PwC and Microsoft lead discussion on complexities and innovations in the banking industry

PAC recently had the opportunity to attend the 2023 PwC and Microsoft Banking Horizons Summit in London. As the event focused on the banking industry, those in attendance spanned the major banking institutions covering various industry segments and backgrounds.

The event started with a couple of interesting sessions discussing the megatrends currently impacting the industry from the perspective of PwC and Microsoft leaders as well as a panel of political experts. PwC discussed how they are seeing the megatrends of net zero and the role of AI already impacting the industry across retail banking, wealth management, capital markets, and investment banking. They acknowledged that labour market and skills growth challenges affect all parts of the industry in conjunction with the adoption of AI and in addressing sustainability. This accurately reflects how PAC is seeing the dynamics of banking change as governments accelerate laws and regulations relating to both AI and sustainability. Microsoft understandably led with a more engineering-focused discussion highlighting the importance of digital resilience and the use of AI as a co-pilot to support bankers’ roles.

It was interesting to see both PwC and Microsoft discuss the importance of AI and sustainability. PAC considers both these topics as important inflection points for the banking industry. Still, each has potential “regret” costs should governments adopt laws and regulations that do not align with the approach banks are already taking in their adoption of AI and in addressing sustainability. Leaving banks potentially in a situation where whatever is invested today to address demand and market opportunity may require further investment to realign with laws and regulations in the near future.

After the main session, PAC attended two breakouts focused on embedded finance and the rise of Open AI as part of banking 2.0. The session on embedded resonated strongly with PAC because it focused on a range of factors essential for banks when addressing this topic. PwC demonstrated particularly insightful thought leadership on this topic as they discussed the business models for embedded finance and the value of being visible or not to customers, and the critical importance of eliciting trust. This led nicely into further conversations by the panellists discussing the importance of relationship transparency and trust between embedded finance FinTechs and B2B banks.

The panel highlighted how managing regulatory risks around data standards, consumer duty, and conduct risk are critical to the success of open banking and finance-embedded solutions and services. Especially in the UK, the regulators focus on the whole financial value chain of embedded products and consider the bank supporting a FinTech as the organisation owning the know-your-customer (KYC) relationship as they provide the core banking services. PwC’s experience in the banking sector, combined with its Microsoft partnership in providing the Infinite Financial Solutions offering, provides a bank, from PAC’s perspective, the range of tools needed to build, offer, and scale embedded finance services and solutions.

The second breakout session PAC attended saw Microsoft lead a conversation on how they see the role of ChatGPT, available through the Microsoft Azure OpenAI Service, supporting the banking sector to optimise how it operates and innovate through the creation of new financial products. Microsoft explained how they take ChatGPT, operationally productise, and support it for enterprise usage. This process means that currently, they are operating their Azure service using ChatGPT 3.5, and each client has their own instance that is not connected to the broader Open AI products or any other external services. Microsoft was keen to point out that their solution can be adopted quickly, given how a generative AI processes data fed to it. PAC found this to be an interesting session and is eager to see how the deep industry expertise of PwC can leverage the Microsoft Azure OpenAI Service as part of the PwC and Microsoft Infinite Financial Solutions offerings.

Overall for PAC, the event reinforced that over the coming years, with the support of PwC and Microsoft, banks can migrate from existing operating models to modern digital bank paradigms without retaining a sizable operational overhead that has plagued the industry for decades.