January 31

Artificial intelligence is a transformative tool for the banking industry, and access to the right talent is one of the biggest challenges right now. JPMorgan has hooked workers by emulating the practices of tech firms, a new report finds. 

JPMorgan has topped a new index that ranks some of the world’s biggest banks on their competence in artificial intelligence.  

The new Evident AI Index covers the 23 largest banks from North America and Europe and draws upon millions of data points across 143 individual indicators, like total patents, investments, and partnerships. JPMorgan ranked highest for its artificial intelligence use overall, as well as for its volume of AI developers.  

To attract and retain talent, banks should emulate tech companies with strategies like AI-specific recruiting, innovation hubs, and giving workers clearance to publish research papers, according to the report.  

“Banks need to create the right environment,” Evident cofounder, Alexandra Mousavizadeh, told Insights Distilled. “It’s existential.” 

Artificial intelligence offers a wide range of use cases for the banking industry, including fraud detection and prevention, customer service, trade finance, risk assessment, credit underwriting, portfolio management, and more.  

For a deeper dive, check out the full report here, which also includes data related to banks’ original AI research, patents, partnerships, investments, and transparency, among other themes. Relatedly, the United States’ National Institute of Standards and Technology just released risk management guidelines for organizations using AI systems.  

The rapid influx of regulatory documents and enforcement actions has swamped compliance teams; regtech software like ING’s can restore efficiency. 

ING just spun out and sold its regulatory change-monitoring tool, SparQ, to risk intelligence firm Corlytics.  

SparQ’s software helps identify new regulations or threats, construct robust controls around monitoring and oversight, and ensure appropriate policies are in place. 

The Dutch bank started building the technology in 2017 to help it manage the “increasingly complex regulatory landscape,” and began partnering with Corlytics several years ago. The tools now have 550 users across ING, including in its risk, compliance, finance, regulatory affairs, and legal departments.  

When the platform finds a new, actionable regulatory development, it can also autogenerate a first draft policy for the bank in real-time, “something that can take up to six months using a conventional method,” Corlytics CEO John Byrne told Insights Distilled.  

ING estimates that SparQ has led to around 20% efficiency gains and has bolstered its relationships with regulators by contributing to its “efforts of demonstrating being in control,” ING chief compliance officer Rein Graat said. The bank will continue to use the software and “provide input on functionality and ongoing development” to Corlytics, ING spokesperson Marc Smulders told Distilled.

This is the third tech solution ING has spun out, following Stemly and Pyctor, and only the latest example of a big bank transitioning its homegrown tech for public consumption. For example, Banco Santander is partnering with Google to sell technology it created to help move mainframes to the cloud, while Capital One productized Slingshot, software it originally created to manage its own use of the cloud data tool Snowflake.   

“ING combines corporate innovation and entrepreneurial experience,” Smulders said. The bank creates “minimal viable businesses that are adjacent and disruptive and are ready to scale further,” and then either spins them into existing business units, continues to scale them up at arm’s length, or spins them out into separate companies.  

With high interest rates bolstering banks’ top-line growth at the same time as fintech valuations flounder, FinServs have a unique opportunity for M&A this year. But careful due diligence and a specialized approach to retaining talent are crucial to making a purchase successful instead of a flop, according to Bain analysts. 

While banking M&A activity stalled in 2022, Bain predicts in a new report that it will rachet back up this year, as healthy institutions look to “buy new capabilities to deliver their portfolio strategy faster, cheaper, and more effectively than they could on their own.”  

These so-called “growth engine” deals can drive real success: For example, JPMorgan bought Nutmeg in 2021 to complement its brand in the UK and was subsequently recognized last year as the region’s fastest growing fintech app. For such acquisitions to work out – unlike another recent JPMorgan tie-up with now-defunct startup Frank – banks need to focus on two key factors, according to Bain:

First, their due diligence should focus on ensuring “the quality and distinctiveness of digital components,” as well as planning for how the acquired firm will be integrated. Poor integration plans can be a killer: A 2019 BCG survey found that the top reason acquisitions failed to deliver value was a poor integration approach.  

The biggest risk is when “the acquirer lacks a clear view of what to integrate versus what to keep separate,” Bain partner Katrina Cuthell told Insights Distilled. Successful acquirers should have a “clear integration thesis linked to the sources of value” which “guides their decision making from day one,” she added.  

Second, they need a specialized approach to retaining talent after the acquisition closes. For example, they should treat key acquired workers like entrepreneurs, “with independence and tailored compensation.” If banks aren’t deliberate about creating the right environment, top tier talent could get a taste of big-company bureaucracy and fly the coop. 

Read the full Bain report.   

A swathe of startups are trying to inject artificial intelligence and privacy-preserving data sharing into outdated and shockingly ineffective know-your-customer and anti-money laundering processes. 

Three young startups just announced a cumulative ~$27 million in fresh funding in the past week to tackle financial fraud: Hawk AI, Sandbar, and Salv. 

While they all have slightly different approaches, they share the goal of using machine learning to flag anomalies that could indicate suspicious behavior or emerging threats, reduce false positives, and cut down on manual work.  

Ultimately, they also lower the risk of penalties and fines that have become all too common: ComplyAdvantage’s recent Financial Crime survey found that that a stunning 79% of respondents said that their firms choose to make AML violations and incur related fines as a cost of doing business. That’s up from 61% in 2020.  

The startups boast backers from the likes of Wise, Stripe, and Square, as well as clients like Visa. In the same vein, Insight Partners’ portfolio company Featurespace recently won government funding to use artificial intelligence to catch money laundering while protecting data privacy, while Standard Chartered is using tools from Chekk for real-time risk assessment and anti-money laundering. 

Banks are linking up with earned wage access firms, which let businesses pay their employees in real-time versus on a set schedule, as inflation and the labor market make it a “highly desirable” benefit.

Fintech DailyPay just announced $260 million in financing (a mix of credit facilities and loans) as earned wage access gains ground as a must-have benefit for workers in industries like retail, healthcare, or food services.  

DailyPay provides technology to both TD Bank and PNC and has “more partners to announce in the coming weeks,” head of communications David Schwarz told Insights Distilled, as relationships with financial institutions becomes one of its “pillars of growth.”  

Other banks have announced fintech partnerships to help their business clients buck traditional two-week pay cycles, too: US Bank works with Payactiv, JPMorgan works with Even, and Citizens Bank works with an unnamed provider.  

“The benefits of earned wage access are tremendous,” TD Bank’s head of commercial digital platforms, Paul Margarites, previously told Insights Distilled. “The operational impact to the employers is low overall. However, to the employee, it is potentially life changing.” 

Ultimately, DailyPay’s bank tie-ups align with the larger trend of financial institutions working with startups to launch unique or improved tools for their business clients.