AI in banking: Where artificial intelligence and machine learning may take us

With an aim to separate hype from reality in Day 4 at Sibos, I was on a mission to understand what the existing and near-term applications of Artificial Intelligence (AI) were in banking.  With machine learning described as “table stakes” now, Richard Harris (Feedzai) during The Ethical Side of AI panel, suggested that the closest we have to understanding the impact AI will have is by looking at the internet – knowing the internet would change everything but twenty years ago, we didn’t know how – describes the state of AI today.

Risk mitigation appears to be an active area for current AI application. For example, with a worldwide impact of money laundering estimates between 2% to 5% of global GDP (upwards of $2 trillion USD), Heike Riel, IBM (Sensemaker: The interconnectedness of everything and advanced AI) cited a case where they found a reduction in false positives of 95% to 50%, along with a reduction of 27% in manual effort by using AI/ML to help discover the undefined unknowns in the data. Using AI to help triage fraud for human interpretation and action is considered ‘narrow’ AI – the application of AI to one particular task.  

Broadening the scope of AI beyond a single task may be on the horizon. In the future I can see a time when an AI would become a new hire to the bank, employed to derive new, company-wide insights to improve processes, identify efficiencies or ways to improve customer experience.

As Ayesha Khanna (ADDO AI) mentioned in her breakfast keynote, we will need to be able to accept the insights from AI for this to be successful, and not dismiss them simply because we never thought of them before.

For now AI use is openly described for risk mitigation and advisory applications with a general expectation that this is only the beginning. And although AI begins with a use case – with a defined goal and data to learn from – ultimately the application of AI needs to create value. Currently value is focused on generating efficiencies, improving operations and cutting costs. But in the broader applications of ‘true AI’ we will likely need to reconsider how to measure value.

As Genevieve Bell put it during the closing plenary we will need question the metrics upon which we assess value, especially when considering autonomous applications of AI.  Harkening back on previous industrial revolutions that created entirely new disciplines (like computer science during the 3rd industrial revolution) to this 4th industrial revolution powered data, AI, sensors and other advances she pointed out the likelihood of entirely new disciplines to form.  

Perhaps by then we’ll also have new metrics to ascribe value of AI  – like measuring the transparency, or trustworthiness of AI. The human doesn’t leave the equation in AI, for labelling data for example, but we may need to redefine how we treat it – possibly more, as Bell termed it during her session, a colleague than an algorithm.   To learn more about some of the people we are working with in AI, and their stories, don’t miss “The People behind OpenAI” from our Open Source Stories series.

Financial firms continue to explore distributed ledger opportunities

An increasing number of industries seem to be dipping their toes into the blockchain arena. According to a recent report from PwC, 84 percent of respondents said their company is involved with blockchain in some capacity, whether that be testing new capabilities in a lab setting, building proofs of concept or running full-scale deployments. The World Bank and the United Nations have introduced blockchain initiatives, as has Red Hat customer, the Australian Securities Exchange (ASX), following the lead of companies in communications and media, retail, energy and utility, healthcare, and other industries.

Blockchain seems to be everywhere. However, according to the PwC survey, there’s still one industry that’s seen as leading the pack: financial services. That financial services leads the pack makes sense, given the fact that blockchain started out as a way to record currency transactions for Bitcoin, a type of digital currency that operates independently of a central bank. And while the initial leading industry for blockchain application was financial services, it’s clear that the technology has moved well beyond this, and financial services organizations are exploring the use of blockchain in different ways.

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Telecom at OpenStack Summit: Here’s what not to miss at the show

Join Red Hat’s telecommunications team at OpenStack Summit Berlin, November 13-15, to learn about virtual central office (VCO), open platform for network functions virtualization (OPNFV), smart OpenStack cloud, Kubernetes, Red Hat Ceph Storage, and more. With more than 200 sessions and a number of extra events there’s a lot happening this year! To give your summit schedule some focus, keep reading for a highlight of key sessions, lightning talks, and events we recommend.

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Virtualizing the central office: Building a foundation for innovation

As service providers look to deliver more services closer to their mobile, residential, and enterprise subscribers, the central office is gaining importance in telecommunications service providers’ digital transformation efforts. PCMag estimates that there are more than 25,000 central offices in the United States alone. These offices connect service providers’ access networks to their metro and core networks. And while significant efforts have been made to modernize central offices over the past several years, the purpose-built, proprietary hardware traditionally used can limit agility and innovation. The next generation of services—including those depending on 5G networks—require a different way of thinking: a virtualized central office (VCO) based on software-defined networking (SDN) and network functions virtualization (NFV) technologies.

We expect the most effective VCOs to have modernized edge architectures built on an open, pluggable framework that will help service providers stand up and deliver more advanced mobile, residential, and enterprise services more quickly.

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What’s the future of open development platforms? Find out at an upcoming FINOS forum.

Cut support and operations costs. Modernize IT systems to better service customers and associates. Provide more personalized engagement opportunities that are channel-agnostic. These are just a few of the pressing challenges today’s financial services companies face. One way to help overcome these challenges is the adoption of open source technologies and more collaborative models like open banking.

Historically, the financial services industry has been more conservative when it comes to adopting new technologies and participating in more collaborative ecosystems – even if they have the potential to drive innovation and boost productivity. That may be due to the legal, IP, and compliance regulations that dominate the industry. So, for fintech developers to fully move out of their comfort zones and into open banking — defined as a network of financial institutions’ systems that fosters secure data sharing through application programming interfaces (APIs) – they will need secure continuous integration/continuous delivery (CI/CD) pipelines across the open source community software supply chain. That’s where the Fintech Open Source Foundation (FINOS) Open Developer Platform (ODP) comes in.

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The Many Faces of Risk in Banking

In the regulatory environment of banking, risk has typically been top of mind. It was also top of mind at Sibos, where I followed the sessions on topics such as distributed ledger technology and open banking with great interest. Sibos, held this year in Sydney, Australia, is an annual week-long event billed as a “premier business forum” for the financial community to gather and collaborate around payments, securities, trade, and cash management, among other key issues facing banks and financial entities today.

In the new high volume and low dollar transaction world of electronic payments, the surface area of business risk has expanded. And when your competitor is only a click away, mitigating both reputational and technical risk becomes more and more critical. Let me explain.

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Red Hat Forum in London, showcasing the role of Open Source in Financial Services

We recently hosted Red Hat Forum in London. At the event, discussions with financial services experts centered around the theme of modernizing for better business results.

Jon Hammant, DevOps practice lead for Accenture, showcased Accenture’s Extended Reality technology, giving attendees a look at new ways to generate profound personal insights for better engagement within organizations.

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The new game plan for banks in the digital age

Borrowing the opening lines of Charles Dickens’ A Tale of Two Cities, banks are now in the best of times and the worst of times. Advancements in technology have given rise to changing consumer behaviors and enabled non-traditional players to offer banking services. Asian consumers today are 1.6 to 5 times more likely to transact with their banks via online channels as compared to physical branches. These consumers are also showing interest in using banking services offered by tech companies. For instance, Alibaba’s Alipay and Tencent’s WeChat Pay are now widely used by consumers in China for payments.

The need for banks to deliver exceptional customer experiences is now more important than ever, as customers are becoming more open to switching financial services providers (even if the provider is not a bank) if they found one that offered them a better experience. However, all hope is not lost. By making the right technological investments and adopting more flexible business models, banks have the opportunity to enhance operational efficiency and accelerate innovation in order to improve customer satisfaction and increase revenue.

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Preparing to be open in open banking

If I had to sum up a theme from my second day at Sibos, it would be open banking. Sibos is an annual week-long event that bills itself as a “premier business forum” for the financial community to gather and collaborate around payments, securities, trade, and cash management. At this year’s gathering in Sydney, Australia, a number of sessions have focused on initiatives around open banking and open APIs.

Several of the live polls throughout sessions at Sibos have focused on customer relationships – putting the customer (and partner) at the core, and building initiatives around that to become a more open banking institution.

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The network effect of blockchain

The impact of decentralization to financial services was abundantly clear to me on the first day of Sibos.

Moving almost $2 trillion in securities from a legacy system to distributed ledger technology (DLT), the transition of the Australian Securities Exchange to a blockchain is one of the more public use cases to date. Transitioning banks to DLT, whether that be for treasury services, correspondent bank payments, settlements, securities or other applications, getting the use case right from the beginning is an important first step to successful adoptions.

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