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“With all due respect, Chairman Bernanke…” E-mail

How Watson can help community banks with the lending challenge
 
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Jeopardy’s Alex Trebek, l., welcomes Watson and its human competitors. 
 
April 15, 2011

 

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Shanker Ramamurthy

By Shanker Ramamurthy, GM of Banking and Financial Markets, IBM and Srini Giridhar, IBM IBV Banking Lead

 

Addressing an audience of community bankers last month, Fed Chairman Ben Bernanke said that he wouldn’t trust IBM’s Watson computer to judge the credit worthiness of local businesses or homebuyers—asserting that relationship banking is, and always will be, king.

What community bankers have over computers and machines is the human connection—nothing can substitute what personal experience and local knowledge can do for decision-making—especially when making character judgments. IBM has served as the leading technology provider to the financial services industry for more than 100 years, and even we can’t argue with that.
 

 

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Fed Chairman Ben Bernanke

Where Watson-like technology can help is in making the job easier to weigh risk, visualize credit patterns and gauge their impact on regulation and compliance. One of the biggest challenges banks face today is figuring out who their most credit-worthy customers are and meeting their credit needs. Simultaneously, banks have to balance their loan risks against new and stringent regulatory and capital requirements that constrain profitability.

The reality is that consumer credit today is a moving target. Someone who may have been deemed a good candidate for a loan ten months ago, may not be in as good standing as before due to shifting employment and economic conditions. Analyzing an applicant’s past credit and loan history may not be enough to make an accurate assessment of someone’s risk profile.

Historically, banks have been adept at analyzing structured data, but growing sources of unstructured data from the internet, live news feeds, and social media channels are proving to be an entirely different ballgame. Imagine if three different families are planning a vacation together, and are communicating with each other on a popular social networking site about the need to increase their savings to support various excursions and activities. A system like Watson can help a bank manager better understand that need and propose new financial solutions to meet the group’s collective needs.

This new breed of sophisticated analytics can take data from thousands of different streams and make linkages between customers and products that may have been traditionally difficult to see. The capability of a system making logical connections from disparate pieces of information is revolutionary.

The intent of Watson-like technologies is not designed to replace humans, but to accentuate human decision-making. It still takes human interaction to assess the data and make judgment calls on it. We’re confident in saying that this type of technology will empower banks to make better business decisions and ultimately lead to superior outcomes for both banks and their customers. From developing the first electronic calculator to one of the earliest ATM machines, IBM has built core technology platforms that serve as the heart of modern-day banking for the express purpose of helping banks better serve their customers.
Banks that are consistently able to balance the risks and rewards in lending will not only benefit from an uptick of business, but will also see higher customer satisfaction rates. And that is when we will all benefit.
 
[This article was posted on April 15, 2011, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2011 by the American Bankers Association.]
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