world is today wise enough to recognize that we should not assume that every new technology will always serve our interest. And, you know, I’m going to, I’m going to give a slightly personal perspective here, rather than a organization perspective, I’ve been spending a lot of time reading about and developing skills and indeed acquiring university degrees related to the ethics of artificial intelligence. That’s a, that’s personally an area of great interest to me. And I think when you look at AI and all the very rapid developments that are happening in the AI space, it also points to the fact that the ethical dimensions of the deployment of AI is lagging far behind. So the gap between the technology itself and the ethical usage of the technology, the massive gap.

If you take the medical industry, for example, right, today, every doctor needs to swear by medical ethics, no matter where they’ve qualified from. So there are a set of guidelines or a set of principles that are a set of best practices. And there’s an etiquette that they have to swear by, and medical ethics go side by side with medical research itself, I’d hope that something like this work too quickly happen around artificial intelligence, because as AI becomes more pervasive, and as it sort of touches every aspect of our life, if we don’t have ethical guidelines, if we don’t have the right governmental frameworks, if we don’t have the right form of governance, right, we might just be left with a to larger gap. And that might lead to the technology being deployed in the wrong way. Sometimes, deliberately, many times not deliberately, but nevertheless, with wrong implications. So I think, you know, when you look at our day to day lives today, there’s already a lot of discussion around bias, the implications around surveillance, you know, particular communities are subjected to surveillance more than others. The whole concept about privacy, and how do we protect privacy even as we embrace these new technologies? So all of these are relevant questions today. And therefore there’s this larger question saying, how do we deploy AI more responsibly? And how do we ensure that we don’t compromise the good side of technology, but at the same time, we have one eye on the the negative effects that these technologies can have? So I think I just want to end by saying that I think the ethics of artificial intelligence is something that’s going to be increasingly important, I believe that industry will pay more and more attention to this, I do believe that there will be governance frameworks that will come along the way. I mean, even today, the European Union is, you know, in the process of announcing, you know, a list of things that need to be done to deploy AI in Europe, just as the US is sort of coming out with their own guidelines. So I think there’ll be different frameworks and guidelines to allow the governance around the deployment of AI that will hopefully, you know, receive the right attention in the coming years. And that can be very good. You know, I want to stress that all of this doesn’t mean that it will stifle innovation. If you just take the example of cloud, right, 10 years ago, people used to wonder whether cloud can become really, you know, strategic, because the feeling was that, you know, regulatory regulators might come in the way and that’s proven to be completely wrong, right. I don’t think the regulator has blocked the move it move towards cloud. What the regulator’s have done is of course provided their own guidelines based on territory and local governmental issues, but eventually, you know, regulators are supporting the move to cloud, I think the same thing will happen around the deployment around artificial intelligence, you know, there will be a set of ethical guidelines, there will be governmental frameworks, there will be governance frameworks, all that will, you know, come along the way and they will get implemented, of course, we will go through a phase of, you know, learning to deploy them and there will be some mistakes that we made along the way. But I’m I’m very hopeful that the, you know, the ethical side of this will be, you know, given as much importance as the technological side itself.

Whitney McDonald 25:35
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Transcribed by https://otter.ai