FinAi Podcast

The years of anticipation surrounding the development and adoption of Federal Reserve instant payment service FedNow is a case of much ado about nothing at the bank level.  

Although industry experts have wondered what the upcoming adoption of FedNow will look like at financial institutions — especially community banks and credit unions —the onus will be on core providers to adapt and provide, Vinay Prabhakar, vice president of global marketing at Volante, tells Bank Automation News in this episode of “The Buzz” podcast. 

“When it comes to FedNow, or indeed, any new payment type, there are few separate factors that play into readiness,” Prabhakar says. “Community banks and credit unions are often dependent on their core providers. It's not a question of them being ready FedNow. It's a question of their core provider being ready for FedNow.” 

Not all core providers are equal; while some have fully embraced real-time payment (RTP) rails, others are still where they were when RTP was first launched in 2017, Prabhakar says. Larger banks that have already enabled enterprisewide payments automation have less to worry about.  

“If a bank has already invested in real-time payments modernization, already connected to RTP, they've already 24/7 enabled their operation, and have familiarity of how to deal with ISO 2002 messages, then I think those banks will find it quite straightforward to go live with FedNow on Day One. 

Listen as Prabhakar talks FedNow readiness at financial institutions, along with possible hesitancy from large corporates to embrace large-value RTP.  

Microsoft plans to expand its Cloud for Financial Services offering beyond the U.S. and Canada to Australia, France, Germany, Ireland, Italy, Mexico, the Netherlands, New Zealand and Switzerland. 

Beyond geography, the expansion also includes updated language and functionality, Bill Borden, corporate vice president of worldwide financial services at Microsoft, says in today’s episode of “The Buzz” podcast. The cloud-based offering launched in November 2021.  

“We'll have plans to continue to extend our presence in many more markets and languages in the coming months,” Borden tells Bank Automation News. “We're going to extend the Microsoft Cloud financial services capabilities in terms of reach and function, as well as geo locations.” 

There are also plans to build out the tech giant’s independent software vendor and partner community for financial services, he says. 

“If you can think of extending collaboration capabilities that we have naturally in our Microsoft Cloud set, a partner can actually start to build those into their application more readily out of the box to integrate with Office 365 or to integrate with teams, for example,” Borden tells BAN. 

While some financial institutions may worry about security in the cloud, Borden argues it can improve a bank’s overall security posture by removing it from individual silos and scaling through the cloud.  

“There's a multitude of products that institutions have used almost as point solutions in silos. That can also add to the challenge or the problem,” Borden tells BAN. “Because as things are siloed, that opens up opportunities for identifying weaknesses, and so the idea of raising your security strategy platform up at a scale level, to manage across your entire enterprise — the cloud gives you the scale and the platform to do that.” 

During the podcast, Borden also discusses the proliferation of bad bots, other threats to financial institutions and how the cloud can help automate security. Artificial intelligence and analytics can be applied to threat monitoring in an integrated fashion, he adds. 

The $1.4 trillion TD Bank, Switzerland-based $1.1 trillion UBS and Netherlands-based $427 million ABN AMRO are among the financial institutions using Microsoft’s cloud services in conjunction with their multicloud environments, Borden says.  

“The idea of having an integrated set of tools to do that from edge to cloud is architecturally what our strategy is about,” he says. “We provide a set of capabilities to do that.” 

As crypto continues to gain traction with banks and financial institutions, experts are cautioning against moving away from its traditional use cases.

Banks as diverse as $1.6 trillion Goldman Sachs and $122 billion Signature Bank have dipped their toes into the cryptocurrency pool, with Goldman Sachs originating its first Bitcoin-backed loan in April and Signature Bank holding $29 billion in cryptocurrency deposits within its blockchain-based Signet platform, according to its first-quarter earnings release. 

But as financial players increase focus on crypto’s non-traditional capabilities and companies like Microsoft and Intuit enable full-scale crypto payments, the crypto use case for banks as a payment rail remains questionable at best, Gilles Ubaghs, Aite-Novarica strategic advisor and payments analyst, tells Bank Automation News in this episode of “The Buzz” podcast. 

“Bitcoin, if you judge it purely as a payment tool, is pretty terrible,” Ubaghs says. “It's complicated to use the onramps and it's not that cheap. The volatility of pricing, everyone knows very well. But when you look at things like the speed of a transaction, Bitcoin’s transactions per second are about seven. Visa and MasterCard, they're in the 1,000s.”

Crypto’s applications as a tradeable speculative asset, along with the tangible security applications of the blockchain, are worthwhile and should be tapped by banks, Ubaghs says. But before deploying boatloads of cash to create the next payment revolution, he advises banks to step back from the buzzwords and identify the use case at their institutions. 

“My biggest advice to all banks today is to really take a look at what does this actually do,” Ubaghs tells BAN. “What problem does this solve? What does this do that can’t perhaps be solved better by another technology?” 

Before inking deals with the nation’s biggest banks and financial institutions, fintech Akoya was focused on secure open finance.  

The Boston-based fintech, which originated as an application programming interface (API) division under Fidelity Investments, is now owned by several banks, including the $3.24 trillion Bank of America, $2.3 trillion Citi and $1.95 trillion Wells Fargo. The fintech tackled rampant screen scraping to shore up security at Fidelity before becoming an independent entity, Anil Mahalaha, co-founder and head of solutions at Akoya, tells Bank Automation News in this episode of “The Buzz” podcast. 

“Back in 2018, we were part of the fidelity access API group that was turning up APIs for Fidelity Investments,” Mahalaha says. “The reason we were doing that is because Fidelity realized the amount of screen scraping that was going on, which was really concerning to Fidelity, where the fintechs had Fidelity usernames and passwords. 

“What we started looking into is ‘how we can make it more secure for the customer and the customers’ data?,’” he says. 

As Fidelity was building out its APIs and tokenization capabilities, the investment firm noticed similar issues occurring at related companies, Mahalaha says, adding that fintechs were scraping “much more” than just usernames and passwords through their aggregators. This prompted Fidelity and Akoya to reach out.  

“With the help of The Clearing House, back in February 2020, Akoya became an independent company, which is jointly owned by about 11 North American banks and Fidelity Investments,” Mahalaha says.  

Listen as he talks best practices for banks engaging with new and challenging data and gives details into Akoya’s upcoming developments. 

When a doctor’s office switched to virtual office visits during the COVID-19 pandemic, nurses were given iPads and sent into private rooms to connect with patients over Zoom, then waited for the doctor to make his rounds to each iPad. 

While this example of an effort at digitization appears quaint, it exemplifies the perils of digitizing manual processes, says Jeff Keltner, senior vice president of business development at automation lending company Upstart. In this episode of “The Buzz” podcast, he says the example is exactly how many banks approach their digitalization. 

“When we think of digitizing as the goal, you end up doing that — you digitize the old way of doing things,” Keltner tells Bank Automation News. “What people really want is an easier experience enabled by digital, and so digital isn't the goal, it's the tool.” 

The tool needs to create an easier process, and that’s where automation comes in, he says. For many banks, the process of identifying a customer became the digitalization of producing a license; banks simply asked customers to upload a picture of their identification. Then, a person will manually verify the ID rather than having software process the recognition of valid IDs, Keltner explains. 

“You uploaded the document from your phone, but you still waited two days for the person to review and get back to you as opposed to ‘Did I automate it and make that process easier for the consumer?’” he says. “Digital just gives you so many more tools, and so many ways to automate what used to be manual processes.” 

Listen as Keltner shares lending technology trends and what banks need to do to successfully automate lending processes. 

Quantum computing has implications for high-value challenges in finance, according to an industry expert. 

Quantum computing can be used to measure credit decay, increase training speed for machine learning algorithms, including accelerating Monte Carlo calculations, and to optimize portfolios, explains Sam Mugel, who holds a Ph.D. in quantum computing, in this episode of Bank Automation News’ podcast, the Buzz. 

"We'll use classical for some things and quantum for some things,” Mugel tells BAN. “Quantum computing is good at things like training machine learning models, which right now is costing an awful lot of energy and awful lots of our computational power. It's really good at things like really difficult optimization problems, which are everywhere, particularly in finance.” 

Mugel serves as chief technology officer at Multiverse Computing, a fintech specializing in quantum computing. He helped develop Multiverse’s Singularity, a spreadsheet application for quantum investment optimization that makes quantum algorithms accessible.  

Mugel explains how quantum computing compares to traditional computing and what the technology means for the financial services industry.  He also shares how banks are already leveraging quantum computing, including the Bank of Canada. BBVA and Credit Agricole also are early Multiverse customers and early adopters of quantum computing. 

PenFed owes its multibillion-dollar growth in total and origination assets to a sweeping automation overhaul.  

The McLean, Va.-based credit union has automated much of its front- and back-end business processes, including origination platforms, decisioning and modelling capabilities, and credit-processing functions. And these technology overhauls were not just for show.  

Automation helped the credit union grow origination annual assets to $15 billion and total assets to more than $34 billion in a few years' time, Jay Fee, PenFed vice president of consumer banking, tells Bank Automation News in this episode of “The Buzz” podcast. 

“Origination annual assets when I got here a few years ago were $2 billion a year,” Fee says. “We're at around $15 billion for this year. That's been done through standing up a lot of new channels, a lot of new products, a lot of new automation features, and integration with over 35 different fintech partners.”  

While customer response has been largely positive, Fee tells BAN that PenFed’s automation journey is only “halfway” done, with backlogs going well into 2023. 

Prioritization is essential for credit unions looking to improve technology processes, Adelina Grozdanova, head of investor group at banking fintech Upgrade, tells BAN. Upgrade offers digital banking, lending and card solutions to more than 100 credit unions and is one of PenFed’s fintech partners.  

“We have to think about what else the credit union is working on,” Grozdanova says. “Some of them are thinking about core conversions. Some of them are thinking about improving their own member experience. Some of them are refreshing entire back-end systems. I think the first challenge for us is just making sure that we're in the right priority.” 

Listen as Fee and Grozdanova share insights and best practices for automating at community credit unions.  

In this episode of "The Buzz" podcast, Bank Automation News hears from Seke Ballard, founder and CEO of Beta Financial Services, a Chicago-based holding company that has applied for a bank charter with FDIC and the state of Illinois. The resulting branchless digital bank, BetaBank, will offer basic products and services such as checking and savings accounts with a focus on automating its commercial lending process. 

Part of the goal is to address the costs of lending due diligence, which Ballard tells BAN are roughly the same whether for a $100,000 or $1 million loan, causing banks to favor larger loans yielding higher profits while smaller businesses miss out. 

"Algorithms are a black box, and the vast majority of people who use them train their algorithms using data produced from biased human interactions," Ballard says. "If you're not intentional about removing those factors from your training set, really analyzing what data is creating bias, is it predicting if a loan will actually be charged off? It isn't." 

BetaBank is partnering with Google and global professional services network Deloitte on its AI-based lending automation, which Ballard estimates will require about 66,000 software development hours. BetaBank should both be open for business and have the automated loan process in place late in 2022 or early 2023.

The digital bank and AI solution represent something of a lifelong goal for Ballard, who says financially marginalized communities are sometimes left "in the shadows" of the banking system and have more trouble accessing needed business funds. They also pay higher interest rates, he notes. 

It's also personal. When Ballard, who is Black, was a child, his father was denied a loan by 13 banks when he was looking to expand his logging business. 

Ballard was approached in 2020 by Google, which he says shares a goal of fair access to capital, and Beta Financial sought Deloitte's services because of its deep market experience.   

"Ultimately, for me, this is about measuring people — everybody — using the same yardstick," Ballard tells BAN in this podcast. "Not everybody is going to be approved, but if you look at them on the merits of how [their business] performs, I think you'll start seeing some equalization." 

Help shape our agenda for the Bank Automation Summit by applying to join the speaker roster here. Potential speakers will be contacted and confirmed directly by the editorial team, and only qualified submissions will receive a response. 

Learn more about Bank Automation Summit Fall 2022.

Sixty-three percent of respondents to a recent survey think resetting their password is a huge inconvenience and 14% would rather be stuck in rush-hour traffic than reset their password.  

And ironically, at one institution, fraudsters were able to pass knowledge-based question barriers 92% of the time, while actual customers correctly answered the questions only about 48% of the time, according to a survey by voice-based security, identity and intelligence platform provider Pindrop. 

These password challenges create a problem for the organizations that use them while not solving for fraud, contends Amit Gupta, vice president of product management, research and engineering at Pindrop, in this episode of “The Buzz” podcast. 

“Essentially, those organizations are adding the friction to solve a problem that this is not even a solution to,” Gupta tells Bank Automation News. “That's where voice absolutely helps, but more than that, an enhanced authentication solution can help alleviate that pain and that bad customer experience and in fact, convert that to a great user experience.” 

The $805.9 billion BMO leverages Pindrop to reduce its incidences of fraud, according to Victor Tung, U.S. chief technology and operations officer and chief information and operations officer for BMO Capital Markets. 

“We started leveraging Pindrop data and some consortium data, and we eventually plug that into our workflow,” Tung said. “We have some automation AI on top of it. We saw great, great uplift” in fraud detection. 

Pindrop’s Gupta gives listeners a peak under the technology hood to explain how voice and voice data can reduce fraud. 

The level of security and service that cloud infrastructures provide makes it an inevitable technology for banks and financial institutions.  

Questions around operational control and security capacity dominated the cloud conversation prior to the pandemic, but the ensuing upheaval caused many banks to reexamine their processes, Narendra Mistry, chief product officer, international digital banking at core provider Finastra, tells Bank Automation News in today’s episode of “The Buzz.”  

Finastra offers a range of cloud products, including Fusion Phoenix, and is partnered with banks including $762 million Seattle Bank and $210 million Puerto Rico Federal Credit Union. 

“The pandemic has shown people that, in reality, banks are not able to offer and deliver infrastructure or security or services like the cloud, with the ability of the cloud,” Mistry says. Streaming services are an example of successful cloud infrastructure from another industry, with providers offering always-on servicing and the ability to quickly scale alongside other business areas, he said.  

“From that perspective, cloud is the inevitable solution for everyone,” Mistry adds.  

When choosing between public and private clouds, bankers should weigh the benefits of in-house maintenance and cataloging against the cost of ownership, he said. While larger financial institutions may be able to afford a private cloud infrastructure, public clouds offer smaller banks lower costs and speedy experimentation rails.  

“It’s important to think that, as much as I want to keep my technical capabilities within house, technicality can be looked after by professional capability, such as Microsoft Azure,” Mistry says in this podcast. “The banks can focus on much more of their business and their capabilities on what they can do and help serve the digital experience to customers. 

“But then again, it's all about the cost,” he adds.