Challenges in

AI adoption
EBA Virtual Workshop | Keynote Speech
29 October 2020

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Many organizations, including leaders, are falling short of
their goals of obtaining value from Big Data and Advanced Analytics

Detailed next

8% 48% 74%

Only 8% of organizations … and a staggering 48% said Among leading organizations

recently surveyed1 said they are they are neutral or ineffective1 across industries, 72% noted
“very effective” at reaching their managing data among the top
primary objectives on data and challenges preventing them from
analytics scaling data and analytics impact2

Managing data and its supporting technology is one of the top barriers organizations are facing –
Value quantification is key to prioritize activities
1. McKinsey Quarterly survey in March 2019: “How effective has your organization been at reaching the primary objective of its data and analytics activities?”
2. Survey of members invited to McKinsey’s Advanced Data and Analytics Roundtable in October 2019

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The potential of Big Data and AA is enormous at banks

Value tree Use cases Typical Impact

Next product to buy +30% Sales uptick

Client financial 1-to-1 pricing +50 bps Deposit margin

profitability Leakage reduction +5-7% Fee income

Revenue Pricing for wholesale +10% EVA

growth Churn reduction analytics -20% Churn rate
Client acquisition
and retention Customer experience +5 pp CSAT score
Collateral sampling +20% Equity
Value to Risk losses Early warning systems -25% Gross NPL inflow
business Credit collection 2% Increased recovery for NPL loans
Risk control
Fraud losses Fraud detection +15% Fraud detection

Operational Geospatial analytics -10% Location costs

costs Robotics optimization -20% Back office costs
Efficiency
HR Predictive HR 2x Motivation score

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COVID-19 crisis has even accelerated their deployment to propel
banks to growth
Six imperatives financial institutions are reflecting on

Follow the customer Get fitter for tough times Protect (and grow) the bank
1 2 3 4 5 6

Innovate new products Lock in the shift to digital Create a structurally Reset the organization Double down on risk and Rebalance the business
and propositions sales & service, and leaner and scalable cost and technology for speed capital management mix and seek targeted
reshape physical base M&A deals
distribution

Launch propositions around Pivot to a digital-first model Drive a 20 to 30 percent Organize as a portfolio of Minimize risk cost by Carve out noncore assets
new customer needs for sales & service net-cost saving internal start-ups proactively managing NPLs
Seek M&A for cost
Explore new sources of fee Scale up remote advice in Make costs more flexible to Create more flexibility in the Strategically steer through synergies or capabilities
revenue complex retail, wealth and cope with volatility workforce the coming recapitalization
commercial wave
Build new digital Zero-base the business Bite the bullet on core
businesses Reshape physical technology modernization
distribution

… plus one reflection Make purpose-

driven business
Pioneer new social contract
Reflect values in the business and operating model
choices
Steer through culture

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Most financial institutions are situated on one of three horizons in
terms of their analytics journey

Horizon 3
Horizon 2
Horizon 1

Recognize the need for Establish the right operating

analytics Align on analytics strategy model

Financial …in the preliminary stages of …with an analytics plan, but an … with broad advanced
institutions... digital and analytics evolution unstructured approach to analytics adoption, but struggle
achieve value to accelerate value delivery

Typical Need to build awareness / buy- Lack well articulated plan to Balance between business as
challenges in at senior levels drive impact or capture value usual and innovation

Lack framework and relevant Lack capabilities, tools for Lack continuous adoption of
solutions to prioritize initiatives faster and scalable execution best practices across
industries

Source: Mck Analytics McKinsey & Company 5

Organizations often face common pain points on their journey
to analytics impact at scale …

Unstructured Monitoring
Pace of Creating trust and low Deploying models Resources
experimentation in insights quality data to production post-release and expertise

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… and tend to overlook
significant unintended Individuals
(or maliciously Physical safety Privacy and reputation
intended) consequences Digital safety Financial health
Equity and fair treatment

Organizations
Financial performance Non-financial performance
Legal and compliance Reputational integrity

Society
National security Political stability
Economic stability Infrastructure integrity

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Big Data and Advanced Analytics are transforming
the risk landscape
Illustrative Example

Different way and scale

Impact of manifestation for existing Increasing importance
category risk types of new risk types

Transparency of use
Bias or unfair
discrimination
Lack of Accuracy/Output
product suitability Explainability
consistency

Relevant risk Adverse

service experience
types 3rd Party
Complexity
Malintent/Misuse Dependence

Confidentiality, digital safety Data/Input uncertainty

and customer privacy

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Hence, the deployment of Big Data and Advanced
Analytics requires fundamental actions
Illustrative Examples

Vision and Develop an overall vision and ambition, underpinned with a simple strategy,
strategy as well as a clear and prioritized roadmap for execution

Risk Develop a thorough risk management framework to assess and oversee

oversight data and AA risks, without creating a new roadblock for innovation
framework Set the principles for ethical use of AA … and operationalise it

Engagement Define "Compliance by design" approach for AA development; incorporating

model required controls/testing as part of the data and AA lifecycles
Design processes so they explicitly address ethical issues
Reshape business and control function oversight engagement model
in an ‘agile’ context

Capabilities Build analytical capabilities in the business and control function teams
and tooling (both in 1st and 2nd LOD teams), source talents
Adapt validation framework to address AA model risks

Culture Build ethical training into all the roles in the development process
Communicate expectations for ethical use of data and AA

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 Frédéric is a Partner in McKinsey’s Brussels office and has more than 20 years of experience
in banking and risk management. As a core leader of the firm’s Risk and Resilience Practice
in France and Benelux, he has led numerous engagements serving global financial
institutions, focusing on strategy and risk transformation programs, digital innovation,
analytics, leadership, and organization.

Frédéric is also a leader of Risk Dynamics, the risk analytics arm of McKinsey worldwide.
Over the past decade, he has been instrumental in Risk Dynamics’ growth across European
and Middle Eastern markets and recently created the Risk Dynamics hub in Paris.

A core member of the McKinsey Public Sector Institutions Group, Frederic serves national
and supranational institutions, and contributes to public debates on financial stability. He
regularly facilitates executive trainings and is a speaker at key industry events, including Risk
Minds International and the G-20Y Summit.

Frédéric Van Weyenbergh His recent work and research relate to de-risking analytics transformation, protecting financial
institutions from risks posed by the increased use of big data and advanced analytics, and
Partner, McKinsey & Company advising public authorities on the topic given the exponential growth of analytics adoption.
Brussels
Frédéric holds a master’s degree in business administration from Louvain School of
Management, a master’s degree in financial risk management from Université Saint-Louis -
Bruxelles, a master’s degree in enterprise resource planning from Solvay Brussels School of
[email protected]
Economics and Management, and a bachelor’s degree in philosophy from Université Saint-
Louis, Bruxelles.

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