Good morning, everyone. I'm really pleased today to host a friend and a great partner of TOOM, Mr. David Murphy. David is the head of financial services for the EMEA region. And we are going to be discussing today financial institutions and cutting-edge technology and innovation strategies to better serve SME businesses. David, welcome. Good morning. How are you?
Morning, Ed. I'm doing well. Pleasure being here.
Pleasure to host you, man. Pleasure to host you. Also, David, why don't you share a little bit of your background and tell us a little bit about Publicis Sapient.
Yeah, great. So, as Ed mentioned, my name is Dave Murphy. I head our financial services teams at Publicis Sapient. I have 25 years experience in the industry, heavily focused on large-scale digital transformations, technology transformations, you name it. Publicis Sapient, just a little background on ourselves. So, we're a 24,000-person firm, global coverage in terms of all our offices, 50-plus offices across the globe. We're focused exclusively on what we call digital business transformation. And it's something, frankly, we've been focused on since our birth. Clearly, it was not digital. We were founded in the early 90s. Digital was not the word in the early 90s. But our focus, we were founded just outside of MIT in Cambridge, Massachusetts, and our focus and our founding thesis for our company was how to help our clients leverage technology, and technology in the broadest sense of the word, to transform the way they serve their customers and the way they operate their business. Today, that word technology is called digital, and we cover the entire gamut for our clients across multiple industries.
Outstanding. Outstanding, David. So, you know, Publicis Sapient is definitely at the forefront of helping financial institutions navigate digital, as you're saying. What do you see as the most significant drivers these days around digital transformation for financial services institutions?
So, I think, listen, I think if you think about the digital transformation, in many ways, the drivers that you see today are very similar to the drivers that you've seen maybe five or seven years ago. There's been a fundamental shift to digital among all banks' customer bases, not only just retail, but also on the commercial and corporate side. So, the reason that banks are kind of continuing to still push this agenda is, you know, what they need to do is be able to further digitize, further automate, which in turn is going to drive greater efficiency and reduce their costs, but then also be able to leverage that capability that they've created to then create new offers that are going to grow the top line. And I think if you look at, you know, where their focus has been really over the past five years and where we would argue banks have done a pretty good job has been on the retail banking side of the house. There's been a massive focus for digitization and automation. Any country you look at, you see that the level of digital usage among the customer base is easily above 80% for all types of transactions and processes and services. And so, banks have done a really good job at solving that challenge. Clearly, there's more to be done. There's always more to be done, but they've made really good headway there. And, you know, I think if you, and there's a, you know, we should get into a topic on how do banks get there, which I won't give you that full answer. We can use that for that.
Exactly. I think it's enormously important. And frankly, I would argue that it's the ecosystem that's available to banks that is actually, plus the reference cases that they see with these neobanks, that is actually building the belief in them that they can serve this SME banking segment. And listen, every element of the value chain that a bank uses to deliver services to customers, everything from how I identify customers and verify them, there's an ecosystem of players out there that you can leverage. How I actually analyze financial transactions for anti-money laundering, there's an ecosystem of players that you can leverage for that. How I then, you know, leverage even my treasury solutions, you know, there's an ecosystem of players that you can leverage for that. And then how I leverage my SME banking solutions, there's an ecosystem for banking solutions, such as yourselves, you know, in that group. Every element has innovation and it's, you know, it's fundamental to building the SME services. And if you go beyond, like for SMEs, just driving the efficiency, you go more into how do I create more value for SMEs? Then the question is, okay, well, how do I, what is value to SMEs? Well, if I've solved a lot of their banking needs, well, what are some adjacent areas? Well, can I help them, you know, generate invoices? Can I, you know, and to do that, I'm probably don't necessarily want as a bank to build my own invoice generation capability. But again, there's an ecosystem of players out there that I can leverage to do that. And so I think that's where this whole ecosystem model that frankly is fundamentally, enormously important, even down to what governments offer, right? So it's different by every country and some countries are stronger than others, but a lot of what they can help you in terms of both identifying customers, identifying businesses, being able to leverage that, again, makes the opportunity to serve SMEs that much easier.
I would imagine, any particular regulatory aspects that may be impacting how these digital solutions are being implemented? I mean, if you go back some time, probably meant more than a decade, deploying in the cloud was kind of an issue, right? There were data residency issues, you operate in the Middle East, you know, Saudi still has these things, right? You need to operate locally. So you have the Googles and the Oracles that deploy there. Do you see any other trends? And maybe the ones that actually embrace them, you know, Qatar or Emirates, these countries have embraced basically the cloud.
So I think, listen, I think it's a combination, right? You know, both regulators and what the industry is doing. So in any country, I think regulators, and it does differ by country, take cloud as an example. I think regulators have been very clear and have become clearer over the past three or four years about what are their requirements for banks to use cloud. A lot of those requirements do anchor on the fact that even though you're using cloud, I want the data center of that cloud to reside in country. And I want it to reside in country because I'm worried about where my data is going. I'm worried about which legal regime is going to get applied to my data. And so in response to that, and this is the industry side, the cloud hyperscalers, as an example, have said, okay, we get that. Therefore, I'm going to have to start building data centers across the world in markets where I see growth, which is why you see a bunch of data centers from AWS, DCP, in the UK. You see a similarThe UK I would argue has been leading the way, starting to see a bit more in the continent, you would probably maybe jump to Eastern Europe first than elsewhere. But then in the Middle East, what's interesting is you're seeing a big push and then it's not only just a regulatory push, you're seeing investment funds put money behind it, right? And to try to accelerate, which I think makes it very interesting.
Yeah, I agree with you. Even some of our investors, which includes Commerce Ventures and we have City Ventures and Portage out of Canada, they've actually opened up operations in the Middle East as well, sort of channeling the investments in that region. There's an appetite for these things to happen there. I agree with your point in relation to SME with sort of this customer centricity requirements. I think the state of technology allows us today to serve them better, right? And faster, hopefully that user experience is better. How do you see that evolving, these SMEs in relation to their sophistication and the services they seek out of companies like you, from publicize, if you actually serve some of them? Maybe some banking institution that has a division, SME division, right? What are the things they're asking you to do?
So I think this is definitely an interesting topic and I think it goes back to the data conversation we had a little bit earlier. I think, I would argue banks probably sit on some of the richest sets of data, customer data among any industry. You can maybe build a little bit of an argument on telco, but I'd argue banks probably have the richest set. However, even though they have all the data, it has been enormously hard to access that data. And then when you do access the data, it's enormously hard to trust the data. And so a lot of it is centered in many cases around this idea of when banks started putting in their technology systems in a big way 40, 50 years ago, everything was very much a monolith, an all-in-one called a core banking system that not only provided you a product ledger and did your lending, but also did your payments and hosted your customer data, maybe even did your onboarding. And that creates issues. It creates issues if you can't access your data in real time, or if you can't even access your data at all, right? Or you can't even trust what your data that's coming back to you. And so a lot of banks have been on this process of the term I think a lot of CIOs were using probably five years ago at the large banking institutions. So this is following out their core, right? Following out the monolith. And so taking elements of the monolith one by one away from the monolithic core banking system. I'm going to pull out payments and I'm either going to create my own payment hub or I'm going to use a third party. I'm going to extract customer data and I'm going to put it on my own customer data platform and I'm going to make that available and I'll have just kind of a linkage to my core, but I'm not going to store all my customer data in there. I'm going to move the entire onboarding KYC out. And so that hollow out process has really been focused on taking elements, moving it out of a core that was in many ways making it very difficult to access and putting it into areas in their banking architecture around which they can place a set of APIs in which they can make the data accessible via real time. And where they potentially can then actually bring in another third party fintech for a specific area if they want. The term that I think a lot of people use today is, and there's a bunch across the industry, it could be coreless banking, composable banking. I think if you talk to most CIOs, they'd probably say, well, that's my hollow out process, right? But it's all centered on this idea of we as a bank need to, our best asset and most valuable asset is data. We need to be able to anchor on it. We need to be able to access it in near real time. We then need to be able to enhance it. And then frankly, we have to be able to leverage that data to then orchestrate a set of ecosystem partners for ourselves to be able to deliver the types of services that they want. And I think as banks move to this model, right, this is where we are really spending a lot of our time with our clients, right? How do you move to this model? And then we will help them implement this model. And that then opens up exactly this whole ecosystem picture that we've talked about. And the reality is sometimes when you even mention the word composable, you speak to a bank CIOs, oh, I'm not doing composable or whatnot. And they say, well, have you been hollowing out your core for the past seven years? Oh yeah, of course I have been doing that, right? I pulled out payments, I'm pulling out customers. They're all on that journey. And that's where we as a firm really help our clients because once you do that, then the promise of the greater value you can create for SMEs, the promise of the operational efficiencies you can generate become that much easier to deliver.
So in a way, and I agree with you, I've seen progressively financial institutions, especially you're talking about more mature ones, right? They have to hollow up this legacy, all this baggage that's all of a sudden became an impediment for them to grow and even maintain the TCO in a healthy space for their operations. Does that imply then that progressively there will be the hollowing of is basically a migration in a way, right? They're sort of doing away from old systems, but on a progressive continuum rather than just big bank base and that had changed another dynamic. From our side, we've seen similar things as well in Toom, where basically you take this business unit and you make it efficient, right? And you change certain technologies that allows you to basically become effective at delivering value for the customers, which is at the end of the day what they're intending to do, hence grow the business. From your side and in terms of predictions and future trends, you mentioned a few now, which are very valuable. Do you see any other or maybe you have some predictions of what's upcoming, right? What's gonna happen in the upcoming two or three years? Is the regulations are gonna have additional impact, especially in the payments side, PSD treats are coming up soon. Are we gonna see a little bit more regulators getting busy with these financial institutions and maybe the things that they didn't plan to do, they will still have to do them because the regulator is sort of chasing them. What are those things that do you foresee are gonna be upcoming in the next few years?
So I think, listen, I think regulators are always, there's always pushes on regulators, they're always gonna be there. Clearly on the continent, there's a big push towards digital Euro and what is that going to mean? And so I think that's, there's a bunch of tenders out right now by the ECB for partners to implement that. And clearly when that comes online, banks are gonna need to grapple with that. I think that what's interesting about a big trend, and I am gonna mention generative AI, I can't stay away from the word, is I think a lot of the conversations around generative AI has been like where to apply it. And actually we think the most transformative place to apply it that can potentially revolutionize the way banks deliver services is actually in their own IT and change function. If you think about what makes, what is the easiest for generative AI to solve? Well, it's on topics that are a bit predictive and have grammatical. That is in many ways software writing. And so if you think about that, and you think about for banks, their IT and change then, you look at any bank and you look at any of their investor reports, it'll range anywhere from some cases five to 13% of their income, right? And so, I mean, you take any large regional bank, any large country bank, top four, top five, you're looking at spends that are a billion dollars, $2 billion. JP Morgan is 12 plus billion dollars a year, right? And you're looking at organizations that are 20,000 people. Or conversely, you could look at an IT organization that might be in a country where the engineering talent is not strong, and they're really struggling to have an IT change capability, to be able to build these services and create these services. And our belief, and this is where frankly we have made a ton of investment, is that Gen AI and what's been created over the past two years is going to be the massive unlock, and the best use case is actually going to be in the creation of software, right? And so that transformation, so if you're a CIO and you're either sitting on a 1.5 billion dollar, 2 billion dollar IT and change budget, or you're a CIO who's in a country where maybe your budget is just a few million or 10 million, and you're like, I wish I could do more, but I can't get talent, right? Now actually you have something available to you that could radically transform the way you're building software, right? It's going to radically transform the skill sets that you're offering, it's going to radically transform, or the skill sets that you need as an organization, it's going to radically transform your processes, you can start to rely more on kind of these agents that are doing, even tackling the modernization topic. Like the big challenge in legacy modernization is in many ways understanding what the current system does, right? But if I had a generative AI agent, and this is something we as a firm have and bring to our clients, if I have a generative AI agent that can read through all your code, take the context of your own functional documents if they exist, take the context of regulation, and then take your code, generate a comprehensive specification, you