An evening with Ms Sirisha Voruganti, Digital transformation in the financial world
Introduction
On March 4, we had a very insightful session by Ms Sirisha Voruganti, Managing Director and head of Architecture, Data and Digital Technology for Consumer & Community Banking (CCB) at JP Morgan Chase (JPMC).
Ms Sirisha has 30+ years of experience spanning research, product engineering, product development and consulting across the public and private sectors. She started her career as a scientist with the Defense Labs. Most recently, she was the Executive Vice President & Chief Technology Officer (CTO) of Architecture and Shared Services for MasterCard and led Mastercard India. She was the First Group Executive Leader in Technology for MasterCard based outside the U.S. Prior to MasterCard, Ms Sirisha worked for Tech Mahindra as a Distinguished Fellow and Senior Vice President and Head of Innovation, where she was awarded the Mahindra Innovation Award five years in a row.
Ms Sirisha has a Master’s Degree in Electronics and Communication Engineering, an Executive Management Program from Harvard Business School and also holds patents in Cloud-Based Versatile System for Radiological Images.
About banking and JPMC
The financial services sector makes up some 20% of the global economy and accounts for 15% of the global workforce. JPMC is a 200-year-old organization with an illustrious history. The founder JP Morgan was probably the leading financier of his time (He bailed the country out of a major banking crisis in 1907, when the Federal reserve did not exist.) and one of the sponsors for the famous inventor Thomas Alva Edison.
The bank has assets worth $ 28 tn in custody and handles some $ 6 tn worth of transactions daily. About 50% of US households have some dealing with JPMC. The bank has about 54 million digital customers (The number grew by 30% during the pandemic.)
Adapting to recent trends
Despite being an old organization, JPMC has adapted well to recent trends. Customer expectations and customer experience have changed over time. Compare inland letters with email, then WhatsApp and now Instagram. People today want to share information in real time. To enable this, at the back end, a lot of data has to be processed.
There was a time when credit card transactions would take 2 days to settle after the swiping. To apply for a credit card, we had to submit a handwritten application form. Now transactions are authenticated in real time and applications are made online.
JPMC has some 6000 applications handling about 450 petabytes of data (equivalent to 65 trips to and from the Moon!). Not only is there processing of huge amounts of data at the backend but also there are many stakeholders involved in the process: fintech, telecom, banks, device providers, etc. (Devices include mobile phones, cars, refrigerators, other consumer appliances, etc.)
Mega trends in banking
Digital disruption has arrived at the doors of the financial world. Competitors have raised the bar for digital, with a range of services from mobile and online banking to digital payments. Integration with e-commerce platforms enables them to mine smarter insights about customer spending. The evolving landscape of the financial world calls for new capabilities, improved services and digitally enabled customer experience.
Touchless transactions: People are looking for convenience and speed. Non-intrusive ways of doing transactions like facial recognition will become more important. Think of FASTag which has eliminated queues at toll gates in India.
Risk: The threat due to cyber-attacks has gone up 600 times. Earlier, the patterns could be easily recognized. But not so today. The risk is not just on account of the customer but even due to the third party and the fourth party. Earlier, the patterns could be easily recognized. But not so today. As technology is evolving, people are coming up with algorithms that write anti-patterns. (The anti- pattern is a commonly used process, structure or pattern of action that, despite initially appearing to be an appropriate and effective response to a problem, has more bad consequences than good ones).
Personalization: By leveraging insights, banks can provide offers that are suitable for the customer and optimize the experience.
Self-service: This is important in many situations. For example, many senior citizens cannot come to the bank. They are being encouraged to do transactions from home with the help of AR/VR, while having the experience of being in the branch.
Time to market: This is becoming critical. Backend systems must be architected carefully for agility and responsiveness. The goal at JPMC is to make things faster and better.
Peer to peer lending: This kind of lending has the potential to disrupt traditional lending. People can go to a P2P marketplace to borrow money. If approved, they get a risk classification, which determines the interest rate applicable. The loan then gets funded by one or more private investors. Peer to peer platforms transfer risk and return to the lenders. Most of their revenue comes from fees charged when new loans are taken out. Peer to peer lending took off following the global financial crisis. Regulatory restrictions put the shackles on traditional payers. Tech startups began to leverage the psyche of millennials who have an affinity for online/ mobile access, automated processes, and transparency of data and information. They dislike traditional in-person lending processes that involve a lot of paperwork, and tend to be opaque and are increasingly depending on online marketplaces for their borrowing needs. The availability of data on an individual loan basis and sophisticated technology platforms are enabling online lenders to create more robust credit risk models. This is turn enables them to approve or reject loan applications almost instantaneously. In general, these lenders operate with much lower capital, have little or no asset liability mismatch, and lower regulatory overhead costs.
Crowdfunding: Crowd funding means that instead of one or a small group of financiers, a group of people, each making a small contribution can support a new initiative. This is dramatically changing the way in which films are funded, new products are developed, decisions relating to charity are made and venture capital is raised. There are four ways in which crowdfunding can raise funds: through donation, reward, lending, or equity. Besides raising capital, crowdfunding also provides start-ups non-financial benefits, like pre-sales leads and product validation and a gauge of pricing and demand. People who fund the business may help to promote and market the products through word-of-mouth. A good example is Kickstarter which focuses on raising funds for creative pursuits.
Robot advisors: Robo-advisors provide automated, algorithm-driven financial planning services with little or no human supervision. A typical robo-advisor collects online, information about the customer’s financial situation and future goals. It then makes personalized investment recommendations. A robo advisor mainly provides portfolio management advice and is a low-cost service attracting millennials because it is accessible online and does not require a high balance. Earlier, wealth management was restricted to high-net-worth individuals. Robot advisors have democratized wealth management.
Payments: Traditional methods of making payments have been time consuming and expensive. Fintechs have changed the paradigm. For example, TransferWise does away with costly cross-border transfers and currency conversion by rerouting payments. It does not send the money directly from the sender to the recipient. Instead, it redirects the funds to another recipient in the same country, who wants an equal transfer in the opposite direction. The original recipient receives the money from another sender in the same country, who initiated a transfer of the same amount.
Ripple’s distributed financial technology enables banks to send real-time international payments across networks, with no settlement risk, and eliminates the need to have separate accounts in different countries.
In March 2015, Facebook began to offer users the option to send mobile payments through its Messenger app. Square has Square Cash, a remittance app that lets people send and receive cash through email. Snapcash allows Snapchat users to enter an amount through the messaging app and transfer the amount to a recipient’s pre-registered account. WeChat supports money transfer and payment for users who have a WeChat Payment account.
During the Q&A session, Ms Sirisha explained that our Aadhar based payments system, UPI is well evolved. We are ahead of many other countries when it comes to digital payments. The guardrails are in place. Now, we must use the network effectively. Nigeria is one of the other countries with a similar system like Aadhar. The 11 digit Nigerian National Identification Number (NIN) is issued and managed by National Identity Management Commission (NIMC).
Transformation at different levels
The digital transformation is happening at different levels: architecture, data, infrastructure. JPMC spends $ 12 bn a year on IT. It is important for the bank to generate efficiencies and cost savings so that they can be ploughed back into innovation. Beside inhouse investments, JPMC has made 9 acquisitions and invested in some 263 companies.
Q&A
On her journey
Ms Sirisha has had an eventful journey working in Defense labs, three startups (one of them sold to Skype) and private sector organizations. She admitted that it is difficult to plan everything in life. But it is evident from the way she has progressed in her career that she made the best of the opportunities that came her way. While working in DRDO, she learnt how to build systems. At Tech Mahindra, she worked on interesting projects like the driverless car for Indian roads. All these experiences have helped her to build systems for today’s requirements such as connected commerce. Entrepreneurship involves risk and the venture may fail. But it is worth taking, just for the learning. We must take risk when we are young. As we grow older, we tend to become risk averse.
On the challenges in implementing digital transformation
Change is always difficult because of resistance. JPMC is a 200-year-old bank with centralized, monolithic legacy systems. Over time, a lot of patchwork has been applied. Apps have been built on top of the old systems. Moving away from the past to become more agile was a tough ask. People had to be convinced about the need to work in the larger interests of the organization and the ROI that would come over time.
But there is no alternative to change. Competition has intensified over time. If a bank is not agile, it will get eaten up by others. Agility and innovation are the key to survival and growth.
On blockchain technology
JPMC is betting heavily on this technology and making significant investments. The bank’s Blockchain Center of Excellence leads efforts for Distributed Ledger Technology applications, researching blockchain use cases and piloting solutions. It has developed enterprise-grade blockchain tools, such as JPM Coin, Interbank Information Network (IIN) and Quorum, to drive industry standards and deliver value to clients.
JPMC built the Quorum blockchain internally using the ethereum network. In August 2020, the bank sold Quorum to ConsenSys, a prominent blockchain start-up that grew rapidly during the 2017 crypto bubble. Quorum, which will remain open-source, is used by JPMC to run the Interbank Information Network, a payments network that involves more than 300 banks. The network and other bank projects running on Quorum will continue to operate using the platform. As part of the deal, JPMC has also made a strategic investment in ConsenSys, but the financial terms of the relationship have not been disclosed.
On crypto
JPMC CEO, Jamie Dimon was earlier not a believer in crypto. But over time, the stance of the bank has evolved. The bank does not aggressively advocate investments in crypto but enables clients to invest in crypto, if they have a need. The bank also has its own crypto, JPMCoin. But for crypto to go mainstream, a well thought out regulatory framework is required.
On the partner ecosystem
It is not possible for JPMC to handle everything on its own. The bank works with several partners while building its systems and applications. It is an ecosystem of sorts. For example, collaboration with AWS is important. When data moves to the cloud, there are important security considerations, and the bank has worked closely with AWS to design an optimal hybrid solution that is a combination of on-prem and public cloud.
On risk and control
Risk is always important for a bank. JPMC has several checks and balances in place. As mentioned earlier, it is not just about the customers with whom the bank is dealing directly. Even third parties and fourth parties pose risk whenever there is data transfer.
The importance of risk has multiplied several times in recent years as the probability of cyberattacks has increased. But there is a lot we can do individually as consumers and users. We should make our passwords stronger. If we try to use passwords such as our name followed by 123, we are only trying to score self-goals. Risk is the joint responsibility of different stakeholders, not just the bank. We also cannot just leave it to the regulators.
JPMC has recruited senior retired defence personnel with experience in Iraq and Afghanistan. They understand the psyche of criminals and their modus operandi better than anyone else. Crises will always occur from time to time and in recent times, they have been unexpected and of a severe magnitude. The war in Ukraine is the most recent example. The key is resilience. If something happens, how fast can we recover? Is there an alternative path while things get back to normal?
On the role of Higher education institutions
They have an important role to play. Indeed, they should become innovation hubs in areas like Big data, AI and Metaverse. But it is important for them to work closely with the industry. They must try to understand the problems the industry is grappling with and give the students the right kind of practical exposure. Otherwise, the students will go through the course and then have to do a lot of unlearning and relearning. In the US, the professors raise funds from industries for their research work. In India, too, we must move in that direction.
Concluding notes
As Sudhakar summed up, digital disruption has arrived at the doors of the financial world. The evolving landscape of the financial world calls for new capabilities, improved services and a digitally enabled customer experience.
The big trends that will have a significant impact on business include:
- digitisation of customer service
- customer demand for e-commerce
- creative use of self-service
- contactless delivery options
In this new paradigm, the key capabilities that will determine success are:
- cloud-based collaboration platform
- customer/client analytics
- real-time intelligence
- data-driven personalisation
- marketing automation
- conversational AI/chat bots
- ability to capture user information online
- automated cost estimates.
Sudhakar added that the success of every organisation's digital transformation starts with the people it employs. Therefore, it is critical to enable the workforce and set it up for success. When executed effectively, digital investments can also result in better employee morale, productivity and retention. More than most other industries, banks face unique challenges due to a highly regulated environment. The industry has also been targeted by increasingly sophisticated cyber threats so that any new digital solution comes with security concerns.
We thank Dr. Vedpuriswar for bringing out the highlights in the form of this note
