 from theCUBE studios in Palo Alto and Boston. It's theCUBE, covering IBM Think, brought to you by IBM. Hey, welcome back everybody. Jeff Frick here with theCUBE. Welcome back to theCUBE's continuing coverage of IBM Think 2020, the digital experience we've been covering Think since the beginning and this is the first year that they've gone to the virtual conference obviously with the COVID situation and we're excited to have our next guest. She's Sarah Diamond, the Global Managing Director for Banking and Financial Markets for IBM. Sarah, great to see you. Thank you. Great, so let's just jump into it. You've been dealing with financial services and financial markets for a long time and getting ready for this interview, I stumbled across some old stuff you did in 2016. You know, it's kind of talking about cloud adoption in financial services, but you know, we all know financial services has special restrictions in terms of privacy and regulations and making sure that stuff stays stable and fulfills the obligations, reporting obligations. But there's so many great things that come from cloud in terms of speed of innovation costs and all these other things. You've been working in this space for a long time. There's some exciting work that you've been doing. How are you helping cloud, or excuse me, financial institutions leverage cloud in a better way? Yeah, it's a great place to start. You know, as you say, financial services clients have been looking at the cloud for several years, but actually it's interesting that notwithstanding the great focus on the opportunity presented by cloud in terms of the agility of the architecture, speed, resiliency, and cost savings are less than 10% of their workload has actually moved to the cloud. And that's because, as you say, there are very, very strict requirements over what workload can move to the cloud as it relates to data privacy, security, et cetera. And so as we looked at how much our clients were struggling to be able to move their workloads over to the cloud, we realized the need to come up with a financial services specific cloud. And we've been very fortunate to do that in conjunction with one of our main clients, Bank of America. And we will be launching the first financial services cloud for the industry. Wow, that is wild. First, I'm shocked that you say only 10% of the workloads have made the conversion to the cloud in the current situation, which seems very, very low. Actually, I said less than 10%. Less than 10%, not even 10%. Even less than that. So what are some of the specific attributes of the financial services cloud that IBM's rolling out that will enable them to move that number hopefully well north of 10% in the not too distant future? Yeah. I think the first place to start is secure and really at an enterprise grade level for financial services. So that the financial services can provide the level of security and resiliency that's needed as they run mission critical systems for the world. A wrapped around that then is being absolutely sure that the way the cloud is built meets all of the regulatory requirements as it relates to both risk analysis and again, security. And we acquired three years ago, Promontory, which is the preeminent regulatory advisory company for financial services. And one of the huge benefits of having Promontory in our portfolio is to be able to leverage their expertise to do this. And then there's things like making sure that the cloud will support a rich catalog of the ISVs and the SaaS providers that our clients want to be able to work with and that it dovetails seamlessly into other infrastructure services, whether it's VMware, Cloud Native, Red Hat, OpenShift, et cetera. I'm just curious Sarah to get your take on kind of the complexity of the regulatory environment because clearly just knowing U.S. regulations per se very, very complicated in financial services, but you guys are dealing with global multinationals as well as banks established all around the world. So just for the layman, how much Delta is there between the various regulations that either apply to a bank within a particular country, as well as when banks do business across a lot of countries that they have to comply with every single kind of regulatory infrastructure in the markets in which they serve, that's got to be a mess. Yeah, absolutely they do. So they both have to comply with the regulator for their home country and they have to comply with the regulations in any other country that they do business. And whilst there's definitely a level of consistency across the regulations, they're not a single set of regulations. So it requires a great deal of knowledge, insight and preparation to make sure that they're going to remain compliant in every country in which they do business. A lot of boxes to check. Exactly. And again, that interview that I saw was 2016, we're now in 2020, right? So it's been four or five years and what's interesting is on kind of the pace of digital transformation is not super, super fast, but here we are with COVID-19 and COVID-19 has just been this light switch moment that nobody had time to prepare for. So whether it's working from home or we're participating here in a digital conference, think is not a physical event like it's been in the past. So it's been this kind of light switch forcing function on a lot of things. As you look at your client base within the financial services industry, what are some of the impacts that maybe people aren't thinking about of COVID on their ability to deliver their services? Yes, and I think there's two parts to your question as I think of it. One is which of the financial services clients were able to adapt most quickly to the requirements of being able to operate in essentially the lockdown work from home environment imposed by COVID-19? And then the second part is, what are the waves that we see going forward for the industry? It's really interesting because clearly those clients that had moved already to a much more agile hybrid environment were much more digital in their capabilities, had much better security around their data assets, were ones that were able to make the shift quickest. And those that were somewhat behind lagged in those areas are the ones that struggled or took longer to make the shift. I think the shift has come initially all around how to move the predominant work of the workforce to work from home. So most clients now, 70 or 80% or more of their workforce are working from home. And that's a huge shift for most of the banks where notwithstanding the offshore work they were doing, still virtually all of their staff were onshore. So that was a huge effort. And with that, they needed both extra security to make sure that there was not going to open up any security risks in doing it. Capacity, because obviously capacity peaked. And then obviously just the tools and the know-how to know how to work from home. So that was a huge piece. Those clients that had significant trading operations saw huge peaks and troughs in the trading. So you've got this huge volatility around trading as well as of course the huge volatility around the results. And then I think a third category of this is just how to continue to service their clients, their customers in a remote way. And when you look at banks, for example, in Italy, some of the Italian banks have closed down up to 70% of their branches, again to create the security that was needed to withstand the epidemic. In the US, you hear numbers more in the 50% range, but that's a huge shift in terms of how to support your customers in a continuous way. And with that, as you might imagine, huge peaks in call center volumes and challenges in terms of how to deal with that. And these are all things, as you pointed out earlier, that bring intense focus on the ability to leverage digital technology and be able to support both the employees and the customers in a seamless, secure way online. There's so many facets to this, if you will. And the one that strikes me as you're talking about the work from home, we've had a lot of work from home conversations over the last several weeks, right? A big piece of this is enabling your workforce to do that. What strikes me, the difference about banks and financial institutions is not only they have digital security, but they have a lot of physical security and physical security of assets that is not so easily digitized. So where are some of those kind of physical operations, literally like moving cash around and taking deposits and some of those things, are they just trying to consolidate those operations to fewer points of presence? How are they kind of managing that piece of it? And you bring to mind a great story that one of our managing directors who supports a client in Brazil just shared with us because this client is a huge retail bank in Brazil and supports the Brazilian population throughout the country. And as you say, a lot of the movement of assets cash is still physical. So indeed they had to put together teams that would continue to be able to take cash to different sites up and down the Amazon River notwithstanding all the concerns about moving around in the COVID environment. So what you've seen is that mission critical needs are still obviously having to be done by teams physically on site or moving around. And typically the way the banks have been able to do that is they've created two or three teams that basically mirror or parallel each other so that if one team got infected, then the second or the third team could fill in. So they've created this redundancy or this contingency in their team structures. Yeah, it's really a unique challenge because that money's got to move, right? It's got to go. So again, kind of back to the digital transformation, one of the themes that we've seen happen over the course of time is kind of going to your point from where can we use cloud to kind of a cloud first? And I guess financial services is lagging that a little bit. We saw kind of in mobile applications too where kind of mobile was an afterthought and now it's for a lot of people it's mobile first. And I think in a lot of underdeveloped countries, the phone, a mobile phone is the kind of primary conduit through to a lot of services like banking and those things. So I wonder now as you look forward and as we get used to this behavior and as kind of systems and infrastructure get put in place over time to support the work from home and kind of the lockdown and just less people moving around, how do you see that changing? Will it get to kind of a from a workload point of view kind of work from home first versus work from home is kind of this adjunct? Do you see that taking hold over the course of several months of being in kind of this new normal? How do you think it's going to reshape the financial services industry as we get out of this over some period of months or maybe many, many months? Yes, and I think again, you're pointing to two aspects of this. So first is how banks will continue to support their customers. And as we've just said, many customers have started to use much more online digital banking than they had before. And so what we expect to see is now an acceleration of the banks moving to digital online services for their clients because it's like there's been a breakthrough here which has been forced by the circumstances and suddenly the opportunities are opened up and they'll become even more competitive advantages to be able to do that both because of the client experience but also because of the cost implications and the speed and agility to market around that. And then the other part is always the employees. So it's the clients and it's the employees and we're already hearing our clients are engaged in conversations with our clients where they're saying, look, even when this epidemic passes and we'll feel confident about asking our employees to return to the office, we no longer want to just go back to where we were and there's a lot of work already being done to look at different job categories to decide which ones can be done remotely. It just is effectively as on-site and which ones will still need to be on-site or in front of the client. So to your point, I think this is going to really, really accelerate the digitization of the industry on all fronts. Yeah, it is kind of this new way to think of it, not can it go remote, but why can it not kind of a remote person? I can't help but think of the infrastructure for someone in financial services in terms of the VPNs and the security on those systems. And I'm sure there's all kinds of crazy firewalls and stuff within a bank's physical four walls that it's just not that easy to pick that up and go stick it in somebody's house, especially with no real opportunity for planning or resourcing or rolling out. And then we've seen the same thing as you mentioned in the call centers, which are another huge piece of kind of the customer service experience, which again, all those people are now moved out and we're hearing those same things. You know, how much of them can stay moved out and stay remote and what will it take to support them to give that same level of service? It, you know- Well and also how much can move to actual automation, right? So one of the things we've seen, even not just the move of the call center employees to work remotely, but even more importantly, I think given the volume of call center inquiries that have been occurring is much more eagerness to start to use automation in that. So for example, our Watson capabilities that have been used in call centers for some years now, there's been a big uptick in the demand of using those in the call centers so that your agents can focus on the truly complex questions and the routine questions can get answered digitally. I think the other point that we should bring out in this conversation is just the financial impact on the industry, right? So, you know, we've already seen huge segregation in terms of the likelihood of huge credit exposure and what that's going to mean for the financial services industry, you know, loss of revenue today given the market challenges. And so we are seeing right now huge focus on how to take cost out of the industry dramatically. And you're hearing banks talk about needing to take up to 40% of their cost structure down, which is going to require yet again a massive shift in terms of how the banks operate. Wow, 40%, that is a huge number. But it also just begs the question for those who got ahead of the curve a little bit, you know, they're the ones that are going to come out of this, I would assume in a much better position because, you know, banks, we think of them as the old state institution with the fancy building down on the corner downtown with the columns, but in fact, they've been at the cutting edge of technology for a really long time. It's such a hyper competitive market, you know, the margins are so thin that the benefits to speed and better customer experience are so huge when you're basically trading in the commodity of cash and trying to build all those services around it. So do you expect it'll be really, you know, kind of a shake out between, you know, those that are already kind of on the bandwagon a little bit and really driving forward on their digital transformation versus the laggards that just, you know, were kind of slow to the party and now suddenly, you know, the door to the party is closing? Yeah, I think you'll see some of that. I also think you're going to see more if you like model shift. So, you know, one of the things that has been a constant topic of conversation is what are core competencies that banks should be in and what are capabilities that the banks no longer need to provide. They may have provided in the past, but they no longer need to provide in the future. And how can they leverage the broader ecosystem, right? To be able to tap into expertise that is maybe better elsewhere and doesn't need to be a core expertise of the bank. So I think you'll see, yes, those banks that have been moved faster on the, you know, have had bigger technology investment and have been able to move faster on the digital journey, doing better coming out of this. I think very importantly for the industry as a whole, you'll start to see even more of those shifts in terms of what are core competencies that the banks need to provide versus where do they leverage an ecosystem to provide those capabilities or services for them. And again, some of the most innovative banks are quite far down thinking in that road. And that's again, where the role of Vintex come in, right, because banks don't need to build and develop all of their own technology assets. They create the platform, they create the access to their customer base and then other technology firms provide products onto those platforms. Right, well, you know, rough seas for financial services as it is for everybody as we kind of navigate these uncharted waters and, you know, we're five or six weeks into it, things seems to be settling a little bit down at least in terms of the daily shocks that we were going through through the course of March. And I think we are helping to define a new normal. I don't think, and I would imagine you would agree that, you know, coming out of this is not going to be the same as going into it. January 2021 is not going to look like January 2020 did at all. So just give you the kind of, the final word as you look forward with some hope and enthusiasm and a smile. For your clients, what do you see some of the positive benefits that we're going to realize in kind of the post COVID world? Well, I think when you go through huge shocks like this, which have obviously had huge, huge personal impact, but they've also had huge system impact, there's always a flight to quality and there's a flight to those players that really represent the trust and the core of the industry. And so, you know, I think the same is, will be for the financial services industry. There's been a lot of, you know, discussion about non-traditional entrance into financial services. At the end of the day, I think this is also an opportunity for banks to stand up and uphold the fact that they are trusted sources of service to their customer base. They do understand how to navigate through, as you've said, these unprecedented times, to securely protecting their customers' data and their assets. So I think you will see a resurgence of the role of a trusted industry in the path forward. Well, Sarah, thank you for coming on. Thank you for sharing your thoughts and perspectives and your ongoing expertise in the field. Really enjoy the conversation and stay safe out there. Thank you. Thanks for having me. All right. She's Sarah Diamond. I'm Jeff Rick. You're watching theCUBE's continuing coverage of IBM Think 2020, the digital experience. Thanks for watching. We'll see you next time.