IBM wants Australian banks to consider adopting its artificial intelligence supercomputer, Watson, to guide their regulatory compliance, identify risk and enhance customer relationships, but the technology behemoth is pitching against a growing number of open source alternatives.
Less than four months after IBM said it was acquiring Promontory Financial Group, a global consultant to banks on regulation, the computer giant is progressing discussions with bank customers about how its proprietary cognitive computing system can be used to help them navigate increasingly complex regulation.
Mark Boyle, the financial services industry lead at IBM Australia, said while no Australian bank was currently using Watson for compliance and regulation, "some clients are actively engaging with us to assess the contribution Watson can make in their regulatory and compliance space. Others are less advanced in the dialogue."
Watson, which came to prominence when it defeated the two champions of the US television game show Jeopardy in 2011, is being used by some global banks, but IBM said it could not provide numbers.
Mr Boyle said Watson's pricing is tailored for each bank depending on how it is used, under a "software as a service model", where customers pay a licence fee on a subscription basis.
"The potential of Watson and cognitive capabilities is really limitless, it depends on how the organisation wants to deploy to deliver better services, generate better insights, respond in a more timely manner, and identify shifts in the market, and play that back to customer service," he said.
Project abandoned
ANZ Banking Group trialled Watson in its wealth division in 2013 to assist with customer service but the project has since been abandoned. It is understood ANZ is not considering using the technology for regtech. Commonwealth Bank of Australia looked at Watson a few years ago but is also understood not to be considering it for regtech.
For Watson to succeed in the Australian market, IBM will need to convince banks to adopt a relatively pricey system at a time when other technology giants like Google have developed "application programming interfaces" (APIs) for deep learning that have been made freely available.
"We are trying to reduce tech licensing fees and develop our own regtech capabilities using open source solutions," said a source in one of the big banks' tech teams.
IBM will also face competition from local start-ups seeking to work with banks collaboratively. For example, Westpac Banking Corp has engaged with Sydney-based Red Marker, whose application Artemis is already being used by around 20 Australian financial services licensees. Its offering has initially been focused on using its natural language processing techniques to help banks identify risky publications content as it is being created by advisers.
Regtech (an amalgam of "regulatory technology") remains a hot topic among banks globally and their consultants seeking to adopt a more pro-active approach to compliance. The Australian Securities and Investments Commission will host a "Regtech roundtable" in Sydney and Melbourne on February 8 to examine its "future potential to promote good risk management and compliance outcomes", according to a notice published on ASIC's website on Thursday.
IBM's global strategy under CEO Ginni Rometty is shifting from computer hardware to analytics and cloud-based services. Using Promontory's expertise to educate Watson about regulation appears to be a key part of the plan: IBM says the cost of managing the regulatory environment represents more than 10 percent of all operational spending of major banks, a total of $US270 billion per year. It also says machine learning can assist banks comply with a catalogue of global financial services regulations that is projected to exceed 300 million pages by 2020.
