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00:00Just explain for us and our audience what evidence AI Index is and how you put it together.
00:07So evidence AI Index or banks has been now going for three years. This is our third ranking.
00:13It measures the investments into the capabilities of the bank's AI progress or strength of their ecosystem
00:21and also the outcomes that are associated with that.
00:23Where does banking, the industry, stand in terms of a sector adopting AI versus other industries?
00:32So we see the banks definitely leading in the adoption journey or the adoption race for a number of reasons.
00:39They've got a lot of data. They've been using AI for decades, essentially machine learning,
00:46traditional AI that they've been investing in for a long time.
00:49But they also have lots of interesting and different use cases down the lines of business, across functions, a lot of technical talent.
00:58So when you're looking at now traditional and generative AI and agentic AI, really that can touch every single part and every nook and cranny of a bank.
01:08Hence, you know, combine that with the amount of investments going into it. It is a sector that's furthest ahead.
01:14And J.P. Morgan is at the top of the list once again. What is J.P. Morgan doing?
01:19What is the secret sauce at J.P. Morgan for implementing AI and generating revenues?
01:23Yeah, yeah. So J.P. Morgan is in the lead once again.
01:28And not only that, it's also jumped even further forward than the rest of the banks.
01:34So we're really seeing this bifurcation between the leading banks and the lagging banks.
01:39But what J.P. Morgan specifically did is start out really early.
01:42Jamie Dimon, famous for saying that the bank is an AI-focused organization, an AI-first organization, all the way back in 2017, 2018.
01:54And really leaned heavily into that, thought about the bank as a tech company, established a AI research lab with Manuela Veloso at the helm.
02:02And really rethought the operating model, the talent that it needed to attract in order to shift the bank from a traditional legacy bank into an AI-first company.
02:15Goldman Sachs, Bank of America, they are now in the top 10. Are they playing catch-up?
02:19Yeah, well, yes, Morgan Stanley jumped also. So Goldman Sachs and Bank of America entered the top 10.
02:28And they are, yes, they're paying catch-up. They are doubling down on their AI investments and AI focus.
02:37They have been very strong on AI in the years prior, but they're really doubling down and accelerating their focus on AI deployment.
02:47What do you take from the fact that the majority of the banks in the top 10 are U.S. lenders?
02:54Yes, the majority are U.S. lenders. There are two European banks in the top 10, which is UBS and HSBC, but absolutely dominated by the U.S. or the North American banks.
03:06There are a couple of reasons for that, I think. First of all, they started earlier.
03:09What they have as characteristics that they share is that they started early.
03:15They are also in an environment where there's access to a great talent pool.
03:21There's proximity to the tech industry, so there's proximity to the learnings and the onboarding, but also a mindset of experimentation and an innovation mindset that is unique for the U.S. really.
03:36Is Europe and the U.K., are we significantly behind? HSBC is in the mix. UBS is there amongst the top 10.
03:43Should we be concerned about the adoption rates of AI amongst European and U.K. lenders?
03:48I would say that in the U.K. there is maybe a little bit of a lack of focus of what it means for creating the best environment for AI adoption.
03:57You really need a strong talent pool. There is a great startup community in the U.K., but they do disappear and they go to the U.S. when they reach a certain size.
04:06So there isn't the same kind of proximity to the technology that is particularly conducive for AI adoption in the financial services.
04:14And that's something to be mindful of, but also supporting supporting AI adoption, thinking about what are the things that you can do as a government to, you know, accelerate the use of AI and have that be available to the U.K. banks.
04:31Now, HSBC is in the top 10, but the remaining of the U.K. sector is definitely catching up.
04:37There's there's no doubt about that. But the environment is somewhat different and they sit further down in the index.
04:42Are you seeing evidence that this investment and adoption of AI is actually leading to material and tangible upside in terms of revenues, in terms of outcomes?
04:54Oh, yes, definitely. We're in a still sort of in a very nascent stage in terms of return on investment of the AI investments into more traditional and gen AI and agentic AI.
05:06We have had some years of experimentation, but the leading banks are getting the use cases moving through to production now at pace and are doing it at scale and are preparing for multitask systems, the agentic AI systems.
05:22And now we're starting to see the ROI coming through. There are some banks that are very explicit about that.
05:28J.P. Morgan, among them, talking about realized financial return. A few other banks do that as well.
05:34But in order to be able to do that, you've got a central orchestration. You've got a very mature bank.
05:39You've you have identified what has the you know, what has the most impact or what will have the most impact.
05:46You select those use cases, you double down on them, you get them into production, and then you can measure and also express what kind of return on investment that you have.
05:54But we are starting to see this return on investment. I don't think we're going to see it really properly hitting the bottom line in terms of revenue uplift and cutting the costs until probably end of 26, early 27.
06:08But you're definitely seeing the emergence of of return on investment on all of those parameters, such as revenue uplift, growing market share, being able to take costs out of the business, risk reductions, cost avoidance and so on.
06:21J.P. What are the biggest adoptions? What are the biggest hurdles, I should say, to AI adoption in the banking sector right now?
06:27Yeah, it's it's really interesting because the technology is there, but it is not, as we know, it's not a plug and play.
06:33You cannot just take the technology and plug it in. You need to do a lot of work behind the scenes. And I would say that's 90 percent of it.
06:41So getting your data in order, figuring out how you update your governance structures for AI or Gen AI specific risks.
06:50You need to you need to put it in people's hands and everyone needs to be seeing the benefits from these tools and how they're impacting their day to day lives.
07:02So I would say the biggest hurdles are getting the governance structures, the first and second lines of defense adapted to AI specific risk.
07:10But I would say the second is is culture. And what we hear a lot is that there is a resistance for uptake.
07:17People saying my my line of business, this function works perfectly fine. Thank you very much.
07:22And I am not going to necessarily today look at how I can completely transform this workflow.
07:29So that resistance is something that a lot of the banks are battling with.
07:32Banking is a highly regulated industry, of course. Are regulations a catalyst or an enabler for AI adoption or a hindrance and a hurdle to be overcome?
07:43Yeah, well, I think the figuring out how to construct and adapt regulation to Gen AI and a Gen AI specific risk is going hand in hand with the banks themselves,
07:56testing out what this can do and where the risks lie.
08:00So the first there is a very close look at what are the actual risks that we are facing as a bank.
08:06And of course, that goes hand in hand with what relationship do we have with our customers and that we have to maintain that trust and in parallel working with the regulators on how to satisfy the regulatory requirements.
08:21And these are completely new territories. And so we're looking, you know, banks are looking for past examples of how to solve for, you know, regulatory comfort when you've got something that's moving really,
08:35really fast and it's not necessarily that easy to see how the output is happening and so therefore the governance focus will need to be much more on the monitoring of outputs and also the controls that are built into it.
08:51Do you think AI ultimately entrenches the incumbents or empowers the fintechs more nimble and makes those incumbents more vulnerable?
09:01Well, I think that the risk that the fintechs have posed on the traditional banks has always been there and will continue to be there.
09:12If they're going to move in to look more like banks, they'll be subjected to the same regulation as banks.
09:17But with the lighter regulatory touch, A, they're going to, you know, maintain in a pathway where they can only do certain things.
09:27But that will, of course, be a risk to eating away at some of the market share of the big banks.
09:32And if they're because they're also, you know, AI first built, right, and they're digital banks, so they do have an advantage for sure.
09:41How do you think the banking industry changes and what does it look like, the banking industry, in 10 years' time, given the innovation that we're seeing being embedded across the industry now?
09:50It's going to be completely transformed by AI.
09:52So every aspect of a bank is going to be touched by or be, you know, run by AI.
10:00So the, I mean, the difference of the type of leadership we're going to need in banks is going to be quite different.
10:08You know, you've got heads of lines of business that are going to be managing agents more than they're going to be, you know, managing people.
10:15Not that the people are going to be removed, but it's just going to look very different.
10:19The structure of the sort of the workforce in the bank is going to look different.
10:22The other thing I would say, point two, is that we're seeing the leading banks really pull out ahead.
10:30We're seeing that gap between the leading and the lagging banks grow and grow.
10:33So I do think that in 10 years' time, there are a lot of the banks that have not yet embraced or focused on AI that might not be in business today.
10:43So I think there's going to be a consolidation.
10:45I think it is a winner-take-all world we're in.
10:48And I think the banks themselves, the ones that stay in business, are going to be completely transformed by AI.
10:52So to be clear, AI is existential for these banks?
10:55Two percent. It's a race right now. There are two races going on, obviously, in the tech companies for AGI or, you know, artificial general intelligence and who reaches that first.
11:09In parallel, there's a race in enterprise and in my case, looking at the banks, there is an existential race that is taking place there as well.
11:18Last one. On headcount, workplace, in terms of jobs in the banking industry, you project out 10 years. Will there be more people working in banks or fewer?
11:27It's going to be consolidated, in my view. So if you look at the leading banks, they're actually the banks that are hiring the most AI talent but also hiring the most, generally speaking,
11:35because they are growing their market share, their tools for their customers and chatbots and interactions are more seamless and better for their clients and frictionless, not completely, but getting there.
11:50And so that growth of market share is going to mean that you can't, you know, you're also going to need to hire not just AI talent but also a lot of other, you know, analysts and marketing people and HR people even if AI is going to touch upon all of those areas.
12:08The area where, you know, when we're talking about job losses, there is absolutely, you know, right now we can see there's a lower intake of junior people in the banks.
12:18But what people forget is looking at all of the jobs that are being created because of Gen.AI and Agentec.AI also.
12:25We look, when you look back at the, you know, transformative time of the Internet, I think it was for every one million jobs that were lost, there were five million that were created.
12:36And this is certainly going to be true in this age of AI that we're in.
12:41But I think the area where there's risks to the jobs is where, is in the organizations that don't embrace AI.
12:48They're hiring, you know, much fewer people.
12:52They're not gaining market share.
12:54Their cost to delivery is much higher and that's only going to get worse and worse as we go forward if they're not focused on AI.
13:02And so those organizations, or in my case, where we're looking at the banks, those banks might go out of business and that's where you're going to see the job losses.
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