Cameron Smonk: Welcome to Banking Blueprints, a Zafin podcast about building the future of banking.I’m Cameron Smonk, your host, and I’m joined today by Kathleen Woodard of Microsoft and Carson Kotnyek of Zafin. Kathleen, why don’t you tell me a bit about your journey in finance and technology?
Kathleen Woodard: So I’m Kathleen Woodard, I lead the banking industry advisory team for Microsoft.
So we’re a team of ex bankers, ex consultants who help understand banking customers throughout North America and Latin America, understand their business challenges, especially in this this age of AI and how we can bring the enabling technology to bear.
And my journey is a little bit different. So I’ve been several years at Microsoft, but previously when I meet people today, they think that I’m a deep technologist or an engineer.
I am not. I come from 26 years of banking experience. And so a lot of what we’re going to talk about today, the challenges around relationship banking and the difficulty of dealing with some of those legacy tech stacks.
That was my reality for 26 years. So I’m coming at it from a business background.
CS: Interesting. And how about you, Carson, what is your background and any surprising steps along your journey?
Carson Kotnyek: So a similar path where at Zafin, I lead our industry advisory team and we bring that angle of the strategic support, which isn’t just how do we implement a technology platform, but why are we doing it? What are the business outcomes we’re looking to drive?
And so, you know, lucky for me, I get to have the fun part of doing that job, which I love. And it also lends well to my background.
I joined Zafin from McKinsey and Company and there was where I was able to, you know, see the breadth of the world, both within strategy and technology, but also how that’s applied within financial services, but also in other industries.
And what’s been interesting and fun, frankly, about my role at Zafin is I spend a lot of time in the world of customer relationships, how customers engage with banks.
And it’s been fun to, you know, see where banking has come, but then also see what has happened anywhere from the travel industry to the retail industry to the Super apps that we see in Asia and be able to bring over a lot of those concepts to now what we’re doing here in North America and finding the right way to bring that to life.
CS: Great. OK, so today’s topic is the end of product banking competing in a relationship economy.
CK: So Carson, is it safe to say that product banking as it stands today is broken?
We’re chatting before the podcast and sort of into the lead up to this. This is nothing new. You know, we all know we’ve been on this for, you know, well over a decade.
These are these terms that we toss around and the financial services industry, but nevertheless, it is still more true than ever that if our strategy in the banking world is to be only product driven, if that’s by line of business, you know, if I’m in the mortgage business and I’m only looking at my mortgage products and if I’m in the car business and I’m only looking at My Portfolio of credit cards, that doesn’t cut it nowadays.
And again, we’ve all heard that before and banks continue to work towards well, how do I recognize the whole customer, right?
Obviously we’ve all had that experience where you know, whether it’s you’re showing up to get a credit card or you’re, you’re applying for a mortgage in that, in that big purchase to make to buy a home and you go through the mortgage application, you get asked the question, do you know where do you bank?
You know, And so you would hope when you’re coming to do such a big purchase that they also know that you’ve been banking with them for 20 years after you open that account with your parents when you were 16 years old.
And so you know, that’s ultimately where product banking and it’s understandable. There’s organizational structures, there’s lines of business that have pnl ‘s right.
There’s logic as to why we’ve ended up in this world. But we now, especially now more than ever with the technology that we have, is there’s no reason why we should not be recognizing everything that the customer does with us.
And especially in this world of fragmentation, give our customers a reason to bring all of those banking needs under one roof.
Because ideally a customer would love not to have 5 apps on their phone and 5 different relationships.
Most customers would love to have, you know, 2 or even one.
KW: Yeah.
CS: What’s your take on that, Kathy?
KW: Yeah, I would completely agree with that and double down on a few points. So first of all, I think this has been a problem for at least 20 years.
I think organizations, large banks have understood that they want to Orient towards customer relationship management, but the functionality around how they are organized within banks by product lines is just a reality. Yeah, it’s how they’re organized.
I think the other thing as you point out some of it is also the technology and it’s not because organizations aren’t aware of the problem, it’s because there have been M&A ‘s, they have acquired different legacy tech stacks.
You’ve got a number of different core solutions that you are running in anyone environment.
And the reality is to do those large-scale replacements of those core banking systems is very expensive and has been fraught with a number of problems.
And so people are, I think you know, wisely looking at that and saying we need to find a different path to be more, more customer oriented.
I think what is uniquely new in this moment though is actually the enabling technology
CK: Totally.
KW: Because when you think about it right now, I think there’s, there’s 3 large shifts that have taken place. The first is around the data.
And so the ability to actually have that data unification layer where you are able to you not just have to copy data, but understanding that you are going to be able to have data that’s operating on Prem, that’s in multiple clouds.
And to be able to have that data be visible at a layer in order to reason over it is, is a fundamental shift that’s happened even in just the last, call it, 18 months that organizations are really trying to understand and the end used to accelerate some of the business outcomes that they want.
I think the second thing that’s shifting in in all the markets is, is really understanding what does real time intelligence at scale mean?
CK: The dirty “real time “word.
KW: Yeah, yeah.
And so, you know, the, the, the reality is to be able to actually in that moment, instead of having a backward looking view of the customer, to be able to actually in the moment, understand somebody has a new job, they’ve just received a large deposit for their, you know, new, better, better role.
And that is the time when you have to talk to them about a savings product or talk to them about something new, not a month down the road when they’ve already looked at, at other banks.
And so thinking about how do we operationalize that real time intelligence at scale is, is a really big factor.
The 3rd thing, and it’s something that we were talking about all day, every day is around agentic workflows.
And so, you know, certainly over the last 3 years, there’s been lots of conversations talking about AI, agentic AI. So moving from the insights and intelligence and understanding the signal.
So whether it’s transactional data, behavioral signals, any of those kind of insights, not just receiving them, but then being able to act on them in and that that gap between the 2 has really closed.
So, you know, life cycles of, of being able to make some of those changes where it might have taken months, it’s now literally days.
And so it’s just a fundamental big change in the marketplace that I think is helping people shift from pure product banking to true relationship banking.
CK: Those, those are fantastic.
And, and just a couple of thoughts that you sparked when listening to those, those 3 different items, the sort of combining one and 3, the technology and the agentic AI.
It’s fascinating because we have all of these discussions that I’m spending time with banks these days, exactly that point on data, which is look at something as simple as a customer wrap, right?
Whether we call that, you know, what Revolute does with paid subscriptions, what Bank of America does with sort of earned tiers, which are based upon total balance.
We used to have this challenge of like, OK, I have a customer and now I need to do the calculation to add up there what their total relationship is.
And I need to pluck, you know, every product from across all the lines of business to do that calculation.
To your point, once you’ve established an agentic workflow, we get to the place where you know, whether it’s every day or whether it’s in real time, you can run that calculation constantly, which shows here is the customer and here’s what their total relationship works to your point.
Not even just down to what you what is their total balance or what is their set of products at the bank, but also what are they doing to your second point in, in real time and having to be able to act on that, right.
To your point on what if it’s, you know, it’s tax return season?
What if that big tax return lands in your account and maybe my customer isn’t using our wealth and investing side of the business and, you know, it’s going out to the latest greatest app that you know, has great, fantastic functionality and a great UI.
And so that tax return lands and you send it out to that, you know, for your RSP or your retirement account.
This is that opportunity to say, well, hey, did you know, you know, that tax return just landed and we’re actually offering you, you know, X,Y&Z some great deal or open a wealth and investing account with us, Keep that money here where your relationship already is. And we’re able to, you know, give you promotional rates or offer you a service that maybe you didn’t even know we had. So I love thinking about those 3 things that you laid out and how it’s all starting to come together.
KW: And the reality is banks have wanted to do that for a very long time, right?
It’s not from a lack of will or intelligence.
It’s, you know, from, from an executive point of view, it’s literally been how they are organized and also just the technology to do that. And so I think the pace with which the landscape is changing is pretty real right now.
And so you mentioned Revolut. The one thing I would say that is really interesting for me and my role to see across the landscape is that I think the Fintech environment is really starting to put pressure on the banks and they always have.
There is definitely an element of coopetition and and collaboration that’s happening.
But when you look at some of these large neo banks like new Bank 100 and 22,000,000 customers, which has now been approved for the US market, Revolut on its way, it’s coming into the US market.
And so you know, the advantage those banks have, it’s not necessarily better product design. It’s just that they’re unencumbered by all of the siloed legacy tech stacks.
And so you look at their efficiency ratio, what they’re able to do, the speed with which they’re able to operate, and it’s a real threat. So I think that there’s very much a real urgency to the environment right now to think about how can you move more quickly at pace and the customers that are doing it.
To your, point, I was actually talking yesterday on, on a separate issue with a customer of ours, very large customer, joint customer of, of both Zafin and Microsoft. And she was talking about what they’ve been able to do through some of the implementations that they’ve done through our joint partnership.
Just in terms of that example around before when they were trying to move across product groups, lines of business and trying to operate at speed with some of the pricing promotions they were doing, they just weren’t able to do it totally.
And this is completely transformed how quickly they’re able to move. So it’s pretty amazing to see the capabilities.
CK: It is, it is. I love that.
And maybe just since we’re filming this podcast here in Toronto, we can give a shout out to our local Canadian, you know, fintech that’s absolutely crushing it. I think we all saw the press release earlier this week, they had 125 billion. The growth rate is out of control assets under management. So Congrats to Wealthsimple just while we’re at it.
KW: Yeah, awesome. Good to see.
CS: Thank you. So let’s talk tactics. The need to replace product banking seems pretty evident to me, but how do banks go about doing it and why aren’t they doing it easily and quickly right now?
KW: I think we’ve touched on on some of that. I think they’re not doing it quickly right now because it is very expensive and very hard in the past to do that.
You’ve got multiple core banking systems, you’ve got multiple segmented, you know, tech stacks and I think it has been challenging to find a way to move at pace.
Some of the factors that are inhibiting that is even just, you know, organizationally, you know, culture, organization, the commitment to really align against what is the business strategy.
So are you clear on what’s the customer segmentation that’s really going to drive your growth? Are you super aligned?
And, and you know, banks are going to be clear on what their strategy is, but it’s also about what is the strategy?
And then how have you enabled it through the organizational structure, through the talent that you have underneath that? And then also how you’re able to shift. And so, you know, when we start to look at some of these organizations that are, are really trying to make this shift, you have to be very deliberate around how you set up the structure.
You have to be very deliberate as well that you’re not going to have a whole bunch of point solutions.
There are ways that you’re going to be able to, you know, create other, you know, kind of modern API environment that’s going to help you generate the kind of returns that you want.
CS: Right.
CK: Yeah.
CS: Carson, any challenges that you can see that Kathleen didn’t touch on?
CS: No real challenges, just total agreement, you know, and, and this is, this is this world we all live.
And and as you pointed out many times, right, our customers and the banks that we work with are all, are all in this together and everyone ‘s you know, everyone ‘s thinking about this every day.
You know, one piece that you, you sparked a thought for me and something that we’re experiencing often is this world of the cultural and organizational structure comes with a certain way of doing things.
And I think that’s also one of the things that we’re seeing maybe shift, maybe there’s a broader acceptance to saying, you know, let me give an example, right?
Since we’re talking about relationship banking, I think of these teiring programs.
However, you have a world of, of wrapping a relationship for a customer.
And one of the things I see often is, well, let’s get this perfect right, which is sort of a little bit of the, you know, the older world, which is we’re going to spend 2 years, we’re going to get all the teams, we’re going to do the design thinking, which is fantastic.
We’re going to get there and, and come up with something that’s really thought through. How does, what does it look like through the customer?
How do I experience it on the app? At the same time, what that does is we might spend 2 years perfecting what we think is exactly what we need to go to market with in the world of relationship banking.
And then we do and we’re always going to learn.
KW: So, you know, only once you’ve spent those 2 years only to find that the market has moved what you just spent the last 2 years planning and that becomes a challenge.
CW: Totally.
CK: You know, we’re very much in this world where, you know, we often hear the, the argument, which is a solid argument, which is well, hey, you know, we went from doing long division to the calculator. Then I got the Excel workbook and the spreadsheet, you know, and then, you know, further and further, you know, now I have an agent within my Excel helping me build models.
So has the technology always changed? Sure.
But I think one of the real differences is the pace at which it is changed. And so exactly to your point where we may have had the luxury of spending 2 years to perfect, you know, a new relationship program or perfect the technology as to how are we going to connect the dots across the bank.
You don’t have that luxury today.
And that’s where having the right technology, getting fluent in the world of AI and, and having an agentic workforce all of a sudden takes that 2 years down to 6 months.
We can get into market with something that is hardened.
We work in a heavily regular regulated industry. So something that can be in market at the same time, not being afraid to make some changes and updates as we go. And I think more and more we’ve seen examples in the market where you can launch a foundational solid product and grow.
You can add partnerships to it over time. You can add new products, you can add new lines of business. And so I think that’s, you know, another important shift that, you know, I, I know we both try and work with our customers to do so. And I think that financial services industry at large is adapting too.
KW: Yeah, I think, you know, just playing off at that point. There’s some, some really good things in there. I think this shift really to me is about outcomes. And I know that, you know, we’ve talked a lot that about that before, but in this, this age of AI and especially agentic workflows, I think that both the process themselves are being transformed by a genetic AI and the, the possibilities there and the delivery method.
And so if you think about this, this is really shifting from to your point, it’s been 2 years long cycles.
Previously waterfall, you know, many organizations tried to move to an agile delivery, but things are really shifting quickly. And that it is hard for a large bank that has been, you know, hardened over many, many years.
Sometimes, you know, century, century and a half in some of these large organizations that have been around a long time to really adapt in terms of how they are organized. And so I think of it in those 2 ways. So if you think about, you know, designing processes so that you are really clear on the outcome you’re trying to drive. So small medium business customer, you know, bank is onboarding them and finding that they’ve got, you know, some percentage of the that client base.
That is a training very quickly within the 90 days and trying to find out what are the signals that we can capture to understand what might be some of those outcomes in the past. That is a long period of study to try and figure this out and try and build campaigns around what would that outreach look like in today’s world.
This is around really using a genetic systems to understand those signals and to capture some of that and learn and adapt and have the memory in real time to be able to actually understand what is that outcome that we’re trying to drive.
We’re trying to lower attrition for our newly onboarded SMB customers. That’s great. So what are the signals that we need to adapt? So designing the actual workflows with the outcome in mind is one thing. he second thing is really also around that delivery method.
And So what we’re seeing now more and more is that there are much shorter sprints and those sprints are really comprised of product owners, the business owners, obviously the tech teams and also compliance teams. And so this is, this is a holistic, you know, squads, if you will, that are, are much shorter sprints, whether it’s 2 weeks, whether it’s 4 weeks that really have an outcome in mind. And so that’s now starting to really, I think increase the velocity with which organizations are able to deliver.
But that’s hard work. It’s not easy to implement and it takes, I mean, it’s very big change for organizations and now they’re thinking about it. But that is a cycle that and a method that we’re seeing a lot more that I think is proving to be pretty effective.
CK: Yeah, it’s like just so, so much, you know, I just, it gets me thinking of how much this world is changing. And just a couple of examples came to mind right when you when we look at those agile sprints and how we go, you know, quarter after quarter road maps and the 2 weeks sprints.
All relevant items, but to your point on how much that is changing, you know, we just, I think about our own product development and we go from, we used to do idea and then several weeks of ideation and then write down what the requirements and, and what are the outcomes of this thing supposed to be.
Then we start to look at, well, let’s you know, let’s think about how we could sketch this up and get into wireframes and then let’s get, you know, a clickable prototype and something we could work through where now we go from idea to a real application where it’s like this is how it could look right?
And AI has enabled us to do that. So if we’re thinking about, you know, relationship banking and we’re thinking about, well, what is that. If we were to build this, how does that look in through the customers lens and how can we look at that? What would the mobile banking experience look like?
We no longer have to spend 12 weeks going through wireframes and and coming up with all of this. We can in the same day, absolutely have an application that’s live and working.
And then we can now we can look at it and we’re, you know, we’re months ahead and being able to say, Oh yeah, that’s not right. We thought this hypothesis would work. It doesn’t.
We’re able to make those changes, you know, so that that is just it resonates so much. And we think what we could do in banks now that that muscle is there or, or getting there.
KW: Yeah, I think, I think the traditionally in every large organization, the business has a view of what the product they want to deliver, what are the changes that they want to make. And tech has always wanted to enable that, but it has often been many months in the bank.
We used to joke that any change that you wanted was going to take cost $1,000,000 and take you 6 months. So anything faster than that and cheaper than that was a miracle bargain.
CK: Yeah, exactly.
KW: But I would say exactly to your point, the fact that now AI is being used pretty consistently for business requirements and the fact that you can have non technology business analysts or product owners that are able within the same day totally to vibe code, to use low code tools to create exactly the application or create what it is that they want. That your gap between the, you know, the normal gap between business requirements and what the tech is able to deliver that that cycle time is shortened considerably.
CK: And so it’s plucking out of your brain.
KW: The thing I was trying to explain this is this is, you know, this maybe make these couple tweaks totally.
And I think, but it also leads to just sort of zooming out bigger picture around AI transformation in general, this idea between how do you in a highly regulated environment with large banks, how do you ensure that you have enterprise wide AI capabilities that are operating in a secure fashion that are with agents that are across multiple cloud providers, agents that you build themselves, agents that are coming in from from partners that are being built. How do you govern them? How do you observe them? How do you have the auditability, the traceability, all of those things that are going to be necessary when you are going back and talking to the regulators.
So the enterprise IT teams are rightfully thinking about what are those capabilities? What’s the environment that we have to create? Then you have that normal tension with the business that wants to move quickly and they have, you know, they already have an image of what they want to do.
Now that they also have low code and sometimes no code tools, they are much closer to wanting to realize that.
And so I am also seeing this healthy tension right now as organizations are are trying to think about what is the operating model for them to deliver quickly and securely and safely. And this is a really good one. You know, even as we’re talking product or pricing or relationship banking, it’s a really good example that’s bringing that one to life.
CK: Yeah, one of the things, it just made me think of this, one of the fascinating things is exactly to your point is this concern of, well, if we bring in agents, you know, how does, you know, how do we look at transparency and how do we make sure we’re fulfilling all the regulatory requirements? One of the things that’s been fascinating for us is we have a suite of agents within our Azure and their SRE agents. And what’s been fascinating is the level of transparency data we now have.
That is the output from those agents is literally everything, every decision, every reason why. So now, you know, before it was, you know, well, our engineer who’s well trained and understood it and they made the decision. But now we have logic biologic, step by step.
So there’s actually this dichotomy of, of an understandable fear that has to be done right, exactly to all your points.
But at the same time, when we look at the actual outputs, all of a sudden we’re actually in a world where in some ways it’s easier to be compliant.
KW: Yeah, it’s easier to be compliant because in some ways it’s much more transparent exactly what is happening. And, you know, I will say when I was in the bank, I didn’t love the term, you know, democratizing technology for business owners because that always seemed fraught with risk, Right.
And so this idea about, you know, what is shadow IT and how do you manage all of that? I think those were very real concerns, Yes. But the reality now with the capabilities in AI and especially agentic AI, I think one of the big things that organizations are grappling with and have to solve for is, is exactly that how do you democratize intelligence into the business? And so if you think about it, people who you know in many large organizations, you have people that have been either product owners or they have been working in, in the back office, middle office and something like mortgages or in small business banking.
And some of those people know those processes inside and out. They are the ones that are closer to closest to it. They are the ones dealing with customer escalations when things go sideways.
And those are the very people that can now be equipped through low code, no code tools. You do not have to be a technologist to actually design and help be part of that process. And I think that is happening in some organizations. I think we can probably move faster. So that’s going to be really interesting to watch over the next 12 months.
CK: Exciting times.
CS: So to close this out, I have one question and that is what does the next 2 years look like for a bank that is changing from a product focus to a relationship focus? And what does a bold prediction you have about what might change in the industry during that time?
CK: I think you’re going to have the important ones that I’ll build.
KW: Well, obviously, I think agentic AI transformation is already transforming the whole industry.
I think that banking is going to look very different. I don’t know if I can say in 2 years, but longer term, it’s going to look very, very different because of a lot of what we’ve talked about.
I think that organizations are now really trying to think about within their lines of business, within product deployment, how do they look at outcomes that they’re trying to achieve in terms of revenue growth, cost savings, efficiency and the customer experience and doing those 3 drivers within a regulated environment.
As they look at trying to build those kind of outcomes, I think how they create their operating model, the talents that they hire, the education that they’re going to have to do across the organization In terms of the AI capability, I guess my bold prediction would be I think we’re going to start to see a real divergent.
We’re already seeing it right now around the leading firms, we call them frontier firms that are adopting AI and at not just on the side, that’s kind of an interesting thing to experiment with, but at the core of how they’re doing business, they are an AI powered organization and AI powered bank.
And so I think that we’re going to start to see more of that accelerating and those banks that are slower to adopt, it becomes challenging for them to catch up because it’s not just about leapfrogging and buying a new technology.
]t’s about how they have organized their entire firm. It’s about the education and the knowledge that the entire organization has. So I think it’s going to be quite interesting over the next several years to watch those leading banks and how different they are able to operate for the consumer and corporate and commercial base.
CS: Great. How about you, Carson?
CK: Yeah, I, I echo so much of that.Y ou know, if Cam, if I were to go with sort of this, you know, this timeline approach, I absolutely think the world of solving what the agentic AI operating model and organizational structure looks like in your bank is going to be huge. I, you know, if we’re throwing predictions out there, I’ll go for 1I imagine the next year is really going to be about solving it.
Take the Mythos scare, right? And what does that mean? I imagine there is going to be a rapid-fire movement in figuring out what does that mean? So for example, is saying, well, if we’re going to have models this quickly that are that are this powerful, we’re going to have to do that.
Let’s go back to the drawing board. Maybe it is rehardening the codes. Maybe it is looking at all of our areas and vulnerabilities at the same time of yes, that’s a risk using that technology to plug all those holes. And I think that that will be part of this broader process of how do we use agents, how do we get comfortable with rolling this out across the organization?
Because despite financial services, you know, at least traditional financial services being a little slow to act, you know, because of the heavily regulated, regulated industry, we’re going to lose the option.
And exactly to your point there, as always, there’s going to be winners and losers that come out of that,
But I think those who solve it, it’s not if you know, it’s how. And so, you know, how do you get there? And again, it’s not just AI.
It’s we’re sort of over the productivity discussion, like great knowledge workers are saving hours and making PowerPoint decks and models faster. Awesome, but it comes to the real game changer is going to be in that world.
Then I think where we go from that is then it unlocks, you know sort of this whole world of taking whether we’re talking about relationship banking today, whether it’s revamping the customer experience as you noted, I think all of that is very much then going to be unlocked where if you then do not elevate to that level, then you’re going to be left behind.
And so this is how does the customer experience, how to my digital channels come together with a seamless no longer, you know, I live over here in the checking with my checking account and then I go over and talk to the mortgage business.
It’s all one relationship, the bridging together of banking and you know, beyond banking, the world of how do we leverage partnerships that many banks are doing, but have that core of the experience.
I think, you know, post figuring out the agentic operating model, we unlock the ability to, you know, revolutionize the customer experience, especially for traditional organizations.
CS: Great. And I think that’s a great note to end this podcast on. Thank you both so much for joining me. This has been banking Blueprints podcast from Zafin. I’m Cameron Smonk. Thanks for listening.
