In this engaging panel discussion, the panelists explore the evolving landscape of banking with a focus on technological transformation and digital banking initiatives. Milton represents ITAU, a bank that sees itself as a tech company with significant investments in digitalization, agile processes, and cloud systems. ITAU's efforts allow it to compete head-to-head with digital companies by fostering an innovative culture that emphasizes technology and agility. Conversely, Pier Paolo discusses his experience with a younger digital-first bank that operates in Argentina, Mexico, and Colombia and highlights the importance of having full banking licenses in these regions to offer competitive, cost-effective services.

The discussion covers the role of AI and machine learning in enhancing banking operations, highlighting their use in improving developer productivity and crafting personalized credit scoring systems. Pier Paolo and Milton share insights on AI's transformation of customer service and credit modeling, illustrating the importance of handling data responsibly and strategically. They agree on the necessity of education in financial services to promote better understanding and use of products, especially in regions like Latin America where many remain unbanked.

Takeaways from the video:

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Key Vocabularies and Common Phrases:

1. transformation [ˌtrænsfərˈmeɪʃən] - (noun) - A marked change in form, nature, or appearance. - Synonyms: (change, conversion, metamorphosis)

We've been making a huge transformation inside the organization because technology has been changing a lot.

2. hyper personalization [ˈhaɪpər pərˌsɒnəlaɪˈzeɪʃən] - (noun) - Creating tailor-made experiences and products for consumers through the use of data and technology. - Synonyms: (customization, personalization, individuation)

We somehow changed from this era of transformation to the era of hyper personalization for clients.

3. legacy systems [ˈlɛɡəsi ˈsɪstəmz] - (noun) - Outdated computer systems or applications that are still in use. - Synonyms: (old systems, outdated technology, obsolete systems)

We've been able to migrate almost 70% of our legacy systems to cloud.

4. agile method [ˈædʒaɪl ˈmɛθəd] - (noun) - An approach to project management often used in software development, promoting flexible responses to change. - Synonyms: (nimble approach, adaptive method, iterative method)

We have today 23,000 people working in squads, in tribes, in agile method.

5. proprietary [prəˈpraɪəˌtɛri] - (adjective) - Of or relating to an owner or ownership; owned by a private individual or corporation. - Synonyms: (exclusive, private, patented)

So we have our own proprietary credit scoring system, especially targeting countries like Mexico and Argentina.

6. guardrails [ˈɡɑːrdˌreɪlz] - (noun) - Safety structures or systems designed to keep processes within designated boundaries. - Synonyms: (safeguards, protections, safety measures)

We are creating our own guardrails, our own framework to have these responsible AI.

7. digitize [ˈdɪdʒɪˌtaɪz] - (verb) - To convert (information) into a digital format. - Synonyms: (digitalize, encode, computerize)

But there's a lot of work to be done, there are a lot of processes to digitize.

8. unbanked [ʌnˈbæŋkt] - (adjective) - Referring to people or sectors that do not have access to traditional financial services. - Synonyms: (financially excluded, non-banking, cash-dependent)

That's almost two Argentinas unbanked in Mexico today.

9. financial literacy [faɪˈnænʃəl ˈlɪtərəsi] - (noun) - The ability to understand and use various financial skills, including personal financial management, budgeting, and investing. - Synonyms: (financial knowledge, money management skills, fiscal education)

Teaching financial literacy, reducing the cost of basic financial services, digitizing payments or mobile banking.

10. monoliner [ˈmɒnəˌlaɪnər] - (noun) - A company or service that provides a single type of financial product or service. - Synonyms: (single-service provider, niche service, specialized service)

We are migrating 15 million clients that have an experience as a monoliner with us to a super app.

Building the Bank of the Future

And thank you to our two panelists for being here with us on this great event. So we are going to talk about building the bank of the future. Big topic. Milton, I want to start with you. You have described ITAU as a tech company. Can you tell us a little bit more about that? And kind of are traditional banks now positioning themselves as the new tech companies? Yes. Well, thank you. First of all, it's a pleasure to be here. Pier Paolo, nice to join here with you in this panel. It's important to say, I think the first message is that we are celebrating 100 years old this year. That means that for 100 years we've been doing a lot in the financial industry and we've been making a huge transformation inside the organization because technology has been changing a lot. The way you do business, the way you empower your client, the cell phones, the pandemic, somehow accelerate this digital transformation process.

We made the decision at a certain point that we could make a digital bank separate from the big bank. We are not only a retail bank, we are a full bank from wholesale to retail. And we decided that if we do that, at the end of the day, we wouldn't learn how to transform ourselves and to make the bank much more digital, with a different culture, with a different client perspective, much less client centric. So we decided to transform the big bank. And this is a journey that we started, I would say five to six years now. And we are very happy about this decision. So looking now a few years later down the road, we've been able to migrate almost 70% of our legacy systems to cloud. I think you will find just a few examples, if you do, around the globe, that banks of our size that made this huge transformation. But it's not only technology, it's culture, it's the way you work the agile process inside the organization.

And all we did is at scale. So we have today 23,000 people working in squads, in tribes, in agile method. We have 70% of our systems running in cloud, and we have around 17,000 people working in technology. So that's why I say today that we have changed a lot. The mix of our businesses and also the mix of our internal employees. And that's why I say that we are able to compete today head to head. We still have a lot of work to do and we are doing our homework, but we are able to compete head to head with any digital company today due to this investment we've been making throughout those years.

Thank you. So, Pier Paulo, what about your take on your much different operation. Right. How do you approach it? We just turned 7 years old, so we have a long way to go. But the reality is that we come from a very different place. We started as a fintech in Argentina back in 2017, and now we operate in Argentina, in Mexico and in Colombia by virtue of this market. We started as a fintech, but we reached the conclusion a couple of years in that it was absolutely necessary to have full banking licenses. So now we have a full bank license in Argentina, full bank license in Mexico, and a full bank license in Colombia. We're digital first and digital only. And that allows us to run around 8 million accounts with 1500 people. And so we add a quarter million clients a month. In general, over half of that is organic.

And our whole value proposition is centered on the idea that especially in places like Argentina and Mexico, and obviously Brazil is different because of the success of digitization in this amazing country. In Argentina and in Mexico, we operate with lower than 90% costs than our incumbent competitors. So we have the same license. So we have parity of license, but our cost to serve is 90% lower, whereas our cost of funding is the same as a retail bank. And so this gives us an amazing opportunity to create a digital first ecosystem that goes in payments, starts there, but then it goes to credit investments, merchant acquiring.

And we hope to include new parts of our global ecosystem and then to also increase the footprint beyond Argentina, Mexico and Colombia. How are you using AI? And so we use AI for a variety of things, although most of the things that people call AI are actually just machine learning, but we understand the value of marketing, so we are also going to call it AI. And so in general, you know, there's, there's a part of the process that is about helping developers be more efficient. It helps the best developers be 30% better. And so the difference between a mediocre developer and a great developer is widened by the fact that they're both 30% more efficient. So that's one part that's been operating for a while, and the other part, where it's really transformational is on the data we use for credit modeling.

So we have our own Wallet score, which are proprietary credit scoring system, especially targeting countries like Mexico and Argentina, where most of the bureau data is very bad, unlike Brazil. And so we build our own AI is included in that. We use 100 different data sources to inform our credit model. And that helps us make better credit decisions, more credit, lower rate for more people, and that helps there. And then it's transformational for customer service and so I'm not ready to share more on that yet. But before the end of the year we're going to announce something big in that space because we think there's a huge opportunity for machine learning and for AI specifically conversational models to transform customer service in the future.

We're already seeing it in Europe and the United States and I think that in Latin America is absolutely necessary because in 10 years there's not going to be any unbanked people. So we need to serve those people. And in order to serve those people, we need to use technology for the most important moment, which is when they need to talk to somebody to help them. And what about at iTau, Milton? I know you use a lot of AI as iTau customer. I do know you use a lot, but how does it play in and what else do you see coming here? Yeah, I think I was mentioning before about our transformation and we somehow changed from this era of transformation to the era of hyper personalization for clients.

So we are becoming much more data centric bank. We've migrated all our data to cloud and we have this data mesh architecture and throughout the organization AI of course it's a discipline that we have been discussing centralized in the executive committee. So everybody needs to understand about the power and the opportunity in AI. We just came from Seattle, we spent a few days in Seattle, the full executive committee of the bank, in Amazon, in Microsoft, having discussions and going deep in where are the opportunities. And we are releasing around the bank a lot of tests in all the areas, businesses, areas processes, areas legal department, call centers and we are finding a lot of huge impact.

We're talking about the developers which is very important. I was talking about the 17,000 develops. We have 8,8000 developers today that use that GitHub platform of Microsoft and today we are top three in the world in terms of utilizing this platform. That means that when we compare ourselves and the other two companies are software companies. So we've been gaining a lot of productive to make this transformation and to work in this hipper personalization era, which for us it's very sensitive and we have been testing AI throughout the bank. But we do have a lot of work and we are creating our own guardrails, our own framework to have these responsible AI.

That for us is very important, especially in a bank like us. So you have to take a lot of care and how do you interact with clients, what messages, what consultancy and AI is doing? So we've been building Guard Rails which is much more infrastructure and today we have the power to release a lot of solutions with a lot of control. And it's been amazing, the journey. And I think this has been changing a lot. The productive, the ux, the experience of the clients throughout every experience. Investment, digital channels, you can predict fraud, you can predict client behavior, and you can go back to your client with better solutions. It's really amazing.

And I think this will be huge for all the industries around the globe. Are you using it, as Pier Paulo was saying, to kind of assign a credit score more precisely as well as well, we used to. Until today, we have a lot of machine learning inside the organization. And now we are testing AI in all areas. So what I have with my team is that every business, every meeting, they have to talk about the business as usual. But all of them needs to bring one area where they are deploying and testing and learning about AI.

So that's a cultural change, because everybody needs to understand that they have to learn about it. They don't have to be afraid. They have to incorporate this skill in the organization to make it scale. I think one thing that has come, we're talking about cultural change in Latin America. And kind of in tandem with that, we're seeing the region go cashless. Right. Which is interesting since, you know, in Mexico the rates of people that actually have bank accounts is very low still. Right.

And in Brazil it's been climbing, but it's still low. Where. What are the implications of this cashless society? What are the barriers still ahead? Well, the first thing to think about is that we may talk about cashless, but 50% of the adults in Latin America have never had a bank account. And so if you don't have the. If you don't give people the possibility to have a debit card and build a credit history, they'll never have access to credit, they'll never be able to save for retirement, they'll never protect themselves against inflation. And so the opportunity is huge. So we need to give everybody an account.

It's unbelievable. When we launched In Argentina in 2017, almost every bank charged an opening fee and a maintenance fee just to have an account. And that is changing, but that hasn't changed everywhere. And so even after the pandemic in Mexico, more than 85% of transactions are still cash. You have 80 million people who are totally unbanked. That's almost two Argentinas unbanked in Mexico today. And there's only 50 banks in all of Mexico. So we're the only digital player that has a full bank license. We'll have more than 2 million clients just this year. And we think the opportunity in a place like Mexico is enormous. But there's a lot of work to be done, there are a lot of processes to digitize.

And I think in that sense, Brazil is the beacon of the region because you have a very open central bank that has been pushing competition Peaks is the envy of Latin America, if not the world. And I think in that context, I think there's a lot of growth for the rest of the region. And so we think in Argentina and Mexico and in Colombia, we see the future as extremely exciting. And you know, as I mentioned, we have almost around 8 million customers, 9 million customers today. I mean that will more than double in the next three years. Yeah. And one thing that comes with cashless and with people entering the bank system is the importance of financial education. Right.

And financial inclusion. So you know the drill by now. We're going to have a poll that's going to come up here, QR code that you can scan what the most effective way to increase financial inclusion is. And I want your take on this as well. Teaching financial literacy, reducing the cost of basic financial services, digitizing payments or mobile banking. All the above. Sorry. What do you think Myotal? I think somehow the mobile banking needs to have a different role than it used to have in the past. In the past it was a lot of product centric and we follow this data approach, AI and this hyper personalization that we've been talking about. You can become a consultant of your clients.

So you have to change the idea that a bank, it's a place where you sell products, you have to make the product be part of the client journey. So you have to make the client's life much easier so he doesn't need to learn each product, each moment, how it works. But if you put the product inside a context, inside a journey that for the client, he wants to acquire a car or he wants to pay a bill. So if he's financing or buying a credit card or a revolving credit, you don't need to explain each product for the client. You need to give the client the right solution for that moment. So I think you can use through the mobile, and this is what we've been doing lately. We are migrating 15 million clients that have an experience as a monoliner with us to a super app.

And it's what's our expectation here. We can deliver the bank a full bank experience to the client. Much more in our context, using data, AI and all the technology available to deliver to this client. Much more solutions for his needs than simply saying you have many apps to interact with it all, you have many products to buy within it all. This is not the approach. And I think this, for me, it's a very relevant angle that we've been working with. All right, you have to choose one. Pier Paulo, all of the above cannot. I mean, we are deeply committed to financial literacy.

And so we make available Outlaw, which is a solution for digital financial education for everyone. And we're not selling products there, we're just educating the market because we believe in open competition and we believe that in financial inclusion. That's why we started the company. And that's part of the values of the company in the sense that I really believe that in Latin America it cannot be that 50% of the adults are outside of the system. That's a debt of our democracies with our societies, and we need to fix that. And so I think the opportunity for really digitizing payments is essential. But you need to have education with that. So if you have to choose one, I'll go with the A. And I think from what I can see in that very small print on the back of the room, I think that's the majority of the answers as well, right? Teaching financial literacy. So great. Thank you for participating there.

One thing I want to ask about this topic is kind of the risks associated with you now lending to this population. We see it often in Brazil, right, People taking on credit card debt and they don't realize that they have to pay that money later and at much, much, much higher rates. So how do you account for these risks of including this whole segment of the population in the bank? Now it's a great question because if you look a very short term cycle, the past three to four years, you will see that in Brazil, we came to after the pandemic to a situation where you used to have 1.1.4 credit cards per person. Nowadays you might see 5 to 6 credit card per person. And why is that? First of all, digitalization. Second of all, you can acquire a credit card, very simple. You can go through a mobile and you can acquire your credit card, no fees. So it's very simple for a person that has no education to get access to credit.

And this is part of our responsibility because sometimes the best thing to do is not to grant a credit for some people that it's with his income, very compromised, very leveraged. So we take credit very responsibly and we look long term to guarantee that the clients will be resilient. Throughout the cycles, not only the good cycles. So we saw a huge indebtedness of the population. And even though a lot of those credit cards, they don't charge fees, if you look the interest rate they charge from the clients is much bigger than from the traditional banks, let's put this way. So it's somehow misleading because you are selling a product to your client and many others are doing the same.

So you have to understand with the data you have available to guarantee that you are providing the correct credit and how you're going to behave throughout a cycle. And this is part of what we do for 100 years now. We talk about inclusion and sometimes it seems that the financial inclusion started 10 years ago, it started 100 years ago. So throughout our life, all we did was to include more and more people inside the organization. But now the technology allows you to be much more cheap and to get to other places where you couldn't throughout a branch. And the way you would bring clients and offer credit in the past with throughout the branches, the physical branches, and we've been changing that for the digital approach.

And I believe that running a credit cycle, very responsible, with appetite, very well defined through the organizations, with the board of directors, with the management, gives you the guardrails you need to guarantee that you are responsibly granting credit every day. But as more efficient you are and as lower as your cost to serve, higher risk you can take. But it goes up to a certain point, we don't agree a lot with that conclusion, that the NPV is the way to grant credit because out of a certain risk you don't receive the credit anymore and you might be only postponing a problem that you might have.

And Pierpaolo, I'm going to add a bunch of questions to that because we're running out of time and I have many questions still. I want to know how you're seeing this, particularly in Mexico, which is your biggest market and where I believe you see the most growth. Yep. Right. And then I want to ask you about your home country. Sure. No, I mean, we see, we see a great opportunity in Mexico. In Argentina, after 10 years of very high inflation, private debt to GDP is 4%. 4. Like it's less than a tenth of Brazil. And so the big problem in Argentina is that nobody has access to credit because for 20 years the banks just lend to the government and they didn't lend to people.

So that's why it's so important for us to have our own proprietary credit score, which we now have operating In Mexico as well. Mexico is around 20% private GP, radically different than Brazil. And so the opportunity of giving people access to credit at good rates with good data is incredible. That's why I think, if you ask me, what's the most valuable part of Walla, it's our credit score. And we use 100 data sources because we cannot rely on the old credit bureaus because they don't have the data because people were not included. And you can ask me about Argentina if you want. What's your take on. So, you know, I think.

I think the 21st century is made for Argentina. If you look at energy, if you look at tech, if you look at mining, if you look at agro, historically we have an amazing opportunity. Obviously, we're coming from 20 years where Argentina has massively underperformed, not just Brazil, but the rest of the region, especially in inflation. And I think there's a very strong political and social demand for inflation to be controlled, just as it was in Brazil, just as it was in Chile, in Uruguay, in Mexico. And I think that's a huge opportunity. And for us, that's the opening up of a whole market.

Today we're launching the first ever fully free dollar account in Argentina for everyone. So a full bank account, fully free, no opening fees, maintenance fees or renewal fees, because people want to transact in dollars, they shouldn't be obliged to transact in dollars, but they should be allowed to transact in dollars. And I think that if Argentina manages to bring down inflation sustainably and the structural reforms that the government is passing are definitely opening up the market for more direct investment from the world, I think that's a huge opportunity, not just for Argentina, but for the whole region at a time when it doesn't take much to be the most pro market country in Latam.

Perfect. All right. I think, unfortunately, that's all the time we had. So we'll end on that high note on Argentina. Thank you. Thank you, everyone. And thank you. You too. Thank you very much. Thank you.

Technology, Finance, Innovation, Digital Banking, Artificial Intelligence, Latin America, Bloomberg Live