The onset of Gen AI has brought to the forefront the urgency for banks to adapt or perish. Well, perhaps not immediately perish, but certainly staying on the path of solely relying on mainframe operating systems is a road that could lead eventually to perdition as the rapid pace in the development of Gen AI and the adoption of cloud computing by progressive-minded banks and fintechs will surely erode the market share of traditional banks over time as customers will expect quick, efficient and customized financial offerings.

But what is the significance of the cloud, and how does it work hand in hand with Gen AI anyway? In simple terms, cloud computing, as compared to mainframe computing, is essentially a co-sharing model of computing resources such as data storage, software, and infrastructure from various data servers, which are accessed on demand by subscriber users via the internet, whereas a mainframe computing system is a privately owned large scale supercomputer situated in a secure platform for the exclusive use of a user such as a bank that processes enormous amounts of data at high speed.

While mainframes provide robust processing power and data security, cloud computing enables quick scalability, cost-effectiveness, and flexibility to take on rapid ground-breaking technologies that an equally fast-evolving Gen AI world offers.

Through the use of the cloud and Gen AI, functionalities that could be enhanced include predictive analytics, forecasting, decision-making, and automation of processes; all told, it is a powerful digital partnership that is too potent a tool for any bank to miss out on.

How has the banking world so far responded to the siren call of the cloud and Gen AI?

According to the Accenture study, as of 2022, on average, only about 15 percent of a bank’s applications, particularly the not-so-critical ones, have been migrated to the cloud. This is, however, up from 8 percent in 2021. Furthermore, in an October 2022 IBM article, reportedly, 79 percent of the banking industry is still in the nascent stages of digital transformation. Driven primarily by the technology people, this relatively slow uptake has been attributed to the banks’ penchant for sticking to their existing operating models and forcing the cloud to run at the same processing speed as the legacy systems.

They predict, however, that by 2024, the business people, spurred on to be competitive with the quick disrupting moves of emerging fintechs, will take over the mantle of leadership in driving the faster adoption of cloud-powered Gen AI technology.

As an example, the world’s largest bank, JP Morgan Chase, in a July 2023 article in Constellation Insights, was reportedly set to invest $15.3 billion in technology that was expected to generate as much as $1.3 billion in business value from AI by the end of 2023, decommissioning in the process 2,500 of its legacy applications, translating to 16,000 fewer hardware assets with 38 percent of its infrastructure now in the cloud.

Impressively, JP Morgan has kept its infrastructure expenses flat despite a 50 percent increase in its computing and storage needs. Surely, it is a clear demonstration of a business model impossible to ignore as to its merits.

But what about the financial landscape in the Philippines? To date, only six digital banks have been approved to do business with a required capital of P1 billion and strictly limited to a 100 percent digital transaction process mode.

In addition, 299 fintech companies are operating, providing an array of digital services from payments, e-wallets, remittance, and cryptocurrency to crowdfunding, insurance, and lending. As far as the financial payback of these digital pioneers is concerned, there are no collective published reports that I could get hold of, but my sense is that these frontiersmen are reeling from start-up costs and are probably bleeding still. Let’s keep our fingers crossed and hope they hold on as this industry, particularly the smaller capitalized fintechs, provides a great service to the public as they will keep the banking behemoths guessing what innovative product will come next.

Among the big boys with deep pockets in the banking industry, notably Union Bank and RCBC, have been visibly at the forefront of offering and promoting their digital services. But my favorite bank, BPI, is reportedly set to aggressively start moving into this space. My fingers are definitely crossed for this one.

Until next week… OBF!

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