Workday Podcast | Make Your Move: The Future for FSI with Forrester

Nicole Carrillo: If you're a CIO, CFO or CHRO in financial services, you might need to buckle up for this episode. You know we're always looking forward in this podcast, but today we're looking at the future itself. What are the major trends we need to focus on? How will they hit us in this intersection between finance and technology?

And how can we prepare? And not only are we talking predictions, but we're doing it with none other than global future gazers, Forrester Research. We caught up with their Financial Technology Research Director, Oliwia Berdak, just as she was putting the finishing touches to Forrester's predictions for 2025 and beyond.

I'm Nicole Carrillo, Managing Director for financial services at Workday. And I cannot wait to get into this discussion. Listen in to hear what Oliwia has to say about the prospect of mounting economic pressures and the not quite yet return on AI investments we're all waiting for. Whether financial services should tighten their belts, double down on AI, or shift focus to back-office tech, where the real game changers might be waiting. Open banking and the threat of tech giants looming over customer relationships and the banking interface. So welcome, Oliwia, please introduce yourself and tell us a little bit about life as a Forrester Futurologist. 

Oliwia Berdak: Thank you, Nicole. Thanks so much for inviting me here today and for the quick intro, Futurologist is such a fantastic title. So, I'm actually a Vice President and Research Director at Forrester, but Futurology is a lot of what we do. I manage a team of analysts who cover financial services, help our financial services clients. And this time of the year is always very exciting for us as we gaze into our crystal ball or actually lots of spreadsheets with data, and try to chart the future.

And so, yes, as we look into 2025, we basically look at some of the priorities that we see in terms of technology, business, how firms are doing in terms of profitability, their customer experience, performance, what's happening in terms of regulatory developments, customer developments, and try to advise what will happen next year and what financial services leaders need to worry about.

Carrillo: That's great. I know we always look forward to that report coming out, and I'm really excited that we have you here to give us a little bit of a sneak peek into some of what you guys are seeing. So, why don't we just jump into it? First, I'd really like to get your thoughts on the economic headwinds that are starting to blow through financial services.

My feeling is that we're seeing a pattern that comes every eight to ten years, a downturn in spend and a renewed pressure on margin and cost. But where do you think financial services should be investing in this current cycle? And are you seeing finance or people in HCM or IT really being the leaders on the investments?

Berdak: So this is a great question. I absolutely agree with you about the cyclical nature of this. So, you know despite the challenges, recent challenges, COVID, wars in Europe and the Middle East, Banks actually have performed better than expected since 2020. And that's because higher interest margins meant that they benefited from improved net interest margins, higher return on equity, pretty decent profits.

So that's been like, the good things. That said, of course we have had some turbulence in 2023, three bank failures. 2024 brought a bit more stability, probably not fantastic returns. If you think about some of the larger institutions, those were able to bolster narrowing net interest margins with investment banking wealth management fees.

But I don't think anybody can expect profits going forward to really return to those 2022/2023 levels. And the next half of the decade, I think will be tougher. Because we will have shrinking of the net interest margins. And of course, some of those business models focused on interest and interest margins will come under pressure.

So yes, good times to always turn into bad times. Maybe we'll see an upswing later on, but at the moment, I think this is the time to focus on trying to be disciplined with your cost basis, innovate through products and service, and customer offerings, and other things that hopefully we'll get to talk about.

Carrillo: Yeah, I think we hear from a lot of our customers. It's kind of been wait and see in 2024, what are these rate drops going to be? How is that going to impact? And once they get a better handle on that, being able to really lean into some of those investments that they've been waiting to make in order to hopefully bring them better cost efficiencies in the back office.

And so, I wonder if the difference with the cost push this time round is partly to do with the big investment that's already been made in AI and organizations still waiting to see that return. So, they've made these investments and they're trying to see when is that return going to start, you know, coming back to us, because I don't think they're seeing it lift share price revenue or all of the pressure on costs yet. 

What are your thoughts on that lag and what should financial service organizations be doing now? Or how should they be thinking about AI and the effect it could have in this tightening environment? 

Berdak: So it's a great question. And if I think about AI in a way, we're a little bit where we were maybe with digital sort of 10 years ago, where a lot of banks have made these massive investments in digital transformation, and they were struggling to articulate the value of those to their investors, because they said, well, we haven't seen a massive increase in sort of cost to income ratio. So, where is the benefit of this? 

And not all banks have historically been great at tying some of these investments to kind of enterprise level results, whether those results are in terms of cost, cost to serve perhaps, or revenue, revenue growth, customer experience, operational efficiency, and so on. So, I don't think banks have been fantastic at doing that. 

Obviously, banks have leveraged AI for a very long time, machine learning in particular for maybe, fraud and sort of anti-money laundering activities and so on. One bank that actually has done a pretty decent job at this, is DBS in Singapore.

We recently published a case study where we looked at DBS and how they've actually managed to articulate their use of AI and the benefits that this has generated. So, they've actually calculated something like 278 million US dollars of economic value in 2023, and really translated some of those AI investments into revenue increased, cost reduction, and also reduced risks or risk avoidance. But that's quite difficult to do, and I would say it's more of an exception than the rule being able to tie this also clearly. 

Carrillo: Yeah, that's very interesting because that seems like a diligent practice that you have to have really thought about as you start to make these investments, something we need to think about not in the future, but now as we start to build those business cases and build out measurable KPIs that we can actually track, because I agree, I don't, number one, how do you measure risk avoidance and put that into a dollar term? And that's a really interesting, that's interesting that they've been able to do that, I'm going to have to go read that case study. That would be really helpful for us to understand, to potentially see how others could practice the same.

And I agree. There’s been so much investment in AI in some of these things like compliance and fraud, anti-money laundering, which I guess, yes, is risk avoidance. How do you avoid how much in penalties you've avoided? And maybe in the customer experience side, not necessarily directly for revenue, maybe you can tie it to how many additional products that person might have ingested. But I think as we take a closer look at what might come in the next few years, I think the back office is often seen as a support area as opposed to a strategic driver, but we see this changing. 

And maybe the back office is the new sweet spot for financial services organizations on how they can accelerate some of this digital transformation and drive these efficiencies, really taking that investment from maybe compliance and front-end customer experience and pulling it towards the back end. What are you seeing as maybe the biggest back-office AI wins that you're seeing likely to come? 

Berdak: So if I lean back on that, DPS case study so in their case, they really focus on things like compliance, we mentioned, so being able to detect and stop money laundering and sanction evasion, seeing really kind of two to four times better than historical controls in this area, thanks to AI. So that's one area. 

The second area, obviously very important to banks is credit risk management. So again here leveraging AI, they saw massive improvements in sort of detection of any at risk business loans, decreasing sort of by 80 percent at risk loans that kind of were averted from default, but also in the kind of space of talent management they leverage this AI tool, iGrow, which really kind of helps employees identify their peers’ future career aspirations, and then also the skills they will require to reach these goals. So, these are three very different areas, all not customer facing sort of more back office. But actually, these were easier to show the benefit and value of AI than some of the customer facing investment opportunities.

Carrillo: Absolutely. I know with skills we talk a lot about how it's less expensive to retain your talent than to recruit new talent. And I think we've also seen how the use of skills workforce planning for career progression has been very impactful for many of those. And especially when it's assisted by some AI recommending skills to the employees, maybe things that they didn't know they might need for a next career position, or that they might not have even thought to list for themselves as something that they're good at.

Cause it's not something we normally do is sit here and think about, you know, how great am I at my job and what are all these things that I should list? So, I know we've definitely seen that as an area that AI has been very helpful for the retention, and as well as, you know, in recruitment and other areas.

Berdak: Yeah so, we do have this one interesting prediction that obviously there is this fear in employee base that AI tools might take away their jobs. And one way to sort of mitigate against that is to leverage those AI tools that actually benefit employees personally. So, as you mentioned, those kind of talent mapping and development tools where they use AI, they really achieve a number of objectives.

They familiarize employees with AI tools because they're actually using them, so that kind of drives their AIQ if you like, and it also benefits them personally. So, it makes those tools less scary and just sort of more familiar. And it shows the benefits for everyone.

And absolutely, from the employer standpoint you can improve your talent, mobility, your talent retention and partake in the transformation that we all will need, because of course the skills that we have today will not be the skills that we'll need in five, certainly not in 10 years. 

Carrillo: Yeah, no, absolutely. And I think as we also think about the aging population and the workforce population coming in, it's going to be a different skill set, but also there is a smaller population of workers coming in than the population of workers that are retiring in the future. And I think AI is going to be an important part of ensuring that the work that needs to be done, can still be done with a smaller workforce population.

So, I know one of the areas that we focus on is also, I agree with you, kind of the routine tasks, the things where it's not replacing a human, it's supplementing a human to lift them up, to help them take on other things. So, like routine IT tasks or financial you know, operational items that are really more manual or routine in nature. Have you seen any trends in that, success areas and that, or things that you guys see coming? 

Berdak: So there are lots of, of course, use cases for AI. I mentioned some of the broader AI use cases. If we go into Gen AI in particular, I think there's hope for a lot more, whether that's through just kind of productivity gains, as you said, but also specific functions. Think about marketing, digital, for them this is about creating loads of images, copy that they can test with customers, do lots of iterating on and just pick the ones that are best. So that's kind of one area around marketing, custom experience, design, and so on. There's a whole other area that we call sort of TuringBots, which is about software development and using Gen AI to generate code.

Of course you need to be careful. Mistakes happen. That said you know; developers make mistakes too. So that's why we have quality controls in place to deal with those. So that's the second area. And I think in banking in particular, there's hope that because there's a lot of legacy code and a lot of legacy systems that that might help alleviate some of those skill challenges because, you know, there's only that many people in the world who can maybe still program and understand some of the older programming languages. So, that's sort of another area of opportunity. 

And going forwards there's a lot around personalized communication, but also customer service being able to analyze in real time. Transcripts from customer calls and being able to understand what happened so that next time the customer calls and maybe the problem hadn't been resolved, and they're speaking to a different person you can actually understand what had happened without, you know, having to listen to another 30-minute call that your colleague maybe completed. 

So, it's a lot of the tools that will summarize those kinds of interactions, complaints, emails, and really bring insights to the front and enable customer service representatives to help more effectively, and faster than they can now.

Carrillo: Yeah, I know we've started to use some of those functionalities, those transcription functionalities, just in our day-to-day jobs if we have meetings when we turn on the AI assistant, it's going to transcript, summarize and tell us what our takeaways were, and we've really seen the accuracy improving on those. They've been very helpful in kind of reducing that, you know, administrative task of someone having to summarize and send the follow up out afterwards. It really takes out half of the work for you. So that's really interesting to see that we're using it on the back end, but also on the front end for customers and enhancing that experience that, you know, the customer service reps are giving their customers.

How hard is it for traditional banks to see those results from the backend investments, as opposed to more of those digital first players? I know we were talking about DBS and kind of also not with DBS, but other banks, all of this legacy technology that they have. How hard do you think it is? What do you think are the keys for them to really show this investment that is actually returning something when it really does take years to be able to show that sometimes? 

Berdak: So I think you're right that it can take years and it's not a small amount of money. I think some of the issues are if you have legacy systems, there have been historically very different approaches to tackling that, but we have so many sort of modern architectural principles around APIs and microservices and containers and sort of cloud native solutions that is really improving that situation. And we're seeing more and more banks take that approach where maybe they're kind of migrating some of the solutions onto those sort of next generation systems. 

In the past three years, if you think about just the US, JPMorgan Chase, Navy Federal, Credit Union have embraced this cloud native modular core banking systems to yes, innovate products and services, but also reduce cost. 

If I think too close to where I'm based in Italy, one of their biggest banks, Intesa San Paolo, actually also deployed a next generation platform for the digital bank. And thanks to that, actually achieved a cost to income ratio of less than 30 percent, which is really unheard of in the banking space. So, there is money to be made here. It's just about how you will really approach this because it's a lot easier to, of course, do that in the new digital bank than it is transforming yourself.

So, Chase's approach here is great because maybe you focus on a specific region or business segment which allows you to minimize risk and prove that business case and show those returns on investment. 

Carrillo: Yeah, absolutely. Prove it out in the smaller case and then continue to expand as you get that buy in and people see the benefit.

I'd love to flip back to customer experience because I know that last year Forrester predicted that the global average customer experience would improve for the first time in three years, but in financial services, it's still falling. Not necessarily consistent with other markets. So, let's talk about the role of technology in customer experience failures. I know we talked a little bit about AI transcription, but how do you see digital banks doing it better on the CX front and how do traditional banks with legacy tech start to compete with that? 

Berdak: So it's a great question and I have to already admit that indeed our prediction was not correct, but we have seen the sort of stagnating CX, and then falling CX, and of course again this year we saw that it fell further. This is a trend that is happening globally. So, we're seeing it in Australia and Europe and the US. And we are seeing it also across other industries. And there are a number of sort of hypothesis we have why this is the case. 

So, one of them is that on the back, you know, during COVID a lot of customers felt quite supported. There was a lot of empathy and help, not just from banks, but from a lot of firms really trying to help customers in need and maybe put any sort of repayments on pause, and really a lot of support. And of course, in the last year, last two years or so, we've had high inflation, cost of living crisis, a lot of businesses trying to bolster their profitability by raising those prices. If you think about insurance here in the UK where I am based, we've seen car insurance premiums rise by something like 80 percent in the last three years. It's really a staggering amount.

So, this creates a feeling on the side of customers that those businesses are not on their side. That there is a bit of a polarity here in terms of what customers want and what businesses are doing, and this mismatch between customer expectations and what is happening is what we think leads to deteriorating customer experience results.

Now digital banks are an interesting case because a lot of them haven't seen the same. So, we see that digital banks often deliver better customer experience as rated by those customers, their customers, and they do that in a number of ways. So, they are very laser focused on the things that their customers care about. 

So, we know from all of our survey data that customers who bank with digital banks, they really care about ease of use, great mobile apps, web and mobile app, they also care about great sort of prices and fees, which makes a lot of sense. And if you're a bank that has very good cost to income ratio, I mentioned easy bank, this is a digital bank of one of the incumbents in Italy in Tessa, but it has a 30 percent cost to income ratio. If you have that kind of result, then it's a lot easier for you to pass on higher interest rates on savings for instance, so you can compete more effectively on price. 

And of course, if you don't have the same level of complexity legacy, but also kind of the slowness of developing new products and services, then you can also compete more effectively on that ease of engagement. Because you can open accounts faster, you can innovate products and services, you can deliver a really easy experience for customers and technology has a lot of roles to play here, right? You can leverage technology to speed up identity verification and authentication and how customers interact and offer real time reconciliation.

So, there are lots of benefits that you can provide to customers that incumbent banks sort of struggle to provide. 

Carrillo: Yeah, no, that's interesting how some of it is just not necessarily the actual service, but the feeling of that empathy and that support based on prices and services that were offered.

You know, because we think about what else can traditional banks do? What else can they do as they try to move forward into this new technology frontier, to gain access to the same capabilities, what else can they do? But some of it comes down to, it sounds like almost the human emotion component of it, which, that's so interesting to me. 

Berdak: Absolutely, I mean, we measure customer experience in terms of three things: ease, effectiveness, and emotion. So, if you think about it, effectiveness is about, can I actually achieve what I wanted? Can I do and accomplish the task that I've set out to do? And then second, ease is like, how easy was that interaction, that engagement? But the third one, emotion, is actually most impactful when it comes to CX and customer loyalty. And that is, how did that make me feel? 

Because let's take a hypothetical scenario. You know, maybe you want to dispute a transaction. Perhaps you managed to dispute a transaction, but perhaps it was really difficult and took you navigating through multiple pages and 30 minutes on the call to someone. And perhaps it was really really difficult and made you feel, you know, not felt like respected and feel a lot of uncertainty. So, all of these things are very important, but that emotional component is the most important aspect of CX.

Carrillo: That's interesting. How are you seeing AI in some of this technology? Because I know how we talk about effectiveness and efficiency and how it helps that. But how are you guys seeing AI potentially play into that emotion part and helping banks address that piece of the puzzle? 

Berdak: So that's another interesting question because of course there is, with digitization, there is this temptation to just, what we would call right channel customers, you know, close all your branches, try to migrate customers to digital channels. And that might be a good strategy in terms of cost because of course, branches cost centers are expensive to maintain. But if you're a traditional brand where customers have got used to and rely on that kind of human contact, that can have bad consequences because we haven't seen yet many banks successfully embed emotion into those digital interactions.

So, we see in our customer experience index that hybrid experiences are typically much better in terms of driving those emotionally positive interactions with customers. So, if you think about it from an AI perspective, what you might be able to do is yes, you want customers maybe to start their journey in digital channels. Maybe they're looking at a mortgage and comparing product offerings and trying to think, decide what's right for them, but then maybe where they call up then maybe it's a customer service agent, but with a bit of an AI sort of whisper that tells him or her, okay, which product might be right for this customer.

The challenge that customer agents now have is often they're trying to navigate, you know, loads of different products and provide advice on the go, and actually some of those AI tools are very good in terms of knowledge management and identifying the right solution and suggesting it. And you have a human in the loop who makes the customer feel great, but also those efficiency tools that help the customer service rep deliver that.

So that's kind of one potential opportunity. We do think that, of course, AI will get better and become more, move towards kind of conversational banking. So, if you think about Bank of America and their Erica tool, this is a bit like that virtual assistant that kind of sits there in the background and increasingly the way you navigate the mobile banking app is through those conversational interfaces, and they also suggest things to you proactively.

And they're there as almost like your financial assistant helping you. Capital one, you know, is another of those examples where there's this tool just sitting there analyzing your transactions. And maybe if you made a mistake and tipped a hundred percent, it can say “Oh did you mean to tip that much?” to act as a bit of your assistant in a way that a human banker cannot.

So, there are lots of opportunities for both those hybrid experiences, but also purely digital experiences where AI can enable you to have that personal financial assistant that sits out there and sort of monitors your finances and helps you make the right decisions. 

Carrillo: Yeah. And I think that's interesting because the home loan is such a good example. There is such a range of financial transactions that people engage in, in their life and some of them feel like more personal. Getting the loan, the right loan for your home, that feels more personal than you know, okay, how do I reconcile my bank statement? Or is this charge something I really did?

And I think that is really key, like you said, about figuring out which of those experiences someone needs to feel that support, and that emotion, and engage more with their institution based on where that falls on that spectrum. So, I think that was, I really like that example. I think that resonates, you know, even for me, who is you know, someone who comes from a finance background, I feel financially savvy, but when I'm getting a loan for my home, I want to talk to a person. Not sure that's where I feel comfortable with Erica in the background telling me what I should do. And, you know, so I think that's a great point for, you know, so many people out there.

Maybe let's switch topics a little bit to open banking. That is something that we are hearing more and more about. I know you guys have a lot of thought leadership out there on that, and that there's some changes as Apple Pay launches open banking in the UK. The US we believe is set to follow fairly shortly.

What do you see as the future of this bank owned, you know, banking interface? Can you talk to us a little bit about what's happening in the space in the UK and the global trends? And where do you see some of these tech giants moving in that space?

Berdak: So open banking is very interesting because it's been around for a while. Maybe we didn't always call it the same way. So, if I think about a place like the US, obviously open banking has been here but not driven by the regulators, right? So there always been data and account aggregation, and you could use a variety of tools like mint.com to aggregate your accounts and have that sort of single view of all your accounts, predict your cashflow and net worth, and use that as a basis for better financial decisions.

What has happened though, is that we probably have reached the limit of what can happen when those developments are driven by the market. So, in the US of course, the Consumer Financial Protection Bureau last year proposed new rules on personal financial data rights.

And that is really there to drive more competition, to drive common standards for secure data sharing of customers and so on. And we think that that will just accelerate and sort of put fuel to this pocket of open banking in the US. If I look at other markets, like you know, India and Brazil, I mean, they are very advanced in terms of open banking, including through their real time, payments infrastructure and have really sort of open banking payments, and account to account payments in a way that a lot of markets do not.

And then you have Europe, which again, has all of the things that the US has, the data sharing, the requirement that all banks make it possible for customers to share securely their data with whoever. But also, open banking payments, so account to account payments, which allow a customer to really bypass card if they want and just make direct payments through accounts-to-accounts payments.

So, what you were talking about with Apple pay. So, what happened in the UK last November is that Apple Pay just said, okay, now not only can you add your cards, debit cards, credit cards to your Apple Pay wallet, but you can actually link your accounts to the same wallet, and those cards that you have stored in the wallet.

That means that for instance, if you're thinking about paying for something with a debit card, but you don't know if you have quite enough funds on that account, you can instantly check it in the same wallet before you decide which card you're going to use. So, you can see your transaction history, you can see your balances and you know, that's a potentially risky situation because a lot of banks of course rely on the customer going to their own mobile banking app to do all of these activities. 

So, there is this fairly justified fear that, you know, if Apple or any other tech titan can offer all of these account servicing and payments capabilities then what's the role of banks in all of this? Yes, they provide the accounts, they run the transactions, they have the payment rails, but the interface becomes Apple pay. 

Carrillo: Right. Absolutely. That Apple is who you're now looking to, as opposed to needing to go to your bank in order to gain that information, which, I guess information is power in this situation.

I think I can, I'm thinking, oh my goodness, how are banks technology stacks even really set up to compete with this? Do you think that the current technology that banks have right now is ready to support this type of seamless integration? To either provide something that can compete with this or even just provide the information to these open banking platforms, you know, as it becomes a requirement?

Berdak: So in places like Europe, where banks have, ever since payment services directive have had to offer account information and payments as an API. So, they've had to build this, so they have to be able to do this. In the US this has historically happened through screen scraping, which is obviously a less reliable, less secure technology.

And of course, the new rule will probably change that. And there are some already proto standards emerging. So, everybody I think is building more of an API based approach and thinking more strategically ideally, I hope so, at least they should. If I'm going to do this, I don't want to do it just for compliance purposes. I want to build this because that gives me an opportunity to start thinking about, okay, how can I basically commercialize some of these APIs? Some of them are a regulatory requirement and I have to deliver them. But if I'm going to make that change and invest in that kind of architecture, what else can I deliver you know, as a service? Which other data account servicing capabilities, maybe identity verification which historically someone like Capital One has done, you know, what else can I deliver basically as an API to maybe innovate my products and services and open up dev exchanges that others can built on and kind of consume APIs.

So, I think it's a very exciting time because it's both a bit of a threat, but also an opportunity to think differently about your capabilities. 

Carrillo: Yeah. And also, to think about how do I make sure that I still have access to the customer insights and the analysis that I need if they are interacting with a different tool, as they look at the information that I'm providing.

That's, that's so interesting. We'll have to keep up with how this plays out in the UK as you guys go through this to think about what we should all be focused on in the US as well. So, this has been great and I really, I think I want to close this interview about future gazing in financial services with the question about ultimate future gazers among us, the CFO. 

So, Deloitte has talked about the exponential CFO as a way to describe the rapid expansion of role and breadth of skills that's required now for the CFO office. In your opinion what are some of those top priorities that CFOs need to think about as they move forward in such a rapidly changing technology environment?

Is it partnering more with the CIO? Is it, you know, big data analytics? Is it just automation? What do you think CFOs, as they adopt this new role that just keeps expanding, should be focused on?

Berdak: I think a very good grounding in technology is vital, right? Because some of the things we're talking about; digital products, commercializing APIs, new sources of revenue and income that is not just net interest margin, but maybe, you know, digital product income. Understanding all of this, trying to kind of grasp the opportunity, size it and think about like, what that might be and how much income that's going to bring in the future, what investments are required.

All of this is absolutely vital and the same in terms of partnering on some of those ROI calculations. Yes, we need investments in some of the underlying technology. They can bring a fantastic sort of reduction in cost to income ratios and so on. 

So, I think there is a lot that banks can do by leveraging the technology and that partnership between the CFO and the CIO in particular, I think can yield a lot of those results but only if it's like a true partnership, really. 

Carrillo: Yeah, absolutely. Leveraging the expertise of the CIO with the CFO brain of how can I monetize this? How can I make this an additional revenue stream? I think that's become very apparent through this discussion that a good solid understanding of technology, even if you're not the CIO, but sit in the CFO suite is going to be very critical going forward for success. 

Well, this has been a great discussion. We've been talking about the future for FSI with Oliwia Berdak, Vice President, Research Director at Forrester. And if you enjoyed what you heard today, be sure to follow us wherever you're listening today. 

Oliwia, thank you again for joining us. And remember that you can find our entire catalogue at workday.com/podcasts. I'm your host, Nicole Carrillo, and I hope you have a great Workday. 

Berdak: Thanks so much, Nicole.