IBM's Watson: Banking's Savior?
Banking has been in the dumps since the financial crisis of 2008. The road ahead doesn't look much more promising. What with increased regulation, fewer significant profit centers ( prop trading, for example) and an extremely challenging commercial and residential real estate market, banks don't seem to have a lot to look forward.
Few will shed tears for bankers as they struggle through tough times. The banking industry needs a superhero.
Enter IBM's supercomputer Watson. The proposition: use advanced technology to tap into the mountain of data coming into financial services firms to get closer to customers and become more profitable.
Last week I moderated a panel discussion at Forbes NYC Galleries called "The Power of Advanced Analytics for Smarter Banking." My panelists included IBM's global banking and financial services chief Boxley Llewellyn, financial analyst John-Patrick O’Sullivan, who happens to be associate director of SNL’s Financial Institutions Group, and Duke Chang, program director for Watson Solutions within IBM’s Software Group. We had a candid discussion about where banking was in terms of using its data and information efficiently and productively, and what the future might hold for the industry. [See the full videos of the panel discussion below]
Watson, as you may know, is IBM's artificial intelligence supercomputer that has the ability to process hundreds of millions of data-points in seconds. Most computers require structured data, things that can be collected neatly into spreadsheets or database software. IBM's Watson goes a step further because it is masterful at making sense of vast amount of unstructured data. Things like e-mails and online Twitter chats, video and recorded conversations you might have with a customer service rep. Believe it or not some 90 percent of the world's information was created in the last two years and, according to Chang, 80% is in the form of unstructured data.
IBM's Watson can answer questions posed in natural language. Apple iPhone's Siri can do the same thing but I'm told it is in a much less sophisticated manner because Apple's system is based on keyword matching. Watson seems to be more of a deep thinker. Watson, you may remember, trounced Jeopardy game show champions in an exhibition show. [ See Watson vs. Jeopardy]
Duke Chang told the group that Watson is now focused on a few real life applications. Health care is a major focus for Watson. My colleague Bruce Upbin recently reported how Watson is working to help doctors with medical diagnosis. According to Bruce, answering the question “What’s wrong with this patient given these set of symptoms and this family history?” is a near perfect challenge for a supercomputer like Watson. Indeed Watson has been deployed at Memorial Sloan Kettering Cancer Center to help with diagnosis and treatment of cancer.
Financial services, with its vast amounts of structured and unstructured data would seem to be another perfect fit for Watson's skills and that is what the panel discussion focused on.
Apparently, banking systems are prone to human error resulting in poor data quality. They call it "data fuzziness." Fuzzy data fouls up assumptions that go into financial models that might say, help a wealth management division model out a financial plan. This data fuzziness is also a big problem when banks assess the risks of certain market changes or product innovations. Garbage in- garbage out. We all witnessed the consequences of that in 2008 and 2009 ( Remember this bit of fuzzy data? "It's not statistically probable that all the mortgages in this pool will default. So rate it AAA").
Watson to the rescue, or at least that is what IBM hopes.
"Most financial services firms are dying of thirst in an ocean of data," said Watson's Chang." "There are so many questions that they want to ask about their customers or about the things going on in the market and they know the data exists inside their walls." The task at hand is to collect and organize all of this unstructured data and make it useful so that banks can make better decisions, mitigate risk and earn more money.
During our discussion JP O'Sullivan from SNL Financial made some great points about how most banks were not really ready to take full advantage of advanced analytics because they were still recovering from the effects of the financial crisis. Sullivan spoke about how most banks were still not doing a good job pushing pertinent information they had gathered to either senior managers or to front-line customer facing employees.
O'Sullivan added that bankers were now preoccupied with such mundane things as complying with new Dodds Frank regulations and were diverting resources to handle these new stresses. He thought that if anyone could eventually benefit from Watson-type innovations it might be the bigger banks, like J.P. Morgan, Wells Fargo or Bank of America. According to IBM, Citibank was already a client of Watson solutions.
O'Sullivan thought that we might not see any significant Watson-type innovations for five years but thought banks could get smarter about data collection and customer interaction. He made the point that the number of brick and mortar bank branches had changed little since 2006. O'Sullivan added that there was an opportunity to take a page from retailers like Apple's in redesigning the bank branches of the future. Forget teller windows, think roving customer focused bankers with iPads or iPods.
Mobile computing was a big part of the discussion, especially in light of the flood of unstructured data that it is fostering. "The cultural changes that are being created by new technologies are going to allow for some very new and interesting data to flow into the analytics world and the question is who is going to take advantage of it first? Folks like Google and other players such as financial firms who are in the data business will be fighting that battle," said IBM's Llewellyn.
On the surface it may seem as though tech firms like Google, Facebook or Apple will have the edge, but Llewellyn warned against counting out giant financial firms. Said IBM's Llewellyn with regard to the seemingly insurmountable task of making productive use of bank's voluminous data, "It's not a bad story. It is just a big big room with a lot of work to be done."
