July 29, 2025 • 21 mins
In this episode of the Friends With Money Podcast, Vanessa Walker, managing editor of Money, interviews Paolo Sironi, a global research leader in banking and finance from the IBM Institute for Business Value, about the transformative impact of AI on the banking sector, its innovations, and the emerging trends of digitalisation, personalisation, communication, and platformisation.
They also delve into the risks associated with AI, such as data breaches, and the importance of AI literacy and talent in the banking industry.
Sironi provides insights on how Australian banks can stay competitive, especially by focusing on the small and medium-sized enterprises (SME) market, and the need to adapt risk management practices to leverage AI effectively.
00:45 The evolution of banking with AI
04:08 AI and customer security risks
07:32 The rise of agentic AI in banking
10:12 Australian Banks: staying competitive with AI
15:27 Managing risk with AI
18:45 Future innovations and opportunities
#friendswithmoney #vanessawalker #paolosironi #aibanking
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
Welcome to the Friends with Money podcast, brought to you
by Money Magazine, creating financial freedom for Australians since nineteen
ninety nine.
Speaker 2 (00:13):
Welcome to the Friends with Money podcast. I'm the managing
editor of Money, Vanessa Walker, and I'm here today to
talk to Paolo Serroni. Paolo is a global research leader
in banking and finance market so the IBM Institute for
Business Value. It's mouthful. Basically, it means he's a go
(00:33):
to a guy for insights into AI and banking. Welcome Paolo.
Speaker 3 (00:38):
Thanks for the invitation to speak to your audience. It's
important to me.
Speaker 2 (00:42):
Oh, pleasure right. Let's dive in AI is changing the
way that banks operate globally. Can you outline for us
the positive innovations users are experiencing across the banking sector.
Speaker 3 (00:56):
Bet A good question. So let's try to picture what
happened in terms of the transformation of banking while using
technology that impacted the way people consume financial services. If
we go back like ten fifteen years, we see clear
trends happening. First of all, around the two thousand and eight,
(01:17):
when the global francial crisis started, is also when the
smartphone was invented and people started using more and more
digital in terms of creating interactions that expect that to
happen also be banking and banks were actually capturing this
trend as they needed to restructure their operations. In essence,
(01:38):
they started closing rationalizing branches, and that was a period
of digitalization outright in terms of investment in technology sort
of lift shifted branches on different operations and infrastructure. So
was more investment in cloud technology now would be considered
every clouded. They didn't really change that much the user experience,
(02:01):
so people just started connecting to the banker on a
bi lapp. And then of course back realized that they
needed to help the consumers to direct themselves more clearly
onto those digital alps. The screen of our what iPhone
becomes extremely busy as time goes by, and that's where
banks learned how to invest in artificial intelligence, for example
(02:24):
machine learning in essence to create more personalization to make
sure that the consumers could reach out to the bank
in more efficient ways. So you see we move from
a period of digitalization writer into a period of personalization. However,
there's something that all realized the bankers and customers and
(02:45):
is that sometimes clients need more conversations in order to
make more kind of financial decisions, and personalization on passive
apps is not enough. And if something generatory I is
non form for there is language, so communication. So what
you're see now is a third phase of investment in
(03:07):
technology powered by I and generative, which is communication. So digitalization,
personalization and now communication to build more thoughtful and valuable
conversations between the bank and the client, intermediated by the
digital medium. And if you like, if you want to
project a bit further, we are seeing a new trend
(03:28):
starting which is the one of a platformization. Maybe we'll
have a chance of discussing a bit more during the podcast.
That means how now you position those apps inside the
ecosystem of your customers in a way that you're more
relevant within their daily life or their daily operations when
they're running their business. So we're moving from out traded digitalization,
(03:52):
through personalization into communication and soon towards a platformization. ANDI
is always essential to make sure that everything operates, says spoofully.
Speaker 2 (04:01):
Wow, that was a great overview of the last twenty
years in banking right. So, of course II has got
lots of positive aspects, but it's also creating new risks.
Can you share some of the ways AI is threatening
customer security?
Speaker 3 (04:20):
Well, power comes your responsibility. Of course, when things change,
new risks are exposed, and sometimes it's tough to basically
picture what can happen ahead. IBM has always been researching
about this because a security is a priority, and every
year we release a reporter called the Cost of a
(04:42):
Data Bridge and then we investigate on the one side,
what backs do. On the side, what happens at the
level of the consumers. And what we're learning twenty and
twenty four is that the most commonly initial attack vector
for the compromise security of a client is fishing or
stolen credentials. And now you see the power of AI
(05:04):
is not just in the hands of the good actors
like differential institutions. So the fintech is also in the
hands of the rug dealers that creates new ways of
fishing information from consumers and use them to their nasty benefit. Now,
to put that into perspective, in this cost of a
(05:25):
Data Briage report, we also analyze what is the cost
of financial institution's face when one of these bridges occurs. Now,
the industry that is the highest cost of a data
bridge is actually healthcare that accelerated through the pandemic. Has
a lot of data was exposed as people were using
it in different ways, but there's been there a lot
(05:48):
substantially for a while. But the number one is financial services. Globally,
the cost of retabridge on average is just above six
million of US dollars in Australia for Australian banks, that's
a bit less more or less half the numbers, which
is okay, so sort of an advantage if you like,
but there is a problem for all. The problem is
(06:08):
that when these bridges compromise more than fifty million records,
the cost of reta bridge can scare rocket to more
than three hundred millions, and that is also exposing financial
institutions in Australia to potential substantial losses in case their
system is not strongly protected in terms of potentially the
(06:32):
breaches which occur sometimes at the level of the clients themselves. Now,
something that is important here to consider there, for is
not only how banks can help their clients to better
understand the importance of certain behavior so to protect their
data points, but also how can banks interact with the
(06:53):
problem by detecting faster, understanding faster, and remediated would instantly,
but at the speed of light. And that is again
where AI and automation plaquy role. So we've seen that
the institutions that can use AI to perform detection and remediation,
(07:14):
they can do that by half the time compared to
other institutions, which is a clear advantage because the faster
it takes to understand the identifier remediator, the lower is
the cost center for the lesser is the impact on
the file.
Speaker 2 (07:30):
Consumers agentic AI. So for listeners who are learning this
term for the first time, it refers to AI that
is able to make decisions and achieve outcomes completely independently
of humans. It's a kind of scary scenario for some
boss The term agenta AI is getting a lot of
(07:50):
attention in banking. Do you have any can you see
how it may impact Australian banks in the next year
or two or is it a bit too premature those calls?
Speaker 3 (08:01):
Well, I think that we're all starting to apply these
techniques right now. But there's one thing that definitely affects
Australian banks, which is talent. So what we're seeing is
that the fight for talent is intensifying because we are
pushing the bar higher and higher in terms of the
(08:23):
competence of people to deal with technology in a very
consistent and comprehensive way. And you can get there at
the end of the process when everything is ready. You
need to start early to acquire talents to build culture
in a way that you can benefit from the next
(08:43):
wave of transformation. So I do believe that the Australian
market needs to be taught full now already to understand
that what is the quality required and to facilitate that
in terms of acquisition to stay ahead of the curve
tomorrow maybe too late, all.
Speaker 2 (09:00):
Right, that's good. Priority is tonic. So the new workforce
is going to be AI literate and native to a certain.
Speaker 3 (09:07):
Extent, definitely. So we actually say something even deeper. So
in the nineteen nineties, when the trend of systematizers management started,
CEOs of banks is to say that every banker is
a risk manager because its management is the core business
(09:28):
of banking. Now I like to say that every banker
must be an AI ris manager because this technology becomes
more and more probabilistic in nature. So less you know,
a rule basically levinistic. So it requires a high level
of understanding about to deal with technology in different terms.
So all employees needs to be leveled up in their
(09:49):
capability to deal with technology in these new ways. And
of course some may be tasked with the higher order
if you like, of problems in terms of the ability
to interact. But it's a shift that needs to involve
everyone in the organization to become an areas manager.
Speaker 1 (10:06):
Wow.
Speaker 2 (10:07):
So banks with strong technology are obviously pulling ahead globally.
You're in a unique position of being able to see
banking from a global perspective. What do you think Australian
banks need to do to stay competitive, especially as a
scale AI, Well.
Speaker 3 (10:25):
There's something peculiar which is happening in Australian banking. I
Now we mentioned earlier on the fact that the financial
crisis started in two thousand and eight, the four three
mom braders, which had their consequences in the capabilities banks
to stay efficient and performance worldwide. However, Australian banks a
(10:48):
bit like the Canadian banks for a long time a
competitive advantage in terms of financial performance compared to banks
in other parts of the world. And if you look
at the last fifteen you see that in the last
two years after the pandemic, that advantage is sort of vanished,
and there are some reasons for that. While that got
really absorbed, certainly the normalization of interest rates, which are
(11:13):
cording all parts of the ward, the software negative or
zero interest rates leveled up again, and the playing field
where Australian banks used to have more space form and
over maintaining a bit higher margins. But also we saw
a progressive commoditization of a retail banking that typically requires
(11:34):
to apply banking at scale as the margins go down
per customers. Now, the Australian market is definitely a small
market compared to a parts of the world, So when
I face commoditization and operating a smaller market, you lose
basically your capability to control your performance and therefore need
to focus out of volume into value. And that's where
(11:56):
we see basically an important trend which is occurring which
I believe is a soimely important for Australian banks. There
is a segment there has been neglected by banks worldwide
which is particularly relevant for economies where the economies of
scale are more constrained, and that is the small and
medium enterprise market, so everything which is in between the
(12:18):
consumer and the large corporate. And the reason is because
the cost to serve of these markets tends to be
very high. Why is that because if you are a bank,
can you look at the d SMEs in front of view.
You can talk to dentist, restaurants, lawyers, smaller teach shops.
They're all very different with different characteristics. They participate with
(12:39):
the economy cycle in a different form, and they don't
have standardized data points like can you report the large
corporate can have. So again the onboarding you mentioned before
of this client that tends to be more onerous. So
banks have a lot of manualities to go through which
means that the time it takes is longer. And once
make decision, the rated rise in front of the client
(13:01):
for them to borrow the money needs to be higher
because it is to cover the risk as well as
the cost of performing that operation. And also this is
typically the weakest part of the economy when you know
things go bad, that they are the first to suffer.
And worldwhile the economies are becoming extremely if you like,
tends because of everything which is happening in terms of
(13:25):
the new trade battles, so all eyes on the sem
market now. Until the appearance of generative I I think
that even AI was not so flexible and not so
adaptive to be applied at the level of the cost
to serve the sem is in order to improve the
capability of banks to serve not only to reduce the cost,
(13:46):
but also to pass some of these to the final
clients in order to become more competitive. But now this
is a possibility, and so what we see is that
worthwhile that there is an intensifying competition in the space
of a semi banking and not just between banks, but
also between banks and the new banks. We release an
(14:07):
ABM Institute of Business Value Research in collaboration with the
Banking indust Architecture Network and with the expert contribution of
the Semi Finals Forum of the World Bank about banking
for Small and Medium Enterprises that tries to the code
exactly what happens in this segment of the market. So
I do believe that for Australian banks this will be
(14:28):
extremely relevant understand how to apply technology at the level
of the semi market to reduce the cost to serve
and open for more services that can allow them to
differentiate and to generate value for this ecosystem which is
extremely demanding any need for better services.
Speaker 2 (14:50):
Dook, that's great to hear. Australian as a nation of
small business owners with high compliance and not many standardized
systems to deliver.
Speaker 3 (14:59):
You see, more than fifty percent of the GDP of
Australia is generated by small and medium enterprises, yet the
last to be served by you know, technology applied to
banking and I guess the time is.
Speaker 2 (15:15):
Now okay, So that was how banks trying to stay
competitive in inside there is this big improvements they can
hook country with small and medium sized businesses. In what
ways the banks need to change how they manage risk?
Was Ai?
Speaker 3 (15:33):
Well, it's an important question because first of all, it
requires it to have the appropriate technical foundations and also
the need because there you need to apply governance which
becomes in action not just a set of rules but
a set of capabilities. But also it requires a reconsideration
(15:56):
about how the risk management function and the complaints function
operata because the life cycle of technology is much faster
than the way banks set up their processes. Let's say,
in a traditional risk and complaints environment that was designer
at a time, where AI was not so relevant or
(16:18):
not so pervasive. And that's the reason why I give
you this prime thing. We are releasing a new report
from the ABM it tas to for Business Value at
the end of June, which is discussing exactly the risk
management with AI and the management of the risk of AI.
(16:39):
So we try to the code that what needs to
happen at the level of the risk and compliance and
validation function in a way that they can use AI
to improve the accuracy of the processes as well as
interact with the broader organization to unleash the capability of
scaling the enterprise wide. So you believe that the secret
(16:59):
source for the I to be skilled enterprise wide by
financial institution is a reconsideration of the role of the risk,
compliance and validation function by interacting with the platform the church,
government governance into action. Okay, so where effectively you can
apply those new elements of control in real time in
(17:22):
a way that you think about them as you're progressing
and as you're developing AI. What we see how often
is that there is experimentation, there is a e modeling,
there is attempt to bring that to life, but the
control functions are already to do so. So you really
need to shift left risk and compliance by using a
technology platform that is capable of doing so, so that
(17:44):
every time you develop an immorral that is embedded since
the very beginning, that will accelerate the capability to generate value.
Speaker 2 (17:51):
It's a lot of moving parts, isn't it.
Speaker 3 (17:53):
Well, it's a lot more inmpatant somehow we said in
the Global lot with last year, it's like changing the
will where the car is moving right y.
Speaker 2 (18:03):
Yeah, categy, but.
Speaker 3 (18:05):
That's why that requires a deliberated decision at the level
of the CEO and the boarder. They have to be
informed about that and that is the role of the
ABM Instity for Business Value to help our clients and
our audience connect the DANZA to make better informed business decisions.
CEOs told us last year in a global survey and
(18:29):
more than sixty seven percent of CEOs said that they
must take more risks to take the advantages of an
automation and become more competitive. So they need to be
helped to be taking those risks and that's why we
produce this research.
Speaker 2 (18:45):
What key changes do you think Australian financial institutions should
keep an eye on, especially in terms of innovation and
any new opportunities.
Speaker 3 (18:56):
I go back to something older to make it new.
What do they do with their branches. Something that's characterized
the last two years is that for the first time
new banks became profitable and with sustained profitability. We saw
the starting with Stallin Bank in the UK. There was
a new bank in Brazil one hundred and ten million
(19:18):
customers a thirty percent of equity Reveolot in Europe became
profitable as well. So the competition is rare, really intensifying.
And what these institutions now we're trying to do is
to move beyond the commoditization of payment and retail operations
and get into higher marging businesses like world management and
(19:44):
commercial banking, so banking for smallly medium enterprises. So one
thing still characterizes digitalized brick and mortar banks, which is
relationships that were built through branches and and so it
is important for banks to understand how to redesign the
work of people in the branches or moving them out
(20:07):
of the branches by giving them the capability to be
I use this world dougmented, so enriched in a way
that can be more effective in doing their jobs a
conversation with the clients. So now you see there's a
web space here for the I to be applied, not
to the level of replacing people, but helping people to
be more relevant with people. Okay, so that is to
(20:27):
me extremely important relevant. And again the time is now
because we see now that some of these new bank
players are if you like, strengthening the financial performances. So
they're making the next in road and so banks needs
to act swiftly to stay competitive.
Speaker 2 (20:46):
All right, that is fantastic information, Paolo, Thank you so
much for your time. It's been a revelation I think
to our readers as well. It's been great having a
expert the bird's eye view of AI how all effact banking.
Thank you so much for your time.
Speaker 3 (21:01):
The pleasure is mine. I'm always happy to work with
Australians and that just visited. Hoped to be back anyten soon.
Speaker 1 (21:07):
Lovely all right, thanks Paulo, thanks for listening to the
Friends with Money podcast. For credible, independent and easy to
understand financial commentary, visit moneymag dot com dot au. Please
remember that the views and opinions expressed in this podcast
are general in nature and Further, independent advice and research
(21:28):
based on your personal circumstances should be sought before making
an investment decision.
Welcome to the Friends with Money podcast, brought to you
by Money Magazine, creating financial freedom for Australians since nineteen
ninety nine.
Speaker 2 (00:13):
Welcome to the Friends with Money podcast. I'm the managing
editor of Money, Vanessa Walker, and I'm here today to
talk to Paolo Serroni. Paolo is a global research leader
in banking and finance market so the IBM Institute for
Business Value. It's mouthful. Basically, it means he's a go
(00:33):
to a guy for insights into AI and banking. Welcome Paolo.
Speaker 3 (00:38):
Thanks for the invitation to speak to your audience. It's
important to me.
Speaker 2 (00:42):
Oh, pleasure right. Let's dive in AI is changing the
way that banks operate globally. Can you outline for us
the positive innovations users are experiencing across the banking sector.
Speaker 3 (00:56):
Bet A good question. So let's try to picture what
happened in terms of the transformation of banking while using
technology that impacted the way people consume financial services. If
we go back like ten fifteen years, we see clear
trends happening. First of all, around the two thousand and eight,
(01:17):
when the global francial crisis started, is also when the
smartphone was invented and people started using more and more
digital in terms of creating interactions that expect that to
happen also be banking and banks were actually capturing this
trend as they needed to restructure their operations. In essence,
(01:38):
they started closing rationalizing branches, and that was a period
of digitalization outright in terms of investment in technology sort
of lift shifted branches on different operations and infrastructure. So
was more investment in cloud technology now would be considered
every clouded. They didn't really change that much the user experience,
(02:01):
so people just started connecting to the banker on a
bi lapp. And then of course back realized that they
needed to help the consumers to direct themselves more clearly
onto those digital alps. The screen of our what iPhone
becomes extremely busy as time goes by, and that's where
banks learned how to invest in artificial intelligence, for example
(02:24):
machine learning in essence to create more personalization to make
sure that the consumers could reach out to the bank
in more efficient ways. So you see we move from
a period of digitalization writer into a period of personalization. However,
there's something that all realized the bankers and customers and
(02:45):
is that sometimes clients need more conversations in order to
make more kind of financial decisions, and personalization on passive
apps is not enough. And if something generatory I is
non form for there is language, so communication. So what
you're see now is a third phase of investment in
(03:07):
technology powered by I and generative, which is communication. So digitalization,
personalization and now communication to build more thoughtful and valuable
conversations between the bank and the client, intermediated by the
digital medium. And if you like, if you want to
project a bit further, we are seeing a new trend
(03:28):
starting which is the one of a platformization. Maybe we'll
have a chance of discussing a bit more during the podcast.
That means how now you position those apps inside the
ecosystem of your customers in a way that you're more
relevant within their daily life or their daily operations when
they're running their business. So we're moving from out traded digitalization,
(03:52):
through personalization into communication and soon towards a platformization. ANDI
is always essential to make sure that everything operates, says spoofully.
Speaker 2 (04:01):
Wow, that was a great overview of the last twenty
years in banking right. So, of course II has got
lots of positive aspects, but it's also creating new risks.
Can you share some of the ways AI is threatening
customer security?
Speaker 3 (04:20):
Well, power comes your responsibility. Of course, when things change,
new risks are exposed, and sometimes it's tough to basically
picture what can happen ahead. IBM has always been researching
about this because a security is a priority, and every
year we release a reporter called the Cost of a
(04:42):
Data Bridge and then we investigate on the one side,
what backs do. On the side, what happens at the
level of the consumers. And what we're learning twenty and
twenty four is that the most commonly initial attack vector
for the compromise security of a client is fishing or
stolen credentials. And now you see the power of AI
(05:04):
is not just in the hands of the good actors
like differential institutions. So the fintech is also in the
hands of the rug dealers that creates new ways of
fishing information from consumers and use them to their nasty benefit. Now,
to put that into perspective, in this cost of a
(05:25):
Data Briage report, we also analyze what is the cost
of financial institution's face when one of these bridges occurs. Now,
the industry that is the highest cost of a data
bridge is actually healthcare that accelerated through the pandemic. Has
a lot of data was exposed as people were using
it in different ways, but there's been there a lot
(05:48):
substantially for a while. But the number one is financial services. Globally,
the cost of retabridge on average is just above six
million of US dollars in Australia for Australian banks, that's
a bit less more or less half the numbers, which
is okay, so sort of an advantage if you like,
but there is a problem for all. The problem is
(06:08):
that when these bridges compromise more than fifty million records,
the cost of reta bridge can scare rocket to more
than three hundred millions, and that is also exposing financial
institutions in Australia to potential substantial losses in case their
system is not strongly protected in terms of potentially the
(06:32):
breaches which occur sometimes at the level of the clients themselves. Now,
something that is important here to consider there, for is
not only how banks can help their clients to better
understand the importance of certain behavior so to protect their
data points, but also how can banks interact with the
(06:53):
problem by detecting faster, understanding faster, and remediated would instantly,
but at the speed of light. And that is again
where AI and automation plaquy role. So we've seen that
the institutions that can use AI to perform detection and remediation,
(07:14):
they can do that by half the time compared to
other institutions, which is a clear advantage because the faster
it takes to understand the identifier remediator, the lower is
the cost center for the lesser is the impact on
the file.
Speaker 2 (07:30):
Consumers agentic AI. So for listeners who are learning this
term for the first time, it refers to AI that
is able to make decisions and achieve outcomes completely independently
of humans. It's a kind of scary scenario for some
boss The term agenta AI is getting a lot of
(07:50):
attention in banking. Do you have any can you see
how it may impact Australian banks in the next year
or two or is it a bit too premature those calls?
Speaker 3 (08:01):
Well, I think that we're all starting to apply these
techniques right now. But there's one thing that definitely affects
Australian banks, which is talent. So what we're seeing is
that the fight for talent is intensifying because we are
pushing the bar higher and higher in terms of the
(08:23):
competence of people to deal with technology in a very
consistent and comprehensive way. And you can get there at
the end of the process when everything is ready. You
need to start early to acquire talents to build culture
in a way that you can benefit from the next
(08:43):
wave of transformation. So I do believe that the Australian
market needs to be taught full now already to understand
that what is the quality required and to facilitate that
in terms of acquisition to stay ahead of the curve
tomorrow maybe too late, all.
Speaker 2 (09:00):
Right, that's good. Priority is tonic. So the new workforce
is going to be AI literate and native to a certain.
Speaker 3 (09:07):
Extent, definitely. So we actually say something even deeper. So
in the nineteen nineties, when the trend of systematizers management started,
CEOs of banks is to say that every banker is
a risk manager because its management is the core business
(09:28):
of banking. Now I like to say that every banker
must be an AI ris manager because this technology becomes
more and more probabilistic in nature. So less you know,
a rule basically levinistic. So it requires a high level
of understanding about to deal with technology in different terms.
So all employees needs to be leveled up in their
(09:49):
capability to deal with technology in these new ways. And
of course some may be tasked with the higher order
if you like, of problems in terms of the ability
to interact. But it's a shift that needs to involve
everyone in the organization to become an areas manager.
Speaker 1 (10:06):
Wow.
Speaker 2 (10:07):
So banks with strong technology are obviously pulling ahead globally.
You're in a unique position of being able to see
banking from a global perspective. What do you think Australian
banks need to do to stay competitive, especially as a
scale AI, Well.
Speaker 3 (10:25):
There's something peculiar which is happening in Australian banking. I
Now we mentioned earlier on the fact that the financial
crisis started in two thousand and eight, the four three
mom braders, which had their consequences in the capabilities banks
to stay efficient and performance worldwide. However, Australian banks a
(10:48):
bit like the Canadian banks for a long time a
competitive advantage in terms of financial performance compared to banks
in other parts of the world. And if you look
at the last fifteen you see that in the last
two years after the pandemic, that advantage is sort of vanished,
and there are some reasons for that. While that got
really absorbed, certainly the normalization of interest rates, which are
(11:13):
cording all parts of the ward, the software negative or
zero interest rates leveled up again, and the playing field
where Australian banks used to have more space form and
over maintaining a bit higher margins. But also we saw
a progressive commoditization of a retail banking that typically requires
(11:34):
to apply banking at scale as the margins go down
per customers. Now, the Australian market is definitely a small
market compared to a parts of the world, So when
I face commoditization and operating a smaller market, you lose
basically your capability to control your performance and therefore need
to focus out of volume into value. And that's where
(11:56):
we see basically an important trend which is occurring which
I believe is a soimely important for Australian banks. There
is a segment there has been neglected by banks worldwide
which is particularly relevant for economies where the economies of
scale are more constrained, and that is the small and
medium enterprise market, so everything which is in between the
(12:18):
consumer and the large corporate. And the reason is because
the cost to serve of these markets tends to be
very high. Why is that because if you are a bank,
can you look at the d SMEs in front of view.
You can talk to dentist, restaurants, lawyers, smaller teach shops.
They're all very different with different characteristics. They participate with
(12:39):
the economy cycle in a different form, and they don't
have standardized data points like can you report the large
corporate can have. So again the onboarding you mentioned before
of this client that tends to be more onerous. So
banks have a lot of manualities to go through which
means that the time it takes is longer. And once
make decision, the rated rise in front of the client
(13:01):
for them to borrow the money needs to be higher
because it is to cover the risk as well as
the cost of performing that operation. And also this is
typically the weakest part of the economy when you know
things go bad, that they are the first to suffer.
And worldwhile the economies are becoming extremely if you like,
tends because of everything which is happening in terms of
(13:25):
the new trade battles, so all eyes on the sem
market now. Until the appearance of generative I I think
that even AI was not so flexible and not so
adaptive to be applied at the level of the cost
to serve the sem is in order to improve the
capability of banks to serve not only to reduce the cost,
(13:46):
but also to pass some of these to the final
clients in order to become more competitive. But now this
is a possibility, and so what we see is that
worthwhile that there is an intensifying competition in the space
of a semi banking and not just between banks, but
also between banks and the new banks. We release an
(14:07):
ABM Institute of Business Value Research in collaboration with the
Banking indust Architecture Network and with the expert contribution of
the Semi Finals Forum of the World Bank about banking
for Small and Medium Enterprises that tries to the code
exactly what happens in this segment of the market. So
I do believe that for Australian banks this will be
(14:28):
extremely relevant understand how to apply technology at the level
of the semi market to reduce the cost to serve
and open for more services that can allow them to
differentiate and to generate value for this ecosystem which is
extremely demanding any need for better services.
Speaker 2 (14:50):
Dook, that's great to hear. Australian as a nation of
small business owners with high compliance and not many standardized
systems to deliver.
Speaker 3 (14:59):
You see, more than fifty percent of the GDP of
Australia is generated by small and medium enterprises, yet the
last to be served by you know, technology applied to
banking and I guess the time is.
Speaker 2 (15:15):
Now okay, So that was how banks trying to stay
competitive in inside there is this big improvements they can
hook country with small and medium sized businesses. In what
ways the banks need to change how they manage risk?
Was Ai?
Speaker 3 (15:33):
Well, it's an important question because first of all, it
requires it to have the appropriate technical foundations and also
the need because there you need to apply governance which
becomes in action not just a set of rules but
a set of capabilities. But also it requires a reconsideration
(15:56):
about how the risk management function and the complaints function
operata because the life cycle of technology is much faster
than the way banks set up their processes. Let's say,
in a traditional risk and complaints environment that was designer
at a time, where AI was not so relevant or
(16:18):
not so pervasive. And that's the reason why I give
you this prime thing. We are releasing a new report
from the ABM it tas to for Business Value at
the end of June, which is discussing exactly the risk
management with AI and the management of the risk of AI.
(16:39):
So we try to the code that what needs to
happen at the level of the risk and compliance and
validation function in a way that they can use AI
to improve the accuracy of the processes as well as
interact with the broader organization to unleash the capability of
scaling the enterprise wide. So you believe that the secret
(16:59):
source for the I to be skilled enterprise wide by
financial institution is a reconsideration of the role of the risk,
compliance and validation function by interacting with the platform the church,
government governance into action. Okay, so where effectively you can
apply those new elements of control in real time in
(17:22):
a way that you think about them as you're progressing
and as you're developing AI. What we see how often
is that there is experimentation, there is a e modeling,
there is attempt to bring that to life, but the
control functions are already to do so. So you really
need to shift left risk and compliance by using a
technology platform that is capable of doing so, so that
(17:44):
every time you develop an immorral that is embedded since
the very beginning, that will accelerate the capability to generate value.
Speaker 2 (17:51):
It's a lot of moving parts, isn't it.
Speaker 3 (17:53):
Well, it's a lot more inmpatant somehow we said in
the Global lot with last year, it's like changing the
will where the car is moving right y.
Speaker 2 (18:03):
Yeah, categy, but.
Speaker 3 (18:05):
That's why that requires a deliberated decision at the level
of the CEO and the boarder. They have to be
informed about that and that is the role of the
ABM Instity for Business Value to help our clients and
our audience connect the DANZA to make better informed business decisions.
CEOs told us last year in a global survey and
(18:29):
more than sixty seven percent of CEOs said that they
must take more risks to take the advantages of an
automation and become more competitive. So they need to be
helped to be taking those risks and that's why we
produce this research.
Speaker 2 (18:45):
What key changes do you think Australian financial institutions should
keep an eye on, especially in terms of innovation and
any new opportunities.
Speaker 3 (18:56):
I go back to something older to make it new.
What do they do with their branches. Something that's characterized
the last two years is that for the first time
new banks became profitable and with sustained profitability. We saw
the starting with Stallin Bank in the UK. There was
a new bank in Brazil one hundred and ten million
(19:18):
customers a thirty percent of equity Reveolot in Europe became
profitable as well. So the competition is rare, really intensifying.
And what these institutions now we're trying to do is
to move beyond the commoditization of payment and retail operations
and get into higher marging businesses like world management and
(19:44):
commercial banking, so banking for smallly medium enterprises. So one
thing still characterizes digitalized brick and mortar banks, which is
relationships that were built through branches and and so it
is important for banks to understand how to redesign the
work of people in the branches or moving them out
(20:07):
of the branches by giving them the capability to be
I use this world dougmented, so enriched in a way
that can be more effective in doing their jobs a
conversation with the clients. So now you see there's a
web space here for the I to be applied, not
to the level of replacing people, but helping people to
be more relevant with people. Okay, so that is to
(20:27):
me extremely important relevant. And again the time is now
because we see now that some of these new bank
players are if you like, strengthening the financial performances. So
they're making the next in road and so banks needs
to act swiftly to stay competitive.
Speaker 2 (20:46):
All right, that is fantastic information, Paolo, Thank you so
much for your time. It's been a revelation I think
to our readers as well. It's been great having a
expert the bird's eye view of AI how all effact banking.
Thank you so much for your time.
Speaker 3 (21:01):
The pleasure is mine. I'm always happy to work with
Australians and that just visited. Hoped to be back anyten soon.
Speaker 1 (21:07):
Lovely all right, thanks Paulo, thanks for listening to the
Friends with Money podcast. For credible, independent and easy to
understand financial commentary, visit moneymag dot com dot au. Please
remember that the views and opinions expressed in this podcast
are general in nature and Further, independent advice and research
(21:28):
based on your personal circumstances should be sought before making
an investment decision.
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