OPERATIONS & TECHNOLOGY CONFERENCE & EXHIBITION • SEPTEMBER 11-13, 2017 • THE WESTIN CHARLOTTE • CHARLOTTE, NCOperations & Technology Conference and ExhibitionThe Future is Here: Do You Have the Tools Necessary?

September 11–13, 2017 The Westin Charlotte Charlotte, North Carolina

HANDOUTS

What is Cognitive Computing? & What are Financial Services Firms Doing With It?

Wes HelmsWatson Financial Services Solutions

Games Provide a Laboratory for Reasoning

Technology forces…

Cognitive & Analytics CloudFinTechs & Digital

…are creating new experiences…

Experience journey Digital ubiquity Omnichannel

…and disrupting operational models.

Traditional value chain Ecosystem

Robotics & AutomationBlockchain

Technology is driving the evolution and creation of new business models in Financial Services

SecurityInternet of Things

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The digital explosion of content makes it impossible for humans to make sense of it all

TODAY

STRUCTUREDDATA

UNSTRUCTUREDDATA

Cognitive is the newcompetitive advantage.

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AI = Augmented Intelligence

Cognitive computing is about amplifying human cognition.

Cognitive systems are not programmed. They learn their

behavior through training.

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Cognitive systems are creating a new partnership between humans and technology

Humans excel at:common sense (but with many biases), morals, imagination, compassion, dilemmas, abstraction, dreaming, generalization, expertise

Cognitive systems excel at:Locating knowledge, natural language, pattern identification machine learning, eliminating biases, providing endless capacity

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What are some problems that a cognitive businessis ideally suited to solve?

How to keep up with the mountains of contextual data available to you, even when most of it is unstructured in format

Data

Complexity

Volatility

How to overcome and solve for great complexity by giving the skill and knowledge of the informed few to the empowered many

How to keep up with the mountains of contextual data available to you, even

when most of it is unstructured in format

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A cognitive business has systems that can enhance digital intelligenceexponentially.

They can reason, grasp underlying concepts, form hypotheses, and infer and extract ideas.

Understand Reason

Learn Interact

Cognitive systems understand imagery, language and other unstructured data like humans do

With abilities to see, talk and hear, cognitive systems interact with humans in a natural way.

With each data point, interaction and outcome, they develop and sharpen expertise, so they never stop learning.

Descriptive Analytics

Prescriptive Analytics

Predictive Analytics

What happened?

What exactly is the

problem?

How many, how often,

where?

What actions are needed?

How can achieve the

best outcome and address variability? Stochastic

Optimization

How can we achieve the

best outcome?

Optimization

What if these trends

continue? Forecasting

What could happen?

Simulation

What will happen next if? Predictive

Modelling

Analytics Sophistication

Analytics is evolving in sophistication to now encompass Cognitive

Artificial IntelligenceA branch of computer science dealing with the simulation

of intelligent behavior in computers

Cognitive

Machine LearningThe study and construction of algorithms that can learn from and make predictions on data

Deep LearningA branch of machine learning based on a set of algorithms that model multiple layers of

neural networks

Some common AI concepts:Natural Language Processing (NLP) is a core function for parsing and identifying significant words in language

• Uses Annotators to identify significant words• Increasingly used to extract Entities and Relationships into

Knowledge Graphs• Often rule-based, but a growing focus on statistical techniques

Machine Learning is a class of statistical techniques that use training data to recognize the correlation between a set of feature patterns and outcomes

• Enables the prediction of other similar outcomes given a similar pattern of feature values

• Often associated with the problem of identifying the weak signals in the noise that indicate meaningful patterns

Cognitive Systems leverage machine learning to predict meaning in features of human language (spoken, written, visual) and related forms of human reasoning

• Reasoning strategies often employ high-dimensional feature spaces

• A lot of work goes in to identifying and refining appropriate features

Deep Learning is a rapidly maturing space, based on neural network techniques, that are taught to find their own features

• Generally very high dimensional, fed with an arbitrarily high number of primitive signals and left to sort itself out through training data and reinforcement

Artificial Intelligence the theory and development of computer systems able to perform tasks that normally require human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.

• Reasoning, Knowledge, Planning, Learning, NLP (communication), perception and the ability to move and manipulate objects

• Machine mimics "cognitive" functions that humans associate with other human minds, such as "learning" and "problem solving

IBM’s Principles for the Cognitive Era

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Purpose

• Augment human intelligence

• Based not only on principle, but also on science

• Embedded in the processes, systems, products and services by which business and society function – all of which will and should remain within human control

Transparency

• When and for what purpose AI is applied in cognitive solutions

• The major sources of data that inform solutions and the methods to train

• Work with our clients to protect their data and insights, and encourage others to do the same

Skills

• Work to help people acquire skills and knowledge to engage with cognitive systems

• For new work and jobs that will emerge in the cognitive economy

Watson has become a set of Cognitive services available on IBM Bluemix for clients to enable in their apps

Personality Insights

Alchemy Language

Conversation DocumentConversion

Language Translator

Natural Language Classifier

Retrieve & Rank

Tone Analyzer

Language

Speech to Text

Text to Speech

Speech

Visual Recognition

Vision

Tradeoff Analytics

Alchemy Data News

Data Insights

Create natural language interactions with the customer, including Q&A and onboarding.

Walk customers through business processes, e.g. application forms or resetting a password.

Enhance your app with complementary Watson APIs for Empathy and Speech to give it more human-like qualities.

Deploy wherever you want. Integrate bots into messaging channels, mobile, web, robots etc.

Incorporate deep learning and advanced machine learning capabilities with minimal expertise or coding.

Watson Conversation

Watson Virtual Agent - Pre-built content out-of-the-box, pre-trained for customer self-service.

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Watson provides tools to enable custom business domains

What is the rust grade?

”Sounds like …”

Company namesProduct namesMedical termsDrug namesIndustry terms

… and more

CognitiveCustomer Care

• Personalize every interaction

• Conduct conversations

• Provide assurance

Watson Financial Services SolutionsRadically improving client processes with three levels of value & business models

Solutions-as-a-ServiceIndustry Solutions

Developer workbench, micro-servicesDevelopment Marketplace

Process Clouds Business Process as-a-Service

Risk & Compliance

CounterFraud

Client Insight & Engagement

$Payments

2

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OUR PEOPLE & PROCESS

YOURDATA

WATSON WITH

SHARED MODELS

& LEARNING

OUR SYSTEMS

OUR SYSTEMS

SHAREDDATA

YOUR DATAYOUR

DATA

OUR SYSTEMS

WATSON WITH

INDEPENDENT MODELS & LEARNING

WATSON WITH SHARED

MODELS & LEARNING

OUR PEOPLE & PROCESS

OUR PEOPLE & PROCESS

Industry Platforms will provide an opportunity to reduce costs, while improving effectiveness and accuracyTODAY

$ $ $ $ $$ $ $ $ $

$ $ $ $ $$ $ $ $ $

1OUR

PEOPLE & PROCESS

YOUR DATA

YOUR SYSTEMS

$ $ $ $ $$ $ $ $ $

$ $ $ $ $$ $ $ $ $

$ $ $ $ $$ $ $ $ $

Generating Insight

COGNITIVE SERVICESTailored News and Alerts

Email Tone AnalyzerPsychographic Personality Insights

CHURN PROPENSITY ANALYSIS

Total Customer ChurnHoldings Churn

PRODUCT / UPSELL PROPENSITY

Credit CardInvestment Theme AffinityWealth Services Affinity

BEHAVIOR-BASED SEGMENTATION

Dynamic Client Segments Using Interactions and Behaviors

LIFE EVENT PREDICTION

BabyMarriage

RelocationJob ChangeRetirement© 2017 International Business Machines Corporation - CONFIDENTIAL

Insight use cases using pre developed analytics models

CASHFLOW ANALYSIS & FINANCIAL EVENT PREDICTION

OverdraftLarge Deposit

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• Identifies attrition risk, potential life events and product propensities

• Indicates reasoning and recommendations

• Client psychographic profile and insights • Prioritized news based on portfolio

Client Insights for Wealth Management provides every FA with a Predictive, Prescriptive, Cognitive Assistant

Client Attrition: Ability to predict client attrition 30 days ahead of time to protect revenue and wallet share, while also building profound client loyalty

Dynamic Segmentation: Advanced dynamic client segmentation helps identify unique cohorts of clients by behaviors, account profile information, and demographics

Life Event Prediction: Predict life events impacting client’s financial lives to help advisors proactively service a client’s needs

Product Propensities and Investment theme Affinity: More effectively run campaigns by identifying client product propensities, investment theme affinities, and life events – driving new business opportunities

Cognitive Assist: Watson-powered summarized news on portfolio, client interests, sentiment on client communications, client psychographic profile

Feedback Mechanism: Machine learning technology trains, learns, and adapts to your clients and their data

API-Driven: Consumable via APIs to embed insight components in your existing front office platform

A Salesforce Wealth Management Offering that leverages Components of IBM’s Watson Client Insight for Wealth Management

Managing Risk and Compliance

Opportunities to Improve Regulatory Compliance with Cognitive

Regulatory Change Management

Know YourCustomer

Anti-MoneyLaundering

Misconduct Surveillance

Address constantly changing regulations and manage control requirements more effectively

Streamline customer due diligence and remediation activities

Enable more effective identification and investigation of suspicious transactions

Identify potential misconduct more effectively

35©Copyright Promontory Financial Group, an IBM Company. All rights reserved.

Examples of manual or semi-manual processes include the following:

Credit Processes Currently Require Significant Manual Processes

Process Type of Data Description

Reviewing Prospectuses for 40 Act (1940 Investment Companies Act) Mutual Funds

Unstructured

For example, Fidelity will allocate trades to the 100+ mutual funds. Each fund prospectus must be read to determine key data, Assets under Management, Permitted Investments, Investment strategy.

Collecting monthly Net Asset Values (NAVs) for Hedge funds Unstructured

Monthly NAV data from hedge funds is delivered in multiple forms, emails, PDFs, web sites, etc. and is typically aggregated each month by strategy and force ranked by performance.

Checking for compliance with covenants in ISDA or other Master Netting Agreements

UnstructuredMaintenance covenants are included to the Schedule to the ISDA (i.e. minimum, NAV, permitted % decline in performance). These need to be compared to the NAVs collected above.

Checking for compliance with key terms and conditions/covenants in commercial Loan Agreements

UnstructuredSimilar to above. Credit analysts extract key terms and covenants from loan agreement to include in the Credit Application and for on-going monitoring.

Regulatory Guidance requires an independent review of third party real estate appraisals

UnstructuredAppraisals are typically received in PDF or similar. Extracting data is a cut & paste effort. Also, capturing market data across appraisals would be a useful database.

Reviewing Focus Reports for Regulated Broker-Dealers Structured

Focus reports are highly structured reports – and are not publically available. Credit analysis extract (copy & paste) data from Focus reports into Credit Memos.

Reviewing Call Reports for Regulated Depository institutions

Structured Call Reports are very structured. Other vendors (SNL) provide extracts of Call Report data to subscribers.

Surveillance Insight for Financial Services

Holistic and cognitive insights to detect, profile and prioritize complex financial

crime scenarios

Integrates insights from transaction, electronic communication, social media & voice data

detects anomaly sequences from multiple sources

scales to billions of events with near real-time alerts

H o l i s t i cS u r ve i l l a n c e

Hol i s t i cSurve i l l ance

Cognit iveReasoning

Intu i t iveVisual izat ion

effective visualanalytics

monitoring and replay capabilities

H o l i s t i cS u r ve i l l a n c e

C o g n i t i veR e a s o n i n greasons withcontinuouslyupdated datamodels

remembers long-term observations over time

analyzes sentiments, semantics, & behaviors

Fuse insights to detect suspicious activities

View linkages with instant drill-down & playbacks Build employee profiles with personality & behavior traits See alerts & investigationsfrom continuously updated risk models

OrderTrade

ExecutionReference

NewsSocial

EmailChat

Voice

Reduced cost of employee non-compliance & misconduct

Faster detection of sophisticated scenarios

Risk based prioritization of alerts and reduced false positives

Transactions

Communications

External

Surveillance

Trader Profiling to not only protect against risk but to identify best practice and opportunities for

growth

Surveillance Insights for Financial Services

Watson for Legal in FSS – Outside Counsel Insights

PerformanceDashboard

Outlier and segmentanalysis

Invoice drilldownand anomaly detection

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