The Future of Banking: Modernizing Customer Experience with AI

Megan - 00:00:23: Today, my guest is Alex Jimenez. Alex is a Lead Principal Consultant at Backbase. He has over 28 years of experience in banking in various roles, including strategic planning, payments, digital banking, operations, program and project management, business process improvement, marketing, and voice of the customer. Most recently, he was a managing principal of financial services consulting at EPAM. Previously, he served as chief strategy officer at two organizations, Extractable, a digital experience consultancy, and Finalytics AI, an AI journey orchestration fintech firm. He's worked at Zions BancorporationZions, Rockland Trust, Bank of America, FleetBoston Financial Corp., and Cigna Insurance. He served as the chairman of the Consumer Bankers Association's Digital Channel Committee, where he worked with digital banking leaders in the industry and visited Capitol Hill to meet with the Senate's banking committee staff. He was a founding member of the American Bankers Association's Fintech Committee. He's been named to several industry influencer lists in the area of fintech, regtech, blockchain, insurtech, innovation, and digital marketing. He's been featured in the Irish Tech News, ICBA's Independent Banker, and Authority Magazine. The ICBA named him Indie Banker of the Month in December 2015 for his work in innovation and banking. He's been published in various publications, including the Financial Brand, Finovate, Finextra, Payment Journal, and Credit Union Times. And quoted in the Wall Street Journal, the Boston Globe, the Financial Brand, the American Banker, and the Boston Business Journal. He regularly speaks at industry events, most recently at the New York Times DealBook Summit in 2023. Alex, thank you so much for being my guest on today's episode of CFO Weekly.

Alex - 00:02:45: Thanks so much for having me.

Megan - 00:02:46: Yeah, I'm excited about this discussion, which focuses on digital transformation. And I'm looking forward to the opportunity to learn about you and your thoughts and experiences with this topic. So let's get started.

Alex - 00:02:58: Sounds good.

Megan - 00:02:59: First, if you could just give us a little bit of background about yourself so that we know kind of where you've been and what you've done.

Alex - 00:03:06: Sure. So I've been in financial services for 36 years. I, of course, like most financial services people, got a degree in engineering. I went into insurance, particularly the safety consulting side of property and casualty for about 10 years. Then I got an MBA and switched to the more exciting world of banking. I've worked at several different banks, starting with Fleet Bank, which was then acquired by Bank of America. I was a B of A for a year, and then I left and joined a community bank called Rockland Trust. And I was there for 10 years, in various different roles there. I moved then to Zions Bancorp., in Salt Lake City, and I was there for a few years. Then I actually made the jump to consulting. I was in consulting for a company called Extractable, which brings us to COVID. And while things were a little weird for everybody, we decided to start a fintech out of the extractable organization, Finalytics.ai. I was their chief strategy officer for about a year. And then I left, went to EPAM, which is a software development company, to be one of their experts in the banking side. And then earlier this year, I joined Backbase, a customer engagement platform company out of Amsterdam. And I've been here now for a good 10 months. Lots of different roles around strategy. And particularly in the past, I'd say, a dozen, actually, it's more like 14 years, 15 years involved more in the intersection of technology and banking.

Megan - 00:04:48: So what initially sparked that interest in that intersection for merging technology with financial services? And how has that evolved over the last five or 10 years?

Alex - 00:04:58: Yeah, it's funny because I can actually give you the specific date. So back on October 4th of 2010, my CIO and I, that's when I was at Rocking Trust, went to our first, which is a fintech conference that's been going on since 2008, I believe it was their start. And being in banking, heading an operations function that worked really closely with our technology team. Suddenly, we sat through demos of all kinds of different companies. A lot of fintechs that we're just starting, like Betterment and Credit Sesame and Backbase. Actually, my current employer was there. And there were also a couple of more standard technology companies like Jack Henry and FIS and H&R Block presenting new things about banking. And coming out of that, I thought, oh, my God, there's all this technology coming. And soon, banks are going to be struggling with these competitors. And we're going to lose a lot of clients. Funny enough, we didn't lose a lot of clients because of it. But it really has changed the industry. And so now, fintech is really more us partners of banks. We work together. And it has really changed how we bank, where we bank, what we expect of banks, and just financial services in general. So it's been a pretty crazy 14 years in all that time.

Megan - 00:06:28: I remember reading during COVID that COVID was going to, I guess, speed up digital transformation by about 10 years. And particularly in the banking industry. Did you see a huge push during that time?

Alex - 00:06:43: It's funny, we did. But it was not a linear thing. By 2021, we saw a big push. A lot of organizations saying, oh, my God, we were able to function without the branch. We were able to function without a lot of our manual processes. We need to up our technology. But then towards the end of 22, beginning of 23, everyone was suddenly worried about inflation, worried about the economy. And so a lot of organizations just pulled back and said, yeah, we just spent a year spending a lot of money or a year and a half spending a lot of money on technology. We're going to hold on to that. And we're going to wait and see. So there was a bit of, you know, we need to accelerate. And then suddenly it's like, oh, we're going to put the brakes on it. And then I would say maybe in the past eight months, it's been, oh, let's go back to that. So it has been really weird through the past few years. It's not exactly what we thought was going to happen coming out of the shutdown, but it certainly has changed a lot. It's changed a lot of minds more than anything else.

Megan - 00:07:53: Yeah, it's been an interesting couple of years because, I mean, on one hand, the economy is struggling. But on another, like stock market's booming and everything seems to be great. So it's definitely been weird.

Alex - 00:08:07: Inflation, yeah. Yeah, inflation was up, but unemployment was down. And if you ask economists, they kind of shrug and say, well, we've never seen this before.

Megan - 00:08:16: And looking at digital transformation journeys, what is the most critical factor that organizations often overlook when they're starting out?

Alex - 00:08:26: I say leadership is first and foremost. And why I say that is when I see organizations having a digital transformation. Project, I know that they're in trouble. That's not going to go anywhere because it's not a project. You know, the bottom line is you're changing the business model. And if you're changing the business model, you have to have a leader, hopefully a CEO who's going to be driving that. And the C-suite is right there with the CEO. I've seen organizations where that digital transformation is given to hit a transformation. And that's their job. And that's okay, if it's someone, that has the wherewithal of the CEO and can drive change. But if they're just like a project manager, that's not going to go anywhere. The whole full C-suite needs to be behind the transformation. I've seen organizations where half of the C-suite has bought into it and the other half hasn't. That's not going to work. And the CEO says, well, let them work it out. Again, that's not going to work. So it's got to be something that's being driven by the leadership. And that means CEO and the board.

Megan - 00:09:35: And you've worked with a lot of banks to help them modernize their system. So what are the biggest challenges that banks face when replacing legacy systems and how can they balance modernization with business continuity?

Alex - 00:09:48: I think one is thinking that if you're going to change, you got to change everything.

Megan - 00:09:53: Yeah.

Alex - 00:09:53: And do it now. That's too big of an ask. And that really is the whole idea of trying to change the engine while the plane is flying, right? That doesn't necessarily work. It's extremely difficult to do that. So the way that we at Backbase think about it, and it goes along with what I've seen work is what we call progressive modernization. And it's the idea that you use your strategy to define your priorities and base on those priorities. Then you take incremental steps in changing the systems, right? So I worked for a bank that their transformation, they approached it with, we need to change our core system. So the main heartbeat of the bank and they've been successful, but it took them so long to do it that now they need to catch up on everything else. And that's, to me, that's not the best way to do it. It's got to be more of take smaller steps, but really focus on your strategy. And if your strategy is provide the best customer experience, then you better be looking at that customer experience and start with that.

Megan - 00:11:02: And talk to me for just a minute about Backbase. What is it that Backbase does?

Alex - 00:11:07: Sure. We're a customer engagement platform. And what that means is basically we help banks, wealth management firms, credit unions with the experience, the digital experience that their clients or members are seeing. Whether it's on the apps, whether it's a browser experience, whether it's a portal that a banker or advisor is using and managing to have a discussion with the client. That's what we work on. And we have a platform that allows an institution to have it all within a single system. As opposed to having a mobile app that is run by this vendor and digital banking that's run by somebody else. Account opening that is run by somebody else. We do it all in one platform.

Megan - 00:11:54: And I'm just curious, what is the biggest pain point for banking customers? What do you see their number one complaint being as far as their experience with their banks?

Alex - 00:12:03: From a digital standpoint, I think the biggest challenge is why can't I find what I want to do? Why is it so difficult? And sometimes it's because us bankers have our own language and we think that everyone's going to understand a language. And sometimes we kind of get caught on the internal processes and don't really think like customers would. And sometimes we say, yeah, but I'm a customer of a bank. I understand what a banking customer expects. No, you don't because you're an expert in banking. You sit inside a bank, so you don't know what customers that are not bankers are thinking. So to me, that's the number one complaint that I see. Obviously, there's more infrastructural challenges such as fees, not understanding how banking products operate, all of that, which is also part of how you provide a customer experience that is easy, convenient, available. And nowadays, people are expecting personalized to you individually because you get Netflix recommendations for you individually. But why can't my bank do the same?

Megan - 00:13:17: So as you're working through these digital customer experience projects, how is it that you ensure that these transformations actually enhance customer engagement and trust, especially when dealing with people's sensitive financial data?

Alex - 00:13:31: It's all about aligning the strategy of the organization with the activities, right? Believe it or not, I used to work for a bank that was not about providing the best customer experience. That was not our overriding strategy. Our overriding strategy was provide the most efficient way to give banking products. And therefore, the idea of how we enhance customer engagement was really not one that we cared about. Now, we told everybody that we cared about it, but the reality was that when we had discussions, that's not what we talked about. Other banks are very much focused about the customer engagement. So it all depends on your approach, right? If you are like most banks where customer engagement and customer experience is important, but you also need to think about privacy, you have to be thinking about and you have to have expertise in looking at how you provide that. And what I mean by that is. Having people who are experts in human-centered design. You can't just have a developer develop something and put it in front of a client and expect that is going to work well. Because developers are developers. They're not experts in how humans approach a problem and how they expect to see a solution presented to them digitally or otherwise. So you really have to understand that you need experts in that space as well.

Megan - 00:14:59: And you touched on this next question a bit with the need for C-suite leadership and buy-in. But the cultural shift within an organization is often the most difficult. So how do you approach change management to ensure that employees are on board and equipped to work with the new digital framework?

Alex - 00:15:19: Yeah, yeah. Yeah, that goes to Peter Drucker's famous line of culture eats strategy for breakfast, right? To me, again, it goes back to the whole idea of leadership. In every organization I've ever worked in, you could draw a direct line between what made a CEO tick and what the organization is like. And it was true when I was at a bank. It's true now when I'm at a fintech. So if you want to make the culture shift, you have to have a CEO that is communicating what's important and is showing that they're making that shift themselves. I once worked with a financial services organization where we were looking to do digital transformation, and the CEO was very much behind the idea of doing it, but he was very hands-off. And so he deputized the CIO to be able to make this change. The CIO then had to either convince or fight with the other C-suite members to get things done, right? And in this case, the CMO did not believe that changes needed to be made. And so there were a lot of political problems here. And when that was brought to the CEO, it's like, hey, you guys need to work it out. It shows that it's not really that important. If the CEO says, hey, you guys work it out, it means that it's not something that's valuable to the CEO, and therefore it's not going to go anywhere, right? And so the culture there then just becomes toxic, right? Everybody's fighting over everything, and that just goes to the rest of the organization where different units are not working together. So it's got to be leadership that drives culture. It's got to be communicated often to make the change. It's very possible. I've seen it happen many times.

Megan - 00:17:05: And obviously a hot topic these days is AI and machine learning. How is it that you see that these technologies are reshaping the customer experience in the next, let's say, two to four years?

Alex - 00:17:19: Yeah. Well, AI is really not new to banks and financial services in general, right? We've been using it for things like fraud detection and underwriting and other risk management activities. So it's been there. But what's different now, of course, is large language models and other generative AI, the ChatGPTs of the world that is impacting or at least is threatening to impact the business model. And how it's going to change the customer experience. It's going to depend on various things. Right now, I'm a little bit skeptical of being able to turn around a large language model to support a direct-to-customer experience. And particularly because of the things that we're seeing, the hallucinations of these models, information that is just incorrect, and in some cases, information that is downright dangerous, right? So right now, what we're seeing... What I expect is going to happen for the next year or two years is going to be more of the augmented banker or the augmented advisor, where these tools are available to a human and the human can use the information that's given to them with also the understanding that if something is not correct, that they can catch it then, right? And it's not going to be presented to a customer. So an advisor can get a summary of a portfolio. And where investments might make sense. But again, the advisor needs to know that, hey, these investments don't make a heck of a lot of sense, given what the tool is giving me. So I'm going to supplement that with my own knowledge. I think that's what we're going to see in the next year or two. What's going to happen, though, is certainly all these kinks that we're seeing now are going to be worked out at some point. And I know that if you hear the folks at OpenAI, they've said that they've worked them out. You know that? We'll see. We'll see what has happened. But what I expect is that at some point, we're going to have these AI agents that are going to be working on the behalf of the company and on behalf of the client, of the customer. And so suddenly, you're not banking. You're not banking at all. Your AI agent is banking for you and is interfacing with an AI agent on the bank side, right? So a lot of this stuff is just going to start moving, more into, the background. And we kind of see it a little bit with how technology impacted the taxi service world, right? The way that we hail a cab now is with an app. The way that we pay for that cab is all within the same app. So banking, it'll be hidden in many ways. And in some ways, we already see that. And obviously, the payment that I just mentioned is one example. But we're going to start seeing AI, taking a lot of that stuff that banking customers are really not excited about. Making payments, making sure that the bill got paid. All those things are going to be very much automated and very much driven by your AI agent. And when there's something wrong, your AI agent is going to tell you, hey, check this out. You need to figure this out or you need to solve this problem. Or may actually take action for you and try to solve it for you. That's coming. There's a ton of things that we need to figure out from a financial services standpoint. We need to figure out regulations. We need to figure out how we understand what these agents are doing. It's got to be really transparent. It's got to be ethical. It's got to be within regulation. So that part may actually take longer than the actual technology. So that might be more 10 years out, 15 years out.

Megan - 00:21:09: And I'm curious about your opinion, but as technology advances. Do you think there'll be a time when like regional and community banks can't keep up with the investment and maybe banks consolidate or no?

Alex - 00:21:23: Yeah, it's already happening. The gap between the digital haves and the digital have nots is widening. That does not mean, however, that a small community bank or credit union cannot compete. Some of those small organizations can move way more swiftly than a Chase or a B of A or any other big organization. So there are some organizations and some of them work with us that are already making some huge changes and they are digital haves as opposed to the have nots. There are a lot of organizations that are just saddled with a lot of technology or a lot of old thinking and are just not moving fast enough. And every day they're getting further behind. So if you look at M&A in banking, it's heating up. Both banking and credit union space. One awesome phenomenon this year is we've had, I believe, 19 or maybe 20 credit unions buying banks in the U.S.. That is something that used to be an exception. And this year we've broken a record of how many credit unions have actually acquired banks. And that's going to continue. Small organizations, small banks, small credit unions that have gotten so far behind they can't catch up are going to have to sell themselves to be able to survive.

Megan - 00:22:44: And Backbase's platform is designed to help banks streamline customer journeys and operations. And how do you see the role of journey orchestration within a digital transformation? And how can banks use it to stay competitive?

Alex - 00:22:57: Yeah, what we see is it's just bringing efficiency and customer centricity to the forefront for banks and credit unions. It used to be that organizations just went out and rely on whatever their vendor developed. And generally what it was, the core vendor and FIS, FIS served Jack Henry, which are the three big providers of those services. And so if your core system was one of their core systems, you sort of rely on them for all your technology and you kind of rely on them to do that orchestration. But as organizations have realized that they need, better technology and some of these vendors are not keeping up. They need to start managing their own technology and orchestrating their own world and their own tech stack. And so what we do, first off, we have a platform that's multi-channel, multi-segment, can help an organization to reduce the different technologies that you're using. But we also have the ability to be that orchestrator of the technology. That allows us to be the central point for all the API connections that you need between your core and other systems, and allows an organization to really manage and own their own digital destiny.

Megan - 00:24:20: And as you're working through these digital transformations, what are the key metrics or KPIs that you're focusing on to ensure that they're driving value for both the business and the end customer?

Alex - 00:24:32: There's not a single metric or a single set of metrics. Ultimately, it goes back to the strategy of the organization and what's important to that organization. Now, having said that, banks generally are going to be looking at financials, right? They're going to look at efficiency ratios, ROI, et cetera. And for credit unions generally, what they're going to be interested in is measures of satisfaction, things like net promoter score or things like that. But it all depends on what it is that you're working on and what piece of that progressive modernization that I talked about you're working on. So an example is if you're working on account opening, which is one of the pieces of our platform, you're going to be looking at things like abandoned cards, right? How many people started an application and finished, and submitted that application? How many people we approved in that process? How many people got in through the door? And how many people actually funded a checking account? How many people accepted a loan and went forward with it? So those would be the metrics that would be specific for that piece. But ultimately, you're going to be looking at whether your organization's efficient. And from a financial standpoint, things like efficiency ratios and operating ratios, things like that are ultimately what organizations are looking at, particularly banks. From a customer experience, I don't really... I'm not a big fan of Net Promoter Score, as a metric, but it's widely used. So that seems to be what our banks and credit unions gravitate towards. But if there are ways to have a metric that measures satisfaction, generally, we're going to be using that. But it depends on the bank credit union that we're working with.

Megan - 00:26:16: And digital transformation is often seen as a way to unlock efficiency and growth. So how do you measure success during a transformation project, both in the short term and long term?

Alex - 00:26:28: Again, I mean, it goes back to some of the things I just said, right? So for the short term would be, what are your short term goals? What are your goals for this year? Are you achieving those goals? And for long term, then we're looking at shareholder value or metrics in that area, right? So it depends on the organization. It goes back to what's most important for them.

Megan - 00:26:53: And when you're looking at customer satisfaction, do you have an opinion as to how a company or a bank can get the happy customer to answer a survey? Because for myself, I know I will answer surveys when I'm not happy. But as far as having had a good experience, I'll often just ignore them.

Alex - 00:27:11: It's interesting. One of my many roles that I've had, I managed the voice of the customer for Bank of America's private bank. And so what that meant is we managed a process where we interviewed our private bank customers on a regular basis. And it was difficult because it was a very large sample of people. And what we found was that we got two buckets, the people that were not very happy with us and the people that were very happy with us. And most of the unengaged people in the middle never took the survey. So that was a challenge. Later on, when I was at a community bank and I owned the customer experience as an executive, we did the usual surveys. And we scored fairly well. We did measure MPS. But one of the interesting things that we used to do is we would take a random set of customers and we would send them a little postcard. And this is not that long ago. So this is within the last 10 years. We would send a postcard. And the number of postcards we got back was crazy. Way more than the digital surveys that we try to do. And even when we hired a survey company to do surveys. And it was all the questions are open-ended. So it was not a matter of measuring our satisfaction, but really looking at true feedback from customers. I then later did a very similar thing with digital banking. So when you exited the digital banking, we would ask if you had a minute, to give us some feedback. And we got a lot of verbatim. So it was more of finding ways to get real feedback as opposed to just getting a score. And to me, that was way more valuable than getting a score. Because then we really got into what was making our customers very happy and what was a challenge. And sometimes those little cards had two, right? It would say, hey, I love what you do here. And I love SuSiE at the branch or whatever. And then in the back- And in the bottom where we asked for what we could do better. And there was some really important messages in there that talked about fees or not understanding how things are done or whatever. And those were more actionable than getting a score of 80% of our customers are happy. That's not very actionable, right?

Megan - 00:29:38: Yeah, that's a great idea. And so looking ahead, how do you see the future of financial services playing out? And how do you think that digital transformation is going to continue to evolve? What should we be preparing for in the coming years?

Alex - 00:29:56: I think while I'm a big proponent of using the term digital transformation, I think we need to start dropping the word digital. Because it's really not a transformation to be digital. It's a transformation of the business model, period, right? And that model is not going to stay the same. Just because we had many years of the same business model, people going to a branch and doing their banking at a branch, and which has definitely changed in the past 20 years, it's just going to get more and more complicated from an internal standpoint. And it's going to change, right? So some of the things that I talked about, AI agents, for example, that can change the business model entirely. And what a banker does in the day-to-day is going to be significantly different 10, 15 years from now than what it is today. And I really don't know what that is.

Megan - 00:30:52: Yeah, I'm not sure any of us can imagine that.

Alex - 00:30:54: Right, because back in 2010, as coming out of that conference that I mentioned at the beginning, I had this idea that in five years, most of the branches would be closed. Boy, did I miss that, right? You'll have branches. But the reality is that branches are getting less important and there's less branches today than there were, it was 14 years ago in the whole scheme of things. There's also less number of banks since then. But what I thought would happen didn't happen entirely. If we go back to that point in 2010, you would hear some people talk about how blockchain was going to change financial services entirely. And how banks would all disappear and everyone would be on the blockchain. Despite whatever my crypto friends say, that has not happened. And it's nowhere near to be happening, right? And so where things are going, certainly AI is going to make a huge impact. The transformation of the business of the banking model is not a single event. It's a continuous number of events. There's going to be some interesting things that are coming that we know are coming. Quantum computing is going to change how we think about technology and how we think about data. I was joking with someone yesterday about, imagine we've spent the last 15 years trying to figure out how to clean our data and get it ready to be able to use it. But with the power of a quantum computing world, we may not even need to clean the data. That may actually be able to be done because the quantum computing could be so fast that it could clean the data and use the data and analyze the data and give results all within nanoseconds. And all that infrastructure that we built may be for naught, right? We don't know. And then there's also some very scary things, right? One of the things that we rely on is encryption of data. And with a quantum computer, you can unencrypt all the data because it just functions so much faster. So how do you develop? Encryption that cannot be defeated by an ultra-fast computer. Who knows, right? I'm no expert in that. But that's also something that we need to think about and that is going to be an issue, a growing issue and a growing concern.

Megan - 00:33:27: Alex, thanks so much for being my guest today.

Alex - 00:33:29: Sure.

Megan - 00:33:30: I wish you and Backbase all the best. Again, appreciate your time in being here with us today. And to all of our listeners, please tune in next week. And until then, take care.