Realising tomorrow today – Getting financial institutions ready for digital revolution

By IBM South East Europe

Today’s banking systems evolved from the first merchants bartering and carrying goods between early villages and towns, into the tens of thousands of brick-and-mortar banks across the modern world, and most recently into the millions of banking applications we carry around in our pockets on our smart devices. The next evolution of banking institutions is being driven by digital reinvention, fuelled by technological innovation.

What’s causing this digital reinvention? Is it smartphone-carrying merchants; other advancements in technology like AI, data science or quantum computing. Is it the new ways companies and individuals can conduct business by circumnavigating a bank’s involvement completely, with decentralized digital assets such as cryptocurrencies? The simple answer is ‘all of the above.’

For centuries, banks have been involved in all facets of monetary/transactional business. From simple deposits and loans to more advanced risk modelling and channel management, banks have acted at one time or another as trusted intermediaries, service providers, asset managers, and market makers.

“Today, if banks want to continue to succeed, they must reinvent themselves once again from generalist to specialist, by creating new products that enable them to deliver better forms of customer experience,” said Michael Paier, General Manager, IBM South East Europe. Digital reinvention at its most fundamental level, redefines banking using a customer-first or customer-centric perspective. In addition, digital reinvention employs multiple technologies and approaches, including cloud computing, blockchain, mobile apps, the Internet of Things (IoT), AI, automation, DevOps, Agile and Lean methodologies.

As recently announced by IBM, clients in Southeast Europe, representing almost every industry, including the financial sector, are rapidly adopting AI and cloud as a platform for digital transformation and delivering new business value.

According to a survey by research company IDC (*Perception and Use of Cloud Computing & Artificial Intelligence in the Adriatic Region), cloud computing technologies are consistently being adopted in the SEE region as companies seek to accelerate their digital transformation. Financial and telecommunications industries are in the lead. For example, up to 20% of the companies across the Adriatic region are planning to implement a cloud solution in the next 12 months. Currently, the most popular cloud platform is the private cloud, but as markets transition from private to public cloud platforms, a third of the surveyed companies said they are on track to implement some form of public cloud in the coming year. Moreover, 44% of the companies have opted for hybrid multi-cloud solutions.

Clients increasingly are now looking to move beyond their initial cloud deployments, which were aimed at IT productivity and flexibility, and are now realizing the potential of the cloud to help optimize existing business applications, and launch new business services, with levels of speed and cognitive innovation previously impossible. With 80% of enterprise data locked up in onpremise data centers, clients are keen to move to a hybrid cloud model, that can mi- grate individual business processes and associated data to different cloud environments, hybrid, private and public.

Hybrid cloud also opens up opportunities to exploit cutting edge tools including AI, analytics, IoT and blockchain to maximize business outcomes, and trans- form the customer experience. IBM Cloud is tuned for the cognitive and data demands that are driving true differentiation in today’s enterprise. IBM’s private, public and hybrid offerings provide the global scale businesses need to support innovation across industries.

“In February this year IBM announced new solutions to make it easier than ever for our clients to integrate, manage and secure their cloud environments – including the new IBM Cloud Integration Plat- form, which cuts coding time for hybrid cloud environments by one-third, new services that simplify the management and governance of multiple clouds; and new IBM Cloud Hyper Protect services, which brings the highest level of commercially available security on the public cloud. Many of SEE companies in the financial sector have chosen IBM Cloud for their critical workloads” said Paier.

For example, KIBS (Macedonia), ActivTrades (Bulgaria), Circeo (Hungary), Croatian Telecom, The Atlantic Group (Croatia), The Zavarovalnica Triglav (Slovenia) and CEC Bank (Romania) turn to IBM:

  • Klirinski Interbankarski Sistemi AD Skopje (KIBS), a Macedonia-based payment system operator owned by 12 banks, has adopted IBM Cloud Private to help meet regulatory, security and availability standards while accelerating the development of digital services.
  • ActivTrades, one of the leading UK online stock broker firms with over 50,000 customers providing services in Forex and Contact for Difference. By migrating to IBM Cloud, the Bulgarian branch of ActivTrades was enabled with quick access to the latest accounts status, stock prices, and other features that enable the clients to better manage their financial portfolios.
  • A Hungarian fintech Circeo taps IBM Cloud to expand its loan processing capacity to support its overall growth and market expansion to multinational customers. This way, Circeo will be able to provide faster, simpler and better licensing options in highly flexible operating environment. As stated by Matthieu Job, CEO of Circeo: The efficiencies that we received from IBM Cloud has boosted our processing capabilities and makes it possible for us to roll-out our solution for a client much quicker. It has allowed us to expand existing client portfolios and onboard new clients from outside of Hungary into production much faster than ever before.
  • In addition, the leading insurance-financial group in Slovenia, Zavarovalnica Triglav, uses IBM Watson Customer Experience Analytics on the IBM Cloud to make smarter and faster marketing decisions. This provides Triglav with an end-to-end view of the customer experience to optimize journeys, boost conversations and maximize the lifetime of customer value.
  • One of the largest Romanian banks, CEC Bank, has selected IBM Cloud API Connect to meet the EU and local regulatory requirements. IBM’s solution met CEC’s need to scale, securely expose and manage core banking services in order to expand the reach of their business.

Whilst banking clients are actively engaging with IBM to unlock business value with AI, Cloud, and blockchain today, clients are also looking into to future at emerging technologies such as Quantum computing, highlighted IBM executive.

Quantum computing has the potential to be especially helpful in solving optimization problems, such as port- folio optimization, management, and diversification. It may even extend to complex risk measures, such as conditional value at risk (C-VaR), also known as “expected shortfall. Furthermore, it now appears possible that optimization of pricing/risk analysis might eventually be done on a quantum computer with a “quadratic speed-up” requiring significantly fewer samples. While a classical Monte Carlo simulation* may require millions of samples, only a few thousand quantum samples might be sufficient on a quantum computer. Shortening cycles, such as for analyzing derivatives, from overnight to near real-time, might reduce risk and funding requirements. The result could be massive savings, given the billions of options contracts being traded worldwide every year.

“Quantum computing is a hot re- search area in technology research labs worldwide and there are compelling reasons to begin assessing the role and potential of quantum for business already now. One easy way to get started is to join an emerging financial services quantum ecosystem, such as the IBM Q Network. JP Morgan Chase (JPMC) and Barclays are among the banks experimenting with quantum computing to accelerate risk mitigation and improve performance modelling,” Michael Paier explained.

In the recent IBM study from the Institute of Business Value on the role of quantum computing for finance industry there are listed straightforward steps an organization can take now to prepare for a “quantum leap”:

  • Experiment with quantum computing by using available, open prototypes. To get started, access an open source computing framework with learning material and ready-to-use algorithm libraries.
  • Explore quantum use cases pertinent to your business, then qualify and prioritize them by seeing where your operating model aligns with strategic direction. Build a customized quantum roadmap.
  • Build, buy or rent required skills. There already may be someone on your team who closely follows the progress and potential of quantum computing. Consider adding that as a requirement for future key technical hires. Supplement with specialists more deeply involved in state-of-the-art development of quantum financial services.
  • Ensure that the entire C-suite becomes conversant about quantum computing. Customers and investors are sure to be asking about it soon, if they haven’t started already.
  • Join an ecosystem of established companies, startups, academic partners and national research labs focusing on building quantum computing solutions for financial services problems.

Digitally transforming the business will make company a driver (rather than a victim) of change. Customer intimacy will be driven by the right conversation, through the right channel, and offering the right products, at the right point in time and this can be successfully done by implementing a right technology to drive innovation and more personalized experiences.

“If you want to find out more how new technologies help enterprises and banks digitally transform their organizations so they can innovate, operate and engage to generate value across the ecosystem, join us at IBM’s fourth annual South East Europe Think Summit conference in Belgrade, Serbia at September 11-12, 2019. At Think you can also learn how IBM, with its partners and clients, intelligently changes the world,” Michael Paier concluded.

*Monte Carlo simulations are mathematical methods that are used to estimate the future outcomes of certain hard-to-predict events. https://www.ibm.com/cloud/blog/monte-carlo- simulations- with-ibm-cloud-functions