Hear a panel of senior executives who've been at the center of action and who have led technology in both traditional and digital banking, including criticality, responsibility and accountability. Hear insights and approaches to innovation to help you see around corners that will set your company up for continued success.
Learning Objectives:
- Learn how a steadfast commitment to digital transformation can help your company be resilient in times of crisis
- Why you should invest in quantum computing, and other innovative solutions, to help customers
Penny Crosman (00:08):
Hi everybody. Thank you so much for coming to Boca Raton and spending a few days with us. I hope you'll enjoy it. It is a lovely venue. It's been really great seeing some familiar faces, seeing people we've known for a while saying hello, starting to hug again, not full hugs, but sort of half hugs. In fact, last week I was at a conference and somebody came over to me and did this and so I leaned in for a hug and they were like, no, I just wanted to high five you. So anyway, still figuring out the new rules for engagement here. So I'm Penny Crosman with American Banker. I'm here with my amazing staff who you'll meet later. Miriam Cross, Carter Poppy and Catherine Leffert. In fact, Miriam, Catherine are right there. And we're going to be talking about a lot of the trends and hot topics that are top of mind for all of you.
(01:10)
It's been kind of a wild year really in March, as you all know, we had this kind of whirlwind of this domino effect. Toppling of mid-size banks. FTX's failure kind of brought down Silver Gate Bank Bank, silver Gate's, bad news affected Silicon Valley Bank, which had a planned capital raise, which kind of went awry and then VCs kind of lost their minds, went on Twitter and WhatsApp and told all their fintechs to pull their money out and we started seeing old fashioned bank runs. So I think the takeaway is that bad news spreading like wildfire on the internet can lead to a bank run in a matter of days. So I think it that's causing everybody to kind of rethink their social media strategy, make sure they're listening to what's being said, responding to what's being said.
(02:09)
It's also been the year of a lot of regulatory activity. We've seen regulators crack down on some bank FinTech partnership, some aspects of that. We saw a major bank get a consent order regarding their bank FinTech, their FinTech partnerships requiring a lot of oversight of the board and of executives of all the partnerships, making sure the vetting is being done. Every new partnership has to be run by regulator in that case. And there's just a lot more attention is being paid and needs to be paid to who banks are partnering with the due diligence, the compliance, the monitoring, and it feels like banks are being held accountable for the behavior of their partners, especially when there's lending involved that has such a big impact on people's lives. The major US Bank regulators also came out I think last week with some guidance on third party relationships including vendors, technology companies, and fintechs more generally.
(03:21)
And again, the call for careful due diligence, a lot of monitoring and making sure that everything is happening the way it should according to all the regulations that banks have to follow. This has also been the year of generative ai. I would say open AI's Chat GPT went viral last fall. It now has a hundred million users and 1.8 billion visitors a month. And a lot of banks are thinking about that. Some banks have banned the use of chat GPT within among employees saying there's too much risk of sensitive information being uploaded and then others are letting people use it, but closely watching what they do and then having a guardrail in place if something personal information or sensitive information is being shared. And a lot of banks are thinking about using enterprise versions of chat GPT within their company. So a similar large language model that's only fed the bank's own documents, the bank's own data and isn't going out and surfing Reddit and places like that. But again, regulators are watching that too. And the CFPB recently published a report on banks use of chatbots. It noted that there's usefulness to chatbots that they could save a lot of money. The top 10 US banks all use chatbots, but they also said that financial institutions risk violating legal obligations, eroding customer trust and causing consumer harm when deploying chatbot technology.
(05:05)
We see a lot of discussion about remote work. Some banks are trying to bring everybody back in like JP Morgan Chase, Jamie Diamond says, managing people remotely is like a game of Hollywood squares and other banks are asking for two to three days a week. And some banks and fintechs are saying full fully remote is here. It's not going away. We're just living with it. We've also seen a lot of innovation in the industry. I think especially in lending. I was just at a lunch meeting with AYA and TransUnion and reminded that I think we have come a long way in using alternative data in lending using AI and data. Again, the regulators have put out a lot of cautionary notes about using AI in lending decisions. But then I saw Rohit Chopra say a couple of weeks ago that basically the era of just relying on FICO is kind of over and that there is a need for more sophisticated lending technology that a lot of you already use and are further developing. So all of these things affect all of us and we'll be talking about a lot of these topics over the next three years, next three days, sorry you're not here that long.
(06:27)
I just want to note our keynote speaker tomorrow will be Michelle Moore, who is the head of digital at Wells Fargo. She was our digital banker of the year in 2017 when she was overseeing Erica at Bank of America. She's going to talk about best practices in her new job tomorrow. Our keynote speaker will be Andrew Yang, the former presidential candidate and candidate for New York Mayor, and he is now leading a group that's trying to find a middle way between the far right and the far left political communities in our country. Tonight we're going to have a meet the experts session with four of our experts, four of the people we chose to be our innovators of the year this year. And one of them we're going to meet right now, Caitlin Long at custodian, Matt Maxie at Enos, Jack Ingram at WECU and Imran Khan at TD Bank.
(07:24)
If you have a question that you'd like to submit for this session, you can submit it on the app that will be at I believe 5:30 and we are going to have some demos and we're going to have the ability for everybody to vote. We're going to have a People's Choice Award for all the demos over the next couple of days, and that will start Tuesday afternoon through Wednesday morning. You'll be able to cast your vote on who the best demoing company is and tonight we're also going to tomorrow at the end of the day, we're also going to have semi-formal round tables we call wind downs. So you'll be served wine and there'll be like a topic at each table and you'll be encouraged to just talk amongst yourselves about that particular topic, a way of semi-structured networking that hopefully will be fun. And now I would like to invite the people on our first panel to come out. We have Jin Gwak at AmeriCU
Penny Crosman (08:40):
We have Caitlin Long at Custodia Bank, and we have Sathish Muthukrishnan at Ally.
(09:01)
Great. Thank you all for coming. So in this session we're going to talk about innovation, what it means, how you do it, how you get past all of the challenges. And what I think is interesting about this panel is these are three people from very different corners of the financial world. We have LA Financial, which is probably one of the earliest and largest digital only banks, very innovative, and you're in the place of keeping that innovative edge that you've had for a while. Caitlin Long as a lot of was a Wall Street banker for many years. She's now starting a new bank called Custodia Bank in Wyoming and kind of fearlessly working with working past regulatory things and actually has actually sued regulators, the Fed over its denial, denial of a master account. We'll probably talk a little bit about that too. And Jin Gwak at AmeriCU is in upstate New York. Do you call it upstate or do you consider it upstate? Upstate New York, yeah. Okay. And AmeriCU is like a 2.6 billion institution. So you have some of the challenges that all community banks have in terms of maybe not having an enormous budget, enormous staff to do everything that you want to do. So let's just start with what does innovation mean to you and is it something you think about consciously during the day and is it something, what do you think makes up an innovative person or company? Let's start with you Sathish.
Sathish Muthukrishnan (10:53):
Thank you for having me Penny. Thrilled to be here. It's a very broad question. My God. Let me try. Let me try and give you a concise answer. As a technology leader for me to be innovative, I constantly think about living in the future and I try and spend part of my day doing that. If I'm living in the present, I get dragged down with the operational issues or thinking about sense of the past. If I have to see around the corners, I have to live in the future. So that's how I think about it now when I'm living in the future, what am I dreaming about? Innovation to me happens at the intersection of a supreme and differentiated customer experience, creating business impact while using the most cutting edge modern technology very efficiently. So the intersection of those three components is where innovation happens and then when it happens, it becomes sustainable and becomes adaptable.
Penny Crosman (11:57):
Okay. Yeah, it was a broad question. I apologize. Okay, good job. Caitlin. Do you think of yourself as an innovator or do you feel like you just want to get something done and And it's something that nobody's done before?
Caitlin Long (12:10):
It's more the latter. And my Wall Street career was very non-traditional as well because I did five different things in 22 years, which is rare. And three of those things were starting new businesses. But the thing that was consistent, one of the things that was consistent across all of those was that they were solving customer problems. And it was in the last business that I started at Morgan Stanley, the pension solutions business, which was designed to help corporate treasurers settle their pension obligations, which was not something that was done before, but they had real problems and in some cases the pension funds were overfunded and they just wanted to pay them off, get them off their balance sheets and deal with their core business. And it was General Motors that broke that market open. We were the first ones to break that market open and it was ultimately solving that customer problem. It required a lot of regulatory knowledge in order to be able to, in that case, move from ERISA, which is the pension fund regulatory regime into the life insurance company regulatory regime. And so it really was not rocket science at all, but it was solving a customer problem. After GM came out of its bankruptcy, it wanted to pay off some of its pension obligations, which was a win-win win for everybody. And ultimately that's what it was, solving a customer's problem.
Penny Crosman (13:39):
So it's identifying a problem and then finding a new path to solving it.
Caitlin Long (13:44):
Yes, and in that case, the settlement risk, I was horrified when I got into the details of what it was going to take to move 29 billion of assets from the General Motors pension fund over to Prudential, which was going to write annuities to all of the pensioners. We had to figure out how to move securities, cash and private equity interests, and they all had to settle same day. And believe it or not, the cash was one of the more difficult things. Why? Because you typically don't have multi-billion dollar non-bank to non-bank payments that have to settle. Absolutely have to settle same day.
Penny Crosman (14:22):
Interesting. Jin, what do you think of as an being innovative innovator?
Jin Gwak (14:27):
I think innovation, that word itself, when you think about it's kind of huge venture or anything like that for, but I think for me innovation is more of how start from the pain point, start from the what is your challenge? It could be the small or big and how our life make it easier, more efficient. I think that really kind of driving Innova innovation. So I guess it's the invention or anything comes from our pain points. So when I look at our organization, what are their pain points? Is there any way to, we could kind of reduce the manual process. So what is our members experience? They're having hard time or anything like that. So it depends on how you look at it for, it could be the small, be the big, and I think little small innovative step. It could be accumulate to the big innovation.
Penny Crosman (15:27):
Can you think of an example of an innovation that you've done at your company or that's happened in the industry that you thought was kind of noteworthy?
Jin Gwak (15:35):
I mean, we're the last three years we've been kind of honing into the digital first and creating Operation Excellency or the efficiency. So we look at that for incorporating, coming with different tools and then also look at the different processes, how we could make the more modernized and then also how we could utilize for the tools we have and then or how we could consolidate because I said a lot, right? But when you think about it for there are so many technology out there for very specific needs, but when you try to looking at the only for the narrow scope, then you have a technology debt that you kind of multiple stacks of technology that maintaining and also that created for our employee actually jump around for the multiple systems. So I think in the past for three years, and I guess also even moving forward, we kind of look at them for what is a capability, are we utilizing whole or how we could consolidate it? So I think that that's the kind of different innovation could have happen.
Penny Crosman (16:50):
Getting all the foundation and infrastructure for being able to. Yeah. How about you? I mean Allies done some innovative stuff over the years. Is there anything you've done lately that you've been able to leverage digital innovation?
Sathish Muthukrishnan (17:06):
Yeah, maybe I'll share a couple of examples. Being a digital bank and the bank was born right after 2008 when the nation faced the worst financial crisis, people seem to think that it's easy to innovate because you're a digital bank. It actually is the opposite. Anything you do is like, yeah, we've already done it. What idea are you coming up with? Right? But I'll give you two, two things. One, we call it savings bucket. Think of it as a digital piggy bank. So you have your normal checking and savings account where you stash money in and you may be saving for a specific reason or a specific occasion. We created this notion of savings buckets and you could create a bunch of buckets and you can start popping money in, you could use it for your auto loan, for your vacation, et cetera. One person saw Beyonce at a Coachella few years ago and they created this.
(18:04)
They always wanted to go to the concert again. So they created this savings bucket a year and a half ago and started popping in $20 every paycheck and soon enough they had enough money to buy the next ticket to the Beyonce concert and tweeted about it and thanked Ally and it just became very viral. I think of that as innovation, going back to solving a customer problem, creating an experience that's very unique and not very mundane. I mean it's a basic product. Yes. But you're deriving an experience that doesn't exist anywhere. So that's one. The other thing that I would add is even with mundane things, you can bring an innovation angle to it. So we created this notion of building as if Ally as our first customer. This is within technology. We think of Ally as our first customer and we built it. So we built a digital auction platform for the cars that customers leased from us.
(19:01)
We own the asset because it was leased and we funded the lease. When the car is returned, ally has to sell that lease, sell the car. So now we sell it to the dealers in physical auction, we created a digital auction platform to sell those cars because we thought of Ally as our first customer. We have taken the same software and now it's used by the largest rental car company in the nation to sell their rental cars to the dealers across the nation. So it's creating free revenue for us for software that we built. For Ally now is being used by another company.
Penny Crosman (19:37):
So you're becoming a little bit of a software company as well as a bank.
Sathish Muthukrishnan (19:41):
I like to say we are a technology company that happens to be in financial services. Not everybody in my company would agree, but yeah.
Penny Crosman (19:48):
Okay. So Caitlin, I feel like custodian itself is a great example of innovation. Can you just, in case people aren't familiar, can you just tell us what your vision was and how you're building it and where you are? I know that's a lot, but.
Caitlin Long (20:06):
Well, we gave I a hint as to how when I spotted Bitcoin back in 2012, I understood the significance of it because of all the settlement problems that I was working through. That took two years to solve on that General Motors and Prudential transaction because all these assets that settled back then stocks settled T plus five days later after the trade date, private equity could take months to settle and even that, even cash, we had to get the New York Fed involved with moving that much cash from one non-bank to another because of all of the various levels of approval that had to take place. And if any one asset hadn't made the transfer, the entire transaction would've fall fallen apart. So the whole idea of the settlement system mess that we have, not just in securities but also in payments. I was working with corporate treasurers for most of the end of my career at Morgan Stanley and dealt with one where there was a swap termination payment that had to go through two central banks and it didn't end up making it to the bank account of the corporate treasurer and it was multi-hundred million dollars.
(21:20)
It went into the swift black hole and that treasurer literally could have lost his job and they were able to determine that it made it to their bank. It just hadn't been credited to their account yet. And there's another story. One of the advisors of Custodia is the former treasurer, retired treasurer of Ford Motor Company, and he brought on his head of treasury IT who's helping us as well. Again, we're trying to solve these pain points of how is it that we can create faster, more transparent, more secure settlement of transactions. And that's what I spotted was so important about this technology. It's really simple. They're just better, faster, cheaper, and more transparent payment rails for settling financial asset transactions. And so that was the vision for Custodia. And interestingly, we haven't talked very much about it, but our plan very much was to become a banker's bank.
(22:20)
Most of you think of a banker's bank as a lender. This is not a lending bank that this is really a payment bank. Now what's the difference between a bank and a non-bank? A lot of people think it's lending, it's not. Legally the difference between a bank and a non-bank is that a bank can take deposits and a non-bank cannot. That is the legal difference. There are different definitions of bank. The one that most folks tend to think about is the bank holding company act definition of bank, which is takes deposits and makes loans, but most of the state laws and federal laws define bank as receiving deposits. You have to be a corporation that is bestowed with the right to receive deposits. So therefore this is not a FinTech payment. This is a bank because we are bestowed with the right to receive deposits. We are a depository institution legally, which is what makes us eligible for a Fed master account. So what was the aha? Why would we say we want to be a banker's bank? It's all about settlement. It's achieving faster, better, cheaper, more transparent settlement of payments including US dollars.
Penny Crosman (23:29):
So just as a practical example, how might somebody, you said, you mentioned being a banker's bank. How might somebody in the audience work with Custodia when you're all up and running?
Caitlin Long (23:37):
Well, a couple of ways. Obviously we're, we've been blocked right now on the US dollar piece. Custodia was granted the patent for tokenizing a bank deposit. We were granted that patent almost a year ago and that was part of our proposal. So what would that have meant to the banks out there in the audience? It would've meant that you can continue to gather deposits. That's not our business model. Our business model is transactional. And so a transaction might go through a payment rail offered by us and come back to you same day so that you get credited with interest. That's not our business model. So the fact that we can settle transactions so fast is what enables us to not compete with the traditional banks because it's not a deposit taking model. Now that part has been blocked for now, but what we're proceeding with is Bitcoin custody. We did file with our regulator the 60 day notice in April. So we are that close. We just finished our pen test, penetration test on Bitcoin custody and are awaiting final regulatory approval to start serving. And now this is bank level security, bank level compliance, bank level financial reporting. We're already filing call reports even though we're not taking third party money. And so we absolutely could be a sub custodian to any bank for digital assets beginning with Bitcoin.
Penny Crosman (25:09):
And you're getting approval from Wyoming or Correct. Okay. Yep. Okay. And you've got a state banking license?
Caitlin Long (25:14):
Yes, we are a state bank authorized to do business with a certificate of authority to operate already, yes.
Penny Crosman (25:20):
So let's talk a little bit about the challenges that you all face in leveraging digital innovation. Jin, you, you're in an interesting position. One of the interesting things about your company is that you serve cannabis businesses. What are some of the challenges to do with that and how are you coping with those?
Jin Gwak (25:38):
Yeah, I mean the challenges first challenges is in New York still they're not issuing for the selling piece. I don't know the exactly terminology. So we start doing the deposits. So we have a few clients for that. And I think that one of the biggest challenge is actually money movement because is there's not throughout the whole state that approved process. So there's a bill pay or money payment and then things like that can didn't go through. So I think that those are very challenging. But we have a people or the member actually coming to knocking the door, can I put my monies in? But right now there some license issuing has a delay. So the Kurt Bear and then those are actually going out of business in New York right now. So I'm not sure how it's going to turn out because New York says okay, it's a legal, we are going to legalize. But in that process is kind of taking a little bit longer than anticipating. And then the other part of it is for the other state bank actually try to expand into New York. So that is kind of competitive edge for that. We are losing it. So that's the challenge for that one.
Penny Crosman (26:58):
And what about your challenges overall when you're trying to innovate? You're trying to introduce something new. What are some of the things you face as a smaller credit union?
Jin Gwak (27:07):
Yeah, so I mean that we are 2.6 or two 7 billion. Those are, when you think about it for New York State, the charter, like a credit union, we are not small. We are kind of mid-size but still I think compare to the Alley or Banko Bay or the Bank of America, anything like that. So we are really on a resource and a fund, anything like that. Those are the challenge. And then also that even though we not developing for many of the credit union, we are the kind of consumer of different product and service offered by the FinTech company, other company. So we try to bring the new technology and then we need to do integration need to be done. Then in some of the vendor we have to work with, they don't not willing to work with us. They say, okay, we are not going to invest the time to doing the integration, things like that.
(28:00)
So those are the four biggest challenge of really the partner we are working with, the vendor we are working with, how are we going to marry them together? Because we are not a developer, we are not software company, we are the consumer of the products out there. So that's the kind of biggest challenge, but also that we have to deliver in the timely manner because everybody expecting to you are the small or big. They're expecting to have a capability yesterday, so how are we going to deliver that? So I think that's the really big challenge for us.
Penny Crosman (28:35):
And do you have any concerns about this guidance about third party relationships and the risks they're in?
Jin Gwak (28:44):
Yes, because of that, we are always looking for the vendor. They're moving forward together. Some of the vendor is that they're not developing, they're not innovative or they're not kind of moving forward. Then we have to actually end the relationship and then bring the new relationship. That process is actually sometime takes about 18 months or things like that is a disruption for the business. So it just to have picking the right vendor and then also that they're as a partner moving together, they helping us to moving forward. I think that's the challenge. And then you know, got to pick the right one.
Penny Crosman (29:29):
And how about you Sathish? You mentioned that everyone thinks it's easy for you, but what are some of the specific challenges you have when you try to introduce something new?
Sathish Muthukrishnan (29:38):
Yeah, I classify it in four buckets. Usually people say it in threes, but I have four buckets. The first one is I talked about customer experience, business impact, and the right technology. When the three don't align, it's always a challenge. Think about just doing something just for technology's sake. The business partners are not buying it and the customers are not going to use it. And you, okay, you have the right customer impact and the best technology, but if you're not generating revenue for the business, that's not the right innovation or use of technology. When you have business impact and the right technology, and if there is no customer impact, they're not going to use it. So you can't scale. So those three have to align. When they align and you're building a capability is when I think about the second bucket. The second bucket is whether you build it or you buy it, you know, think about the plethora of SaaS offerings that are available there usually will get you, when you're reading the architecture, it gets you like 110% and then you break it down, it gets you to like 80%, 70% of what you want to build.
(30:46)
And finally when you launch it, it gets to 50% of what you want to achieve. So you have to figure out are you going to build it and buy it and you figure out the timeline and are you moving at the speed of customer? If you choose the SaaS component, if you're partnering with a FinTech or another company that is providing the service, you need to now start worrying about data privacy, data security, et cetera. Because you now not only have to secure your own assets, you have to think about how they're securing the assets, their assets and securing the data that you're providing them. So that's the second bucket. The third one. The third one is regulatory impact. I can use technology and I can move at a pace that is either my internal controls or the external controls regulator. Regulators cannot keep up with, which means I cannot meet the experience of my customers.
(31:45)
So I have to constantly think about how do I educate my internal control partners is legal risk compliance, et cetera. And then how do I educate my regulators to say I'm doing the right thing for my customers. And the last piece of it is what I call essentialism. When you are a technology organization within a digital organization, everything that the company does revolves around technology. So you're pulled in multiple directions. Multiple businesses want capabilities built. So the disciplined art of saying no and prioritizing what is absolutely essential for the customer is always a challenge because you're not going to make everybody happy.
Penny Crosman (32:27):
Sure. Caitlin, you've faced a number of challenges from starting a new company, getting that bank charter from Wyoming. Now wrestling with the Fed, what have been the biggest challenges so far?
Caitlin Long (32:42):
Well, sure the biggest one of course has been the Fed. A lot of folks didn't follow the story, but it started back in 2017 when the state of Wyoming was hearing about the banking wave, the first E-banking wave that took place for digital asset companies. And the legislature decided to create a new bank charter. A lot of folks don't fully know that uninsured bank charters have been around for a long time. Five states in the United States have uninsured bank charters. There has been historically a question, well, up until recently, there was no question whether those were actual banks. It's the, it's the FDIC and the Fed in recent years that stopped automatically serving validly chartered banks. Okay, so the history is that the state of Wyoming spent two years, this is all in the public record, spent two years working with the Fed.
(33:42)
There were more than 100 meetings between the Fed and the state of Wyoming before the charter went live. And the Fed was at the table providing comments on the legislation, on the rules, and which went through two public rulemakings and the supervisory exam manual, which Promontory produced. Okay, so before Wyoming even chartered one of these banks, all that interaction with the fed happened. And then we all went through public chartering processes that took, in our case, 10 months and that was a public application process and public hearing and a vote by the state banking board to approve the charter. What is not widely discussed is the weeding out that took place at that application stage. There were more than 150 digital asset companies that sought the bank charter and the state of Wyoming turned them away because they did not have the right skillset, capital risk management, et cetera, to get the charter.
(34:47)
So there's a perception that unless one of the federal utilities, namely the insurance company for the industry, the FDIC on the banking side or the Fed, which is the utility for the payments business, the payment side, there's a perception that the federal government has to have some say in bank charters. And that has is not correct. If you look at the history of the United States, that has not been the case. It was not the case until very recently that the federal government started turning away state chartered banks or banks that were serving certain industries like the cannabis industry we've just talked about. And it started with operation choke point almost exactly 10 years ago. And that was litigated and ultimately some bad things came out in discovery in the FDIC case and it was ultimately settled.
Penny Crosman (35:43):
So now you're challenging the Fed in court and you just won the right to pursue your case in court. So you had a small win. So let's talk about what you guys do want to do because we're talking about leveraging digital innovation. Sathish, what is on your wishlist or drawing board for Ally? Can you share anything?
Sathish Muthukrishnan (36:03):
Definitely. As I stated, Ally has started as a digital organization in the throes of the worst financial crisis we had. Prior to that for a hundred years, ally had been originating auto loans part of GM and then as an independent entity. For people that may not know, Ally is the largest direct to consumer digital bank in the US. We are not the largest auto loan originators in the country with relationship with about 23,000 dealers in the nation. So we organically grew, started off as a deposit engine, then started adding banking products. We have a full suite of invest products, we have savings, checking CDs, we have insurance, auto loans, mortgage, credit card lending at the point of sale. So we have a full suite of products that has grown organically and each of these products acquired customers based on the leader that was running the product.
(37:08)
So we've reached a point in time where we have to bring all of the customers together and the products together and we called it one Ally. One Ally is a journey that we are embarking on where we want to move from a product company to an experienced company. I believe in the industry you will start to see this evolution happen in the near future. We have already started the journey and it's important because customers are not going to shop for an auto loan, they're not shopping for a home mortgage, they're looking for a house to create memories, raise their family. They're looking for transportation, they're looking to save money, they're looking to grow their wealth. Instead we sell them products. So our one ally journey is to move from product orientation to become an experiential company. And that requires a ton of work in technology.
(38:04)
That includes getting rid of all of our older technology, making sure that we modernize our network, we build up our cloud infrastructure, we bring all of the data together and make sense of all the data that we have. So we could use it, we could use it to create those experiences, which then means I have to rewrite and reimagine all of my digital infras infrastructure and ecosystem, meaning rewrite my apps, rewrite my web pages and how customers see us. So to now we have all of the bank products, checking, savings, we have mortgage, we have invest, and we just onboarded one ally all into one single digital ecosystem. And auto loan is coming shortly by fall, which means that we will bring all of our products into this one ally ecosystem so I can create experiences that are relevant to my customers at the right time and bring it up and surface it when they really need it. So I'm thrilled about that and I'm also thrilled about the fact that we are doing the heavy lifting of bringing all of the data together, which can power these experiences, which will naturally lead us to unleashing data for ai.
Penny Crosman (39:16):
And is the main advantage that you can then cross sell people or is it more to have a consistent look and feel and experience across the different
Sathish Muthukrishnan (39:25):
Yeah, I mean right now our customer retention rate is at 96%. So people that come to Ally remain at Ally for the experiences we provide and the service that the company provides. We want our customers to know the other products that are available and we want those products to be meaningful and absolutely relevant for them. So today north of 80% of our customers for invest come from deposit. About 75% of our mortgage customers come from deposit. We are moving from one product relationship to becoming multi-product household relationship. So that's the goal. And when we want to do that, we want to do it in a way that is very meaningful to our customers as opposed to constantly
Penny Crosman (40:11):
I can relate.
Sathish Muthukrishnan (40:14):
We are launching one ally with a bank as opposed to just pushing products to them.
Penny Crosman (40:20):
Interesting. But it's not, eight is great kind of cross selling. It's more organic than that. Yes, that's right. Yeah. Okay. Jin, what's on your wishlist? What are some things you would like to do in the near future?
Jin Gwak (40:33):
So the next 12 months, I think for the, there's three things that, I mean there's many other things for about, I'm going to talk about, it's kind of Big Stones. So three things that we recently implemented the Salesforce as our digital platform. It's not the CRM system. So in the past for the core system is in the middle, we try to adding everything in the core system and then we try to rely onto the vendor. Are they integrated core or not? But we try to break the dose, the chain of the core is just one of the GL or transaction system. How are we going to able to cross connect for the multiple system and then the Salesforce as a digital platform to be integrated for the activities or information data and things like that. So the bottom line is for we try to break this activity or the transaction is happening in our core and then those are need to maybe bring into the Salesforce platform.
(41:41)
So it's everyone that right now that our maybe M R a we call the member relationship advisor and then they have to go into a five or six different system. How are we going to consolidate as a one system able to do multiple activities? So that's one of the big goal that we are continuing to moving into. And then also that the second part is that tied into the data at the end really data is the driving for everything. How are we going to move the data from the one location to the other location and how we able to expose to those data to our employees so able to react in the real time and then productive and then things like that. So those are also that we try to add onto the Salesforce platform so that way there's a best next action or the cross sell or what kind of communication and things like that.
(42:40)
So when you talk about omni-channel a lot, which means that all the data has to be in the one area able to see the holistic view of the member. So those are the second, the data part. And the third part is that you mentioned about for cannabis. So I think the payment is going to be that they're talk about the Fed Now or RTP and things like that. And then also that there is a special banking we call the cannabis special banking. How are we going to help them out because they really need help. So I'm kind of investigating for blockchain pay payment rail, so that way that I don't have to use a visa or a master because they're the controlling everything. And a Visa come out for though you could actually edit 3% extra for the interchange. So how are we going to break the dose traditional thing covered with non-traditional, you like technology. So I think those are the three kind of really make our business a little different and also the kind of benefit for the employee and the member altogether. So those are the three.
Penny Crosman (43:53):
Yeah, it seems like there's a theme in both of these cases. You want to bring all the information, all the applications for that affect each customer in one place and binge and have that holistic view and be able to serve the person with all that in informed view. So how about you Caitlin? Other than winning your case against the Fed, can you say anything more about your vision for where custodian might go in the future or other things you might want to do with it?
Caitlin Long (44:22):
Right. Well again, we're very focused on settlement, so settlement, speeding up settlement of payments and a lot of folks would naturally ask a question, you mentioned Fed. Now it's going to be interesting to determine to the extent to which Fed now was viewed as a competitor to some of the things that the blockchain technology offers. And the extent to which that may have played a role in the Biden administration's decision to go after crypto with an all of government approach to try to shut it down, which clearly is happening now and whether there is a central bank digital currency in our future and that's potentially going to be a government sponsored initiative that will compete with the private sector initiatives. We've seen that of course with RTP and versus Fed now the friction between the government's agencies wanting to provide these services.
(45:22)
A lot of people will ask the question, well wait a minute, isn't Fed now just going to solve the settlement problem? And the answer is no. For a very simple reason to use these blockchain rails, specifically Bitcoin and the Lightning network, I'm a huge fan of the Lightning Network, which is the scaling technology for Bitcoin. Everything can happen within the span in lightning within the span of a fraction of a second for global payments. So the swift black hole we just talked about, ultimately we're going to solve that and I say we collectively, the technologists and financial institutions that will be using these technology rails can solve global payment movements very fast. That is not something that a domestic payment system can do. And a lot of folks will look at it and say Crypto is just a bunch of scam and scams and it's all about trading.
(46:15)
And 90% of it is, in fact, I just had a debate whether it's 90% or 99% with somebody, grant, whatever the number is, vast majority of this industry needs to burn on a raging funeral pyre. I am not defending that in the crap in this industry. What I'm interested in is what a lot of you are interested in, which is that this is a different settlement system. And ultimately the vision Penny is that I think what will transpire is very similar to what happened in stock trading. I used to be work in the stock trading side of the business and 30 years ago when I started, everything was settled at the New York Stock Exchange, NASDAQ or American Stock Exchange. You really just had three venues. There was a little bit of OTC over the counter trading as well. Now when we went to Decimalization and sort of a decentralization of venues, now you've got dozens of venues where you could settle stock transactions and you go to the venue that has the need that you are trying to solve for.
(47:18)
And I think ultimately that is what will happen with payments. These new technologies will coincide, will coexist rather with the old technologies. There's no reason to stop using ACH for payments that you know have to pay at a particular time and you don't worry about the fact that it's next day or two day settlement. But if the money absolutely has to get there and you don't want it to go in the swift black hole, you use one of these alternative payment rails, they already exist. I gave an example of a real world company that I know of that had to take advantage of a very temporary market opportunity that opened up for them in China and they used USDC, the US dollar payment token and were able to capture 2.6 million in profits that they had to move the money through Swift wouldn't have been there for them.
Penny Crosman (48:17):
Interesting. I mean I feel like we've been talking about using blockchain technology for traditional banking purposes since about 2009, and I think it feels like it's been very, very slow to really take on with the mainstream banks. What do you think of the main reasons why you don't see traditional banks generally speaking, using a blockchain for payments today?
Caitlin Long (48:44):
Two, one is the regulatory issue and the other is the security issue. So when we started, we looked at all the cores because we had to have a core, not a single one met our security requirements, not a single one. Most of the banking industry, it still shocks me and I'm sure it shocks most of you being, most of you're trying to solve this very problem that it's username, password and maybe SMS two factor authentication. As someone who's a constant target of sim swaps, it was never going to be enough to have two SMS based two factor authentication. You have to have a level of security when you're dealing with digital assets that are ultimately bearer instruments that is far beyond what a traditional bank can offer. And that's one of my biggest fears with traditional banks right now is that the security that third party vendors are security holes.
(49:40)
So you need to have somebody who's built the technology themselves. There are a lot of banks that have tried to get into offering custody but doing it through third party vendors, that makes me, then that makes everybody very nervous because I think every technologist understands that a third party vendor, by definition the integration is it may very well be the weak point. So yeah, the security thing for this industry as a whole, I think this industry needs to up its security game. And I'll share a really quick vignette that has nothing to do with digital assets. I was almost a victim of a wire transfer intercept when I sold my house in Connecticut when I moved to Wyoming three years ago. And it was because my law firm's email server was in possession of a hacker and they almost got the wire transfer. The idiots sold my information into the dark web the night before the wire transfer.
(50:38)
And because I have so much security on my accounts, I started getting the notifications that my accounts had been hacked. And so I knew that something was up and was able to stop the wire transfer, ask the settlement to be done by physical check. But the funny thing is because my lawyer deposited the physical check into the bank branch, same branch they were using, it happened to be the same bank, same branch, but a fraud hold got put on the payment for two weeks. I ultimately had to fly out physically to get the money released. And so it was the banking industry's fraud, inability to deal with the ultimate customer needs. I had sold my house and I didn't have the money and this had nothing to do with the fact that I was a crypto person. It had everything to do with the fact that that wire transfers are insecure and people who were using emails for them, including small law firms, are absolute targets.
Sathish Muthukrishnan (51:33):
That's why you bank at a digital bank like Ally.
Caitlin Long (51:40):
Well Said, because it's a bank that screwed it up. In my case was one of the biggest ones in the United States. I almost went to the CEO, I knew him. I almost went to the CEO and said, are you kidding me?
Sathish Muthukrishnan (51:51):
I also would add that from a blockchain perspective, the reason it hasn't scaled is the speed at which the transactions are processed. There's still like a ten second delay to process a transaction that to create the blocks still way, way too long. And the second thing is you need to create a network and you have to onboard all of these entities that have to be participating in it. So you almost have to have a visa or a master on Amex network that creates the runs on blockchain automatically by default on boats, these major banks for it to scale. Otherwise it's never going to scale.
Penny Crosman (52:22):
You need a central somebody to manage and govern everything that happens. I think that's absolutely right. So let's just turn the tables and we have a little more than five minutes, so we will be open to questions. If anybody has a question, raise your hand. Let's talk about sort of emerging technologies. Are there any sort of new emerging technologies that you guys are kind of excited besides blockchain, I guess, but I think of that as not necessarily new but adopted really, that you guys are kind of interested in thinking about maybe experimenting with? How about you Sathish?
Sathish Muthukrishnan (53:00):
Yeah, we instituted what we call technology labs three years ago, and the goal was to purely bring in newer cutting edge technology but create use cases with support from the business partners. So if we get to go to the market then using the new technology, then you've already won the partners over. So we are experimenting with a number of technologies. I'll give you a couple. One is, one is called Quantum, the team. We hired a couple of quantum scientists. The team built recreated ETFs. If you look at the ETFs today, there's thousands of equities as part of it. And it produces a rate of return over a period of time that the team was able to narrow down to maybe six or seven equities from different sectors that are required to produce the same amount of return or better during the same amount over the same period of time. It reduces risks, reduces operating cost, and then it's just a far more secure and manageable return as opposed to having multiple security. So Quantum, just one example of how we are playing around with Quantum and people have been talking about chat GPT and generative AI.
(54:17)
I talked about our data journey. We're particularly excited because I have over 80% of our enterprise data stored in a cloud data warehouse with close to a hundred percent being filled by the end of the year. That gives me the ability to view the enterprise data across customer 360 across businesses. And it allows me to run models on top of it too. So I can start using newer technologies like generative AI, but we have what we call a conversational AI, like a chat conversational AI for customers that is running both on our mobile and our web surfaces today. We have converted about 6% of the intents. And what my mean by intent is customers need to call us. We have converted 6% of those two automated conversations and our suppression rate is about 60%. So a customer that engages with our bot 60% of the time gets an answer correctly. So we are doing it slowly, but we are doing it very effectively and starting to use AI for a number of things. But those are a couple of examples.
Penny Crosman (55:26):
Just checking any questions in the audience? Okay. How about you, Caitlin? Any emerging technologies that you're kind of intrigued by?
Caitlin Long (55:34):
Well, I'm very focused on the Lightning network. I mentioned that earlier. It's not actually a blockchain. It uses a blockchain as the base layer. And it is actually really interesting. I learned one of the big four consulting firms. I spent some time in London about a month ago. And boy, the world is just moving forward on blockchain. The US nobody wants to talk about it because of the regulatory crackdown, but it was so refreshing to be in London and recognize that it's missing a beat in the rest of the world. It's all literally just moving to the Europe and Asia right now. But what was interesting about that company is that they built their own layer two technology. So it's the layer twos. This one was for Ethereum, the Lightning network is for Bitcoin, but ultimately the base layers are just simple databases. It's just a new type of database technology, whether it's Bitcoin or Ethereum.
(56:30)
Huge network effects already built for those. And so if you're building your payment technology, or in their case what they built was for their corporate customers, an integration from their ERP, their enter enterprise resource planning systems through to their t m s treasury management systems, through to their bank, straight through processing from supply chain all the way through payments and back. Okay. Most corporates are still today sending flat files to their banks with payment instructions. They get batch processed overnight and then the flat file comes back and somebody in the treasury department has to go deal with all the swift back black hole problems, especially if it's overseas. But even domestically there are wires that fail as you know. So the impact of that is you, if you can automate that, and this is a big for global consulting firm built their own layer too to automate that for businesses. Now they're of course targeting the larger companies, but this is going to get pushed down pretty fast into the small and medium sized businesses as well because if you can integrate through, because of the fact that they're using a base layer database architecture that is open and public, that is all layered onto these layer two solutions, there is incredible network effects to those already. All these private blockchains will never be able to compete with that.
Penny Crosman (57:56):
Interesting. How about you, Jin? What emerging technologies.
Jin Gwak (58:00):
I guess I mentioned about the blockchain payment rail? That's the first one. And the second one is really that Stitch mentioned about for the generative AI for in the data analytic part of it. So I guess it's for there are use case for very the end user intrusive. They don't have to be programmer, they don't have to know the sql, anything like that. For that they're able to use for more conversational Google search kind of type to mining the data. So that's the one. And then the third one is for the, I'm keep eye on to how the metaverse is kind of weaving into for the digital banking or anything like that because now that we try to kind of positioning for our banking or the credit union that how we going to serve from the elementary school, the middle school and things like that. So early kind of engagement there is maybe we could able to retain that relationship for the lifelong. So the one thing is that how are we going to position in the metaverse or the PlayStation, the environment and things like that. So those are the kind of third one that keep eye on.
Penny Crosman (59:10):
Yeah, it does sound like fun. Well, Jin, Caitlin, Sathish, I think we covered a lot of ground. So thank you all for coming and joining me and thank you all for listening.